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The geographic and societal diffusion of the illicit production of methamphetamine (meth)has spread hazardous manufacturing wastes, and related concerns, into communities nationwide. The need to reduce the potential safety, health, and environmental hazards of these wastes, bycleaning and remediating the sites of illicit production, consequently also has spread nationwide. "Clean-up" is the term often used to describe removing gross, or large-scale, contaminants, such asequipment and large quantities of chemicals; clean-up is usually done for the purpose of securingevidence for criminal investigations, and for reducing imminent hazards such as explosions or fires. "Remediation" is often used to describe removing residual, or small-scale, contaminants such aschemical residues in carpeting or walls, usually for the purpose of rehabilitating a facility forreoccupancy or reuse. While there are many ways to make meth, the most common way begins withover-the-counter medications containing pseudoephedrine or ephedrine, (1) and often involves cookingwith acetone, hydrochloric acid, sodium hydroxide, ether, and anhydrous ammonia to seriallyconcentrate and purify the meth. Cooking meth, which can result in eye and respiratory irritations,chemical burns, explosions and fires, toxic waste products, and contaminated surroundings, can bedangerous to the meth "cook," to the people and community around the lab, and to those persons whofirst come upon the lab, such as fire fighters, law enforcement officials, emergency medicaltechnicians, or social welfare workers. There are reports of emergency medical technicians andpolice officers suffering burns, eye and respiratory irritations, nausea, and other injuries not just atmeth labs, but even from treating persons removed from the labs. (2) Depending on the process used and the skill of the cook, each pound of meth produces aboutsix pounds of hazardous waste. Illicit meth "cooks" usually dump this waste into sewers, streams,rivers, or the ground near the lab (which may be farmland, or land over groundwater supplies), alonghighways, in parks and forests, or on hiking trails. Water used to extinguish lab fires also carriestoxic chemicals into the environment. Cooking meth can also infuse carpeting, walls, furniture,water supplies, and the ground with toxic chemicals. (3) Residues of meth have been measured as high as 16,000micrograms per 100 square centimeters of surface, with levels as high as 300 micrograms per 100square centimeters as long as six months after the last cook, sometimes far from the actual cookingarea. (4) While health effects on a user from direct use of meth have been well-studied, long-termhealth-effects research on exposures to substances associated with illicit meth production has justrecently begun. Such health-effects research considers impacts on children, as well as on adults, whomight be in the vicinity of a meth-making site. There are no uniform federal guidelines or standards governing the clean-up or remediationof former meth sites, either for meth residues themselves, or for chemicals related to illicit methproduction, partly because there is a lack of health-effects research upon which to base suchguidelines or standards. "Guidelines," as used in this report, are discretionary recommendations,often using the word "should." "Standards" are mandatory, nondiscretionary regulations which mustbe followed, often denoted by words like "shall" or "prohibited." Guidelines may be developed byregulators into more stringent standards. There generally have been four main approaches to cleaning meth sites. The United StatesEnvironmental Protection Agency (EPA) can respond directly when a pollutant or contaminant atan STL site presents an imminent or substantial danger to public health or welfare, but most STLsdo not rise to this level. (5) For most STLs, state and local governments can pay to clean a meth site, then apply to EPA forreimbursement which is capped at $25,000 per incident. Alternatively, rather than pay directly forclean-up and later apply for reimbursement from EPA, state and local governments instead can notifythe United States Drug Enforcement Administration (DEA), in the United States Department ofJustice, and DEA will take responsibility and arrange for clean-up. In addition, there have beenfunds available from the Department of Housing and Urban Development (HUD) to redevelop ofa former meth site. The approaches to remediate meth sites are more variable, involving private, local, and statedecisions. Remediation is an additional cost, after clean-up. Neither EPA nor DEA funds areavailable for remediation. Owners of contaminated private property, e.g., an apartment building ora motel, need to decide whether remediation is sensible; remediation cost estimates may exceed thevalue of the property. Local or state governments need to decide whether to remediate or restrictaccess to a contaminated public area, e.g., a hiking trail or parking lot in a forest. Remediation isdiscussed further in the section below on "Clean-up and Remediation Procedures." Remediation costs vary, depending on the severity of contamination with meth and/ormeth-related compounds. The average cost to clean a meth lab is estimated to range from $1,500to $3,000, with some clean-ups exceeding $200,000. (6) The cost of remediating an average-size site has been estimatedat $50,000, according to the U.S. Department of Justice. (7) Several factors contribute to the geographic and societal diffusion of illicit meth productionand use. Methamphetamine (meth) is a Schedule II narcotic under the Controlled Substances Act(CSA), Title II of the Comprehensive Drug Abuse Prevention and Control Act of 1970. CSAregulates the manufacture and distribution of drugs, and places all drugs into one of five schedules. A drug in Schedule II, like meth, has current accepted medical use and has high potential forabuse. (8) Meth has limitedmedical uses for the treatment of narcolepsy, attention deficit disorders, and obesity. (9) This report focuses on illicituse and production of meth, and subsequent clean-up and remediation issues. Meth production, trafficking, and abuse, in general, are concentrated in the western,southwestern, and midwestern United States. Meth is primarily supplied by clandestine laboratoriesin Mexico and California. There are some "super-labs" (labs capable of producing in excess of tenpounds of meth in one twenty-four hour production cycle) in Mexico and the United Statesproducing meth and other drugs, with vast networks of transporters, distributors, and money brokerswho distribute not only meth, but also cocaine, heroin, marijuana, and MDMA (more commonlyknown as "ecstasy"). While meth made in super-labs is for broad distribution, meth made insmall-scale labs tends to be for personal use or limited distribution. Successful closure in the UnitedStates of some super-labs, the relative ease of producing meth, the continuing demand for the drug,and the desire for potential wealth and involvement in a criminal underground social activity,contributed to an increase, through 2003, in meth production in small clandestine labs, also knownas small, toxic labs (STLs). (10) Official data aggregate the numbers of meth labs, dump sites,chemicals, glass, and other equipment, and are reported as meth incidents. Since 2003, thenationwide numbers of meth incidents has declined, as shown in Table 1. Table 1. Number of All Meth Incidents (including labs, dump sites, chemicals, glass, andequipment) Source: United States Drug Enforcement Administration, National Clandestine LaboratoryDatabase. "Total of All Meth Clandestine Laboratory Incidents," http://www.dea.gov/concern/map_lab_seizures.html . According to state law enforcement and public health professionals, the decline in meth incidentsthat occurred between 2003 and 2004 was the result of a few factors: Some states and retailers began to institute policies to restrict access tononprescription pseudoephedrine-containing decongestants, a common methingredient. Over time, the number of states and retailers restricting access to methingredients increased, which made the tactic of traveling to a nearby state or store that did not havea policy to restrict access to meth ingredients more difficult. Some pharmaceutical companies reformulated their nonprescriptiondecongestants to exclude pseudoephedrine. Stiffer sentences for those convicted of illegally making meth furtherdiscouraged involvement with STLs. (11) In December 2005, Iowa state authorities reported a decline of approximately 80% followingthe passage, in May 2005, of a state law restricting access to pseudoephedrine. (12) Subsequent to the passageof similar laws, state officials in Oklahoma and Oregon each reported a decline of approximately50%. (13) The declineis expected to be seen nationwide, when complete 2005 data become available. Although only 20% of illicit meth used in the United States comes from STLs, (14) the sheer number of suchlabs, their residual impacts, and their geographic diffusion, have prompted concerns in Congress,state and local governments, law enforcement agencies, and real estate and other groups. There generally are greater concerns about the environmental wastes from STLs than fromsuper-labs, for several reasons. First, there is a trend for super-labs, and their wastes, to be inMexico, where the ingredients for illicit meth can be obtained more easily than in the United States. Second, production processes used in STLs tend to be less efficient than those used in super-labs,and small-scale "cooks" tend more often to be careless, resulting in proportionally morecontaminants (in the meth and in the environment) than production processes in super-labs. Third,while there are fewer super-labs, there are thousands of STLs across the United States:approximately 9,000 domestic small-scale labs with capacities under 10 pounds in 2000, (15) and 17,000 in 2004. (16) Fourth,these small-scalelabs can be geographically scattered among a wide range of sites, such as apartments, motel rooms,abandoned buildings, even packed in car trunks and moved among parks and other locations. Fifth,the range of wastes from STLs can be more varied and unpredictable than super-lab wastes, becausesmall-scale, independent "cooks" may develop a new recipe or use any of a number of meth recipesavailable on the internet. The range of recipes and resulting wastes may be driven by the localavailability of critical ingredients or equipment. The range of substitutes for pure ingredients andsophisticated production equipment may include common items such as decongestants from retailand convenience stores, mason jars, coffee filters, hot plates, pressure cookers, plastic tubing, andgasoline cans. There is a range of residual impacts of small-scale labs. Children of some STL "cooks" havebeen found in residences where their parents were making meth. Meth levels as high as 5,000micrograms per cubic meter of air have been measured during a cook, which "almost ensures thatanyone (including children) in the vicinity of the cook will test positive for meth. Some childrentaken from home meth labs may show permanent damage to their respiratory tracts and possibly totheir nervous systems." (17) The health and social welfare of these children, whether withor removed from their parents, are issues of concern, research, and cost. Further, some meth"cooks," and others in the illicit drug business, have been armed and mentally imbalanced. (18) Consequently, there is arange of residual social impacts associated with STLs. There have been four main ways to clean and redevelop a former meth lab site: two involveEPA, one involves DEA, and the last involves HUD. A local government, state or regional entity, or an individual can notify EPA about a possiblemeth lab. (19) TheAgency will study the site and its findings will help steer the next actions to be taken. For example,under the Comprehensive Environmental Response, Compensation, and Liability Act ( P.L. 96-510 ,also known as CERCLA or Superfund), EPA can respond directly when a pollutant or contaminantmay present an imminent or substantial danger to public health or welfare, taking responsibility forcleaning the site under Superfund. Most STLs do not rise to this level, however, and other actionsmay be taken. (20) A local or state government can choose to clean a meth lab site, paying for costs by itself. The local or state government then can apply to EPA for reimbursement under Section 123 ofCERCLA, via the Local Governments Reimbursement Program. Reimbursement is limited to$25,000 per incident. The numbers of reimbursements and dollar totals are shown in Table 2 . (21) Table 2. United States EPA Local Governments ReimbursementProgram Clandestine Meth Lab Reimbursements Source: Personal communication with EPA in February 2006. The number of applications for reimbursement has been declining in proportion with thenumber of reimbursements, as shown in the table. (22) One possible reason is the relative difficulty of using thisprocess: the state or local government must first incur the clean-up expenses, and then, with properevidence of expended costs, apply to EPA for reimbursement, which, if approved, may be receivedby the state or local government within six months of the Agency's receipt of the application. Asecond possible reason is that this type of reimbursement is capped at $25,000 per incident. Anotherpossible reason relates to another alternate way to clean a meth site: notify DEA. There is growing awareness that DEA has taken responsibility for cleaning meth lab sites,without the need for upfront payment by state or local governments. The numbers of DEA clean-upshave been rising while applications for reimbursement via EPA's program have been declining. DEA clean-ups have been performed by a decreasing number of contractors: e.g., ten in 2001, fourin 2004. The average cost per site generally has been decreasing, largely because of increasingclean-up efficiency resulting from increasing levels of expertise. The numbers of sites and dollartotals are shown in Table 3 . (23) Table 3. United States DEA Meth Lab Clean-Ups andCosts Source: Personal communication with DEA in February 2006. Federal funds to redevelop a former meth production site have been available through HUD'sBrownfields Economic Development Initiative. In its FY2007 budget request, HUD proposes toconsolidate its Brownfields program into its Community Development Block Grant (CDBG)program. (24) There werefunding and other limits in HUD's program; further information may be obtained from HUD'sBrownfields website. (25) How many federal dollars were used, through HUD's Brownfields program, to redevelop formerSTLs cannot be determined, because HUD did not record the nature of the problem that led to thebrownfield. Budget levels for HUD's Brownfields program for FY2005 and FY2006 were, respectively,$24 million and $10 million (with a $10 million rescission). HUD, in its FY2007 budget request,proposes to consolidate its Brownfields program into its CDBG program and has requested $0 forBrownfields. (26) Theportion of CDBG's budget that will be available for redeveloping former meth sites is not specified. Total budget levels for CDBG for FY2005 and 2006 were, respectively, $4.7 billion and $4.2 billion;$3.0 billion has been requested for FY2007. (27) Clean-up and remediation are likely to require special training and equipment. While therecurrently are no uniform clean-up or remediation procedures, the range usually includes one or moreof the following measures: removal of contaminated items which cannot be cleaned (this mayinvolve outdoor as well as indoor items, such as soil, water, carpeting, and wallboard); ventilation;chemical neutralization of residues; washing with appropriate cleaning agents; encapsulation orsealing of contaminants; providing alternate water supplies; and/or controlling access to the site withfencing and signs. Extremely contaminated structures may require demolition, especially if clean-upand remediation costs are projected to exceed the commercial value of the structures. While the decision to clean a meth site is aided by the availability of EPA and DEA fundsfor clean-ups, the decision to remediate a meth site may be more difficult. Neither EPA nor DEAfunds are available for remediation, an additional action and cost after clean-up. An owner of acontaminated private property, e.g., an apartment building or a motel, needs to decide whetherremediation is sensible; remediation cost estimates may exceed the value of the property. An ownermay seek financial assistance for remediation from local or state governments. Local or stategovernments need to decide whether to remediate or simply restrict access to a contaminated publicarea, e.g., a hiking trail or parking lot in a forest. Remediation cost is determined largely by the severity of contamination, but also by thedecision at which level of cleanliness to stop remediation efforts. (28) There are currently no federal guidelines or standards governing clean-up or remediationprocesses. While the endpoints for clean-up are relatively straightforward -- i.e., that sufficientevidence has been procured for successful prosecution and that imminent hazards, such as explosionor fire, have been eliminated -- the endpoints for remediation are less clear. As mentioned earlier,EPA and DEA funds previously described are for clean-ups only. No EPA or DEA funds areavailable for remediation. Nine states (Alaska, Arizona, Arkansas, California, Colorado, Minnesota, Montana,Tennessee, and Washington) have feasibility-based remediation standards specific to meth. Afeasibility-based standard considers costs as a key factor. Levels of meth residue below the standardsare considered acceptable. The nine states' standards range from 0.05 to 0.1 micrograms of meth onevery 100 square centimeters of surface. (29) While some state standards only address residual meth itself,others have acceptable levels for meth-related chemicals, such as volatile organic compounds andcorrosives. (30) Somestates require remediation "to be completed by a state-licensed or otherwise certifiedprofessional." (31) Statesand localities also differ in requirements to notify potential buyers, renters, neighbors, lawenforcement departments, and other governmental agencies, and/or to maintain and make availablepublic records of a facility having been contaminated with meth, and whether the facility wasremediated. (32) While some feasibility-based standards exist, standards based on health effects or risk do not. Standards based on health effects or risk address the question, "to what level do we need to minimize(remediate) a contaminant in order to prevent the average person from having adverse health effects(e.g., become sick)?" (33) Lacking standards based on health effects or risk, states and localities are using the currently limitedresearch information to develop "the appropriate feasibility-based standard that must be met by aclean-up contractor and/or industrial hygienist in order to certify that a property has beendecontaminated." (34) The task of remediating former meth labs is complicated by the lack of uniform standards,for the reasons discussed above: There are currently no uniform federal guidelines for the remediation of formermeth labs. Research on health effects associated with clandestine labs only recently began,so there is currently only limited health-effects information to guide policychoices. Feasibility-based standards, which consider costs, for remediating clan labsexist, but differ among states and localities. Existing feasibility-based standards differ in stringency of clean-up level, needfor certification of clean-up workers, and requirements for reporting and recording the history of afacility's association with meth. (35) The National Alliance for Model State Drug Laws (NAMSDL) is working toward a modelact or model guidelines for the clean-up and remediation of meth lab sites. (36) Members of the Alliancehave noted the need for federally funded short- and long-term health-effects studies, health-basedcleanup standards, and scientifically validated field test-kits, as well as methods forsample-collection and remediation. Having reviewed existing state and local laws, policies,guidelines, and ordinances pertaining to meth lab remediation, NAMSDL released its preliminaryoutline of key components that the Alliance may include in a draft model act or model guidelines: State Agency Authority: oversight of clean-up program (probably withdesignated responsibilities to local health departments in regulation); set requirement for owner toclean property; promulgate related regulation; keep database of properties deemed to becontaminated; keep list of certified contractors and approved laboratories. Notification Responsibilities: making uniform requirements regarding whomust be notified, when, how, and for how long, about the existence and status of a meth lab (likelyparties include first responders, law enforcement, local health officers and departments, buildingcode and local or other property records officials; owners; and the public via signage on the propertyitself). Contractor/Industrial Hygienists: certification; training; site safetyresponsibilities; monitoring of contractors' work. Preliminary Assessment and Work Plan. Decontamination Procedures: for walls, furniture, ventilation systems, varietyof surfaces; waste characterization and disposal. Confirmation of Decontamination: decontamination standards; samplingmethods; laboratory analytical testing. (37) After various reviews and approval by NAMSDL's Board of Directors, the model would bedistributed to Alliance contacts in the states, including governors and attorneys general. The modelalso would be posted on NAMSDL's website ( http://www.natlalliance.org ). (38) In the 109th Congress, 11 bills authorize funds to help local and state governments pay forcleaning former meth production sites. One bill provides for research and development ofremediation standards and other related activities. H.R. 4763 , the Methamphetamine Eradication Act, authorizes funds for theCOPS Program, the Byrne Formula Grant Program, DEA, EPA Local Governments ReimbursementProgram, and Department of Transportation, for remediation actions, equipment, and training. H.R. 3324 and S. 430 , the Arrest Methamphetamine Act of2005 , authorizes funds for the COPS Program and provides authority to the Attorney General,through the Bureau of Justice Assistance, to make grants to States to undertake meth clandestine labenvironmental clean-ups. H.R. 3889 , the Metheamphetamine Epidemic Elimination Act , authorizesfunds to reimburse DEA for remediation activities. H.R. 3199 , the USA Patriot Improvement and Reauthorization Act of2005 , became P.L. 109-177 on March 9, 2006. Authorized to be appropriated each fiscal year 2006through 2010 are $99 million to reimburse DEA for remediation work and to support state and localenvironmental meth-related activities, among other things. H.R. 1446 , the Methamphetamine Abuse Prevention Act of 2005 , expandsauthority to include the hiring of personnel and the purchasing of equipment for cleaning STLs. H.R. 314 and S. 103 , the Combat Meth Act of 2005 , wouldamend the Omnibus Crime Control and Safe Streets Act of 1968 to authorize the use of grant fundsto hire personnel and purchase equipment to assist in cleaning methamphetamine-affected areas. H.R. 13 , the Clean, Learn, Educate, Abolish, Neutralize, and UndermineProduction (CLEAN-UP) of Methamphetamines Act, authorizes funds for grants, through theSecretary of Labor and Occupational Safety and Health Administration, to state and local lawenforcement for training and equipment acquisition for cleaning former meth lab sites; funds for theUnited States Department of Agriculture to clean former STLs; and funds, through DEA, for meth-related training activities. S. 2118 , To Amend the USA Patriot Act , extends certain provisions of theAct to March 31, 2006, and authorizes funds to reimburse DEA for clean-up expenses. S. 259 , the Federal Emergency Meth Lab Cleanup Funding Act of 2005 ,would make funding available from the Department of the Treasury Forfeiture Fund for payment todesignated state, local, or tribal law enforcement, environmental, or health entities for experts andconsultants needed to clean areas formerly used as meth labs. It would also provide that if a methlaboratory is located on private property not more than 90% of the costs may be paid only if theproperty owner (1) did not have knowledge of the existence or operation of such laboratory beforethe law enforcement action to close it or (2) notifies law enforcement not later than 24 hours afterdiscovering the existence of such laboratory. H.R. 798 , the Methamphetamine Remediation Research Act of 2005 ,passed by the House on December 13, 2005, would require the Assistant Administrator for Researchand Development of EPA to establish (1) voluntary guidelines, based on the best currently availablescientific knowledge, for the remediation of former meth laboratories, including guidelines regardingpreliminary site assessment and the remediation of residual contaminants, and (2) a program ofresearch to support the development and revision of such guidelines. It also would direct theAssistant Administrator to (1) periodically convene a conference of appropriate state agencies, aswell as individuals or organizations involved in research and other activities directly related to theenvironmental or biological impacts of former meth laboratories, and (2) enter into an arrangementwith the National Academy of Sciences for a study of the status and quality of research on theresidual effects of meth laboratories. H.R. 798 also would require the Director of theNational Institute of Standards and Technology to support a research program to develop (1) newmeth detection technologies, with an emphasis on field test kits and site detection, and (2)appropriate standard reference materials and validation procedures for meth detection testing.
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Methamphetamine (meth), a drug with limited medical use and high potential for abuse andaddiction, is a subject of widespread concern. Once associated mainly with the West Coast andwhite, male, blue-collar workers, illicit meth is now used by diverse population groups nationwide,with concentrations in the West, Southwest, and Midwest. Meth is supplied primarily by clandestinelabs in California and Mexico. The drug is relatively simple to make from easily obtained recipes,but access to certain ingredients has become more difficult. Meth production in small, toxic labs(STLs) increased initially due to the successful closure of some "super-labs" (labs capable of makingmore than 10 pounds of meth in a 24-hour cycle), relative ease of making meth, continuing demandfor the drug, and desire for potential wealth and involvement in a criminal underground socialactivity. Although the greater fraction of meth used and distributed across the nation comes fromsuper-labs, the sheer number of STLs, their geographic diffusion, and their residual impacts haveprompted concern in Congress, state and local governments, law enforcement agencies, and realestate and other groups. Meth labs have many significant and widespread residual impacts. According to the UnitedStates Drug Enforcement Administration (DEA), there were 9,092 STLs and related meth sites in2000 and 17,356 in 2003; the number has been declining since. These sites can be found in a widerange of places, such as apartments, motel rooms, abandoned buildings, and packed in car trunks inparks and other locations. Meth makers can use common items such as mason jars, coffee filters,hot plates, over-the-counter medications containing pseudoephedrine or ephedrine (e.g., Sudafed andsome other nonprescription decongestants), acetone, hydrochloric acid, and anhydrous ammonia. Making meth can result in eye and respiratory irritations, chemical burns, explosions and fires, toxicwastes, and contaminated surroundings. Some residual impacts of meth production threaten thehealth and welfare of children removed from meth sites. This report focuses on the residualenvironmental impacts of STLs. Cleaning and remediating a meth site can cost more than $200,000, depending on themagnitude of contamination. State and local governments that incur expenses cleaning a site canapply to the U.S. Environmental Protection Agency (EPA) for reimbursement, up to $25,000 perincident. Alternatively, rather than incur costs and apply for a capped reimbursement, state and localgovernments can notify DEA of a site, and DEA will perform and pay for cleaning. In addition,funds have been available from the Department of Housing and Urban Development (HUD) toredevelop a former meth production site. No uniform federal guidelines or standards exist governing the process or the endpoint forcleaning or remediating STLs. Across various states, acceptable levels of meth residue, afterremediation, range from 0.05 to 0.1 micrograms of meth per 100 square centimeters of surface. Twelve congressional bills, one enacted into law in March, relate broadly to meth site cleaning orremediation. This report will be updated as warranted.
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In the 111 th Congress, Members have introduced several proposals to establish a commission that would make potentially far-reaching recommendations on how to address the federal government's long-term fiscal situation. The proposed commissions might as a group be called "fiscal commissions." Generally speaking, the measures would include Members of Congress as some or most of a commission's membership, provide for a majority of commission members to be appointed by congressional leaders, have varying degrees of partisan balance in membership, and require supermajority votes of commission members to approve recommendations. Each of the bills also would provide special legislative procedures to encourage expedited consideration of a commission's recommendations. This report provides an overview of four of these proposals— S. 2853 , S. 1056 , H.R. 1557 , and S. 276 (listed in order of most recent introduction)—and discusses potential, related issues for Congress. Potential issues for Congress include, among others, whether the use of a commission, coupled with expedited consideration of the commission's proposals, may be appropriate for addressing the federal government's long-term fiscal situation; and, if a commission proposal were considered, how a commission proposal might be structured. The report begins with recent history related to the legislative proposals and brief summaries of the four bills. Next, the report discusses legislative precursors that may help inform assessments of the proposals. Experience with these precursors, which include past commissions and proposals for commissions, appears to have informed how some of the current fiscal commission proposals were designed. Analyses of potential issues for Congress follow thereafter, including discussion of some advantages and disadvantages of using a commission, potential implications of expedited legislative procedures, and matters related to the structure of proposed commissions. Finally, Appendix A provides a more detailed side-by-side comparison of provisions of each bill. Appendix B discusses the long-term fiscal situation and three major entitlement programs—Social Security, Medicare, and Medicaid—that are widely perceived as important for understanding the federal government's long-term fiscal situation. At the end of the report, a table provides a list of CRS subject matter experts who are available to answer questions related to many aspects of these legislative proposals. Observers have expressed concerns for decades about the long-term fiscal situation of the federal government. Amid debates over the direction of federal revenue and spending policies, they focused on the overall balance between revenues and spending as well as on long-term trends for entitlement program spending. Congress routinely faces questions of when and how to address such concerns. In recent years, these concerns have been widespread and considerable. According to the Congressional Budget Office (CBO), "[u]nder current law, the federal budget is on an unsustainable path—meaning that federal debt will continue to grow much faster than the economy over the long run." Shared perception of a problem does not necessarily generate consensus on what should be done to address the problem. Reaching agreement on changes to specific policies is difficult. In addition, policy makers often disagree about the process, sequence, and timing that should be used to make such decisions (e.g., using the regular legislative process or a commission). Matters of process, sequence, and timing are not necessarily neutral. A change of procedures in handling legislative proposals, or in changing the extent of discretion available to the President or agencies, may result in changes to power relationships and the ability to influence which policy choices are implemented. When deciding when or how to address multi-dimensional policy challenges such as the federal government's overall fiscal situation or the restructuring of multiple policies, programs, and agencies, Congress often considers a variety of procedural strategies. Most often, Congress has used the regular legislative process to address difficult problems like reducing the annual budget deficit or making complex organizational changes after a national emergency. The framers of the Constitution, however, established a relatively cautious system for enacting legislation. Perhaps as a consequence of the U.S. system of government, observers sometimes express frustration with perceptions of Congress and the President not addressing policy problems in a timely or sufficient way. Less often, Congress has used alternative approaches. One of these alternatives has been to establish what might be called a "blue-ribbon" commission that reviews multiple agencies, operations, or policies. Such commissions may be used to help identify potential solutions for the federal government as a whole or for individual policy areas (e.g., military installations). At the same time, issues of representation may arise, raising questions of whether commission members will fairly represent all of the interests that should be considered. Much more rarely, Congress has provided for expedited legislative consideration of a commission's recommendations. In recent Congresses, several legislative proposals have been introduced to establish a special commission whose recommendations could have the effect of addressing some, or all, aspects of the federal government's fiscal balance. The proposals have differed in significant ways. All of them, however, provided for a commission that would review multiple agencies and programs and, in some cases, revenue policies. Such a commission then would make recommendations for changes in government operations, policies, and structure. Some of the proposals would have required a commission's recommendations to be considered by Congress under expedited, or "fast-track," procedures, such as prohibitions of amendments. In the 111 th Congress, similar legislation has been discussed and introduced. This category of legislation includes a more specific group of measures that were referred to as "bipartisan process" proposals at a November 2009 Senate Budget Committee hearing. These measures also have been called "fiscal commission" and "deficit commission" proposals. Generally speaking, these proposals focus on addressing the federal government's long-term fiscal situation. The proposals call for some or most of a commission's membership to be Members of Congress, provide for a majority of commission members to be appointed by congressional leaders, have varying degrees of partisan balance in membership, and require supermajority votes of commission members to approve recommendations. Each bill also provides special legislative procedures to encourage expedited consideration of legislation (i.e., a commission's approved recommendations). The special procedures, among other things, would restrict the amendment process, limit floor consideration or debate, and, in some cases, require a supermajority for final chamber passage. The Senate Budget Committee hearing cited specific legislation in this category of commission-related proposals, including, from the 111 th Congress, S. 1056 / H.R. 1557 , the Securing America's Future Economy Commission Act (SAFE Commission Act), which would establish the Securing America's Future Economy Commission (SAFE Commission); from the 111 th Congress, S. 276 , the Social Security and Medicare Solvency Commission Act (SSMSC Act), which would establish a National Commission on Entitlement Solvency (NCES); and from the 110 th Congress, S. 2063 / H.R. 3655 , the Bipartisan Task Force for Responsible Fiscal Action Act of 2007 (BTFRFA Act of 2007), which would have established a Bipartisan Task Force for Responsible Fiscal Action (BTFRFA), and which also became known as the "Conrad-Gregg proposal" after its original Senate sponsors. Senate Budget Committee Chairman Kent Conrad indicated at the November 2009 hearing that he and Ranking Member Judd Gregg soon would release a revised proposal. This measure, S. 2853 , the Bipartisan Task Force for Responsible Fiscal Action Act of 2009 (BTFRFA Act of 2009), was introduced on December 9, 2009. Member statements and press reports suggest that some Members are seeking a legislative vehicle by which such commission legislation could be enacted. After the new Conrad-Gregg proposal was announced, CongressDaily reported that Senator Conrad "and other Democrats are negotiating with Senate Democratic leaders to attach the bill to the legislation needed to increase the debt limit." A recent Wall Street Journal article reported that the "White House was likely to make its own proposal for a panel, which could have less power than the proposed Conrad-Gregg commission." The following section includes brief summaries of the four fiscal commission bills that are the subject of this report. For more detail, see a side-by-side comparison of the legislation in Appendix A . The Bipartisan Task Force for Responsible Fiscal Action (BTFRFA) Act of 2009 would establish a temporary commission with 18 members. Of the 18 members, two would be appointed by the President (one of whom would be the Secretary of the Treasury), and 16 would be appointed by the House and Senate leadership from among Members of Congress. If S. 2853 were enacted, the sitting President were a Democrat, and both chambers of Congress were controlled by Democrats, 10 commission members would be appointed by Democrats (two by the President, four by the Speaker of the House, and four by the Senate majority leader) and eight would be appointed by Republicans (four each by the minority leader of the House and Senate). Sixteen of the commission members would be Members of Congress. The bill would direct the commission to review the "fiscal imbalance" of the federal government, identify factors that affect the long-term fiscal imbalance, analyze potential courses of action, and provide recommendations and legislative language to Congress. The commission report would be voted on between November 3, 2010, and November 9, 2010; would need to be approved by 14 of the 18 commissioners; and could include minority opinions and additional views. S. 2853 would authorize a transfer of $9 million from amounts appropriated or made available and remaining unobligated under Division A of the economic stimulus package that was enacted earlier in 2009. The bill would provide for a staff director, the hiring of additional staff, member travel reimbursements, and contract authority. The bill also would require the public announcement of meeting dates, times, and places; authorize the commission to hold hearings; and prohibit proxy voting. The bill would provide for expedited consideration of the proposed legislation submitted by the commission, including a prohibition on amendments. An affirmative vote of three-fifths of Members, duly chosen and sworn, would be necessary for final chamber passage. The Securing America's Future Economy (SAFE) Commission Act would establish a temporary commission with 18 voting and two non-voting members. Of the 18 voting members, two members would be appointed by the President, while 16 would be appointed by Members of Congress. If S. 1056 were enacted, the sitting President were a Democrat, and Democrats held the majority in both chambers, 10 commission members would be Democrats or would be appointed by Democrats (two presidential appointees, three members each appointed by the Speaker of the House of Representatives and Senate majority leader, and the chairs of the Senate Finance and House Ways and Means Committees), and eight would be Republicans or would be appointed by Republicans (three members each appointed by the Senate and House minority leaders and the ranking members of the Senate Finance and House Ways and Means Committees). Twelve of the commission members would be Members of Congress. The proposal would direct the commission to study and report to the President and Congress, findings, recommendations, and proposed legislative language to address four specific issues: (1) the balance between long-term spending commitments and revenues, (2) desire for increased net national savings, (3) the implications of foreign ownership of U.S. government debt, and (4) increased emphasis on long-term fiscal issues in the federal budget process. In order to submit a legislative proposal to Congress, at least 13 members would need to vote in favor of doing so. Unlike S. 2853 or S. 276 , S. 1056 does not include language that would authorize funding for the commission. To fund the commission, an appropriation or transfer authority would be necessary. The proposal would provide for a director of commission staff, the hiring of additional staff, travel reimbursement for certain members of the commission, and the use of contracts for services. The proposal also would require the commission to hold certain public hearings and give the commission the power to administer oaths to testifying witnesses. The proposal would provide for expedited consideration of the proposed legislation submitted by the commission, including a prohibition on amendments. No special requirement is specified for final passage vote (e.g., supermajority voting requirement). The House version of the SAFE Commission Act, H.R. 1557 , is substantially similar to the Senate version, S. 1056 . H.R. 1557 , however, varies slightly in some respects. For example, H.R. 1557 would have 16 voting and two non-voting commission members. While the two non-voting members would be the same across both bills, the total number of appointments made by Members of Congress would be fewer in the Senate version. If H.R. 1557 were enacted, the sitting President were a Democrat, and Democrats held the majority in both chambers, 10 commission members would be appointed by Democrats (two presidential appointees plus four members each appointed by the Speaker of the House of Representatives and Senate majority leader), and six would be appointed by Republicans (three members each appointed by the Senate and House minority leaders). Four of the commission members would be Members of Congress. Like S. 1056 , H.R. 1557 would direct the commission to study and report to the President and Congress, findings, recommendations, and proposed legislative language to address specific issues. H.R. 1557 , however, provides for a different set of criteria than S. 1056 . Under H.R. 1557 , the commission report would address (1) the unsustainable imbalance between long-term federal spending commitments and projected revenue, (2) the increasing net national savings, (3) the implications of foreign ownership of U.S. government debt instruments, and (4) the improvement of the budget process to place a greater emphasis on long-term fiscal issues. The commission, with at least a three-fourths vote, would also be required to submit a legislative proposal to Congress and the president within 60 days of the submission of the commission's report. Amendments would be limited to the introduction of certain "alternatives" (see Appendix A ), and no special requirement is specified for initial passage vote (e.g., supermajority voting requirement). The Social Security and Medicare Solvency Commission (SSMSC) Act would establish a permanent 15-member commission to study the solvency of Medicare and Social Security. Of the 15 members, the President would appoint seven, including three Democrats (in consultation with Democratic legislative leaders), three Republicans, and one person not affiliated with any political party. The remaining eight members of the commission would be appointed by the Democratic and Republican legislative leaders in the House and Senate (two appointees for each leader). Of the two appointments for each appointing official, one must be a Member of Congress who currently serves on the Senate Finance or House Ways and Means Committees. If congressional leaders appointed commission members of the same political party as each congressional leader, seven Democrats, seven Republicans, and one "unaffiliated" person would be appointed, and at least four members of the commission would be Members of Congress. Commission members initially would serve six-year terms, and subsequent appointees would serve five-year terms. The bill would require the commission to report not later than one year after the date of enactment and every five years thereafter to the President, Congress, the Commissioner of Social Security, and the Administrator of the Centers for Medicare and Medicaid Services. The report would be required to include findings; recommendations resulting from the commission's review of analyses of the long-term actuarial financial condition of the Social Security and Medicare programs; identification of problems that threaten the programs solvency; analysis of potential solutions; and proposed legislative language to ensure the long-term solvency of the programs. For a finding, conclusion, or recommendation to be included in the report, at least 10 votes would be required. The bill would provide for an executive director, the hiring of additional staff, travel reimbursement for members of the commission, and the use of contracts for services. The bill would require the commission to hold certain public hearings, and authorize "such sums as necessary" to fund the commission. It also would create special procedures for the consideration of legislation submitted by the commission, including a limitation to only amendments that are "relevant" to the commission's provisions and a time limit for floor consideration. A vote of three-fifths of Members, duly chosen and sworn, would be necessary to proceed to a vote on initial passage. In the past, Congress has sometimes chosen to establish advisory commissions to study policy problems and report back with advice and legislative recommendations. Over 80 such congressional advisory commissions have been established in the past 20 years. In the realm of commissions that focus on reviewing and restructuring multiple agencies and policies, some previous commissions (and proposals to establish commissions) appear to have informed how some of the fiscal commission proposals that are the subject of this report were designed. The following sections discuss past commissions and proposals that may have informed the design of fiscal commissions that are the subject of this report. Where commissions are perceived to have succeeded (i.e., accomplished desired goals), Congress might explore the extent to which the reasons for that success could apply to the creation of a commission addressing the federal government's long-term fiscal situation. Where such commissions or proposals are perceived to have failed, Congress might consider whether there are "lessons learned" that might be applied. In addition, perspectives on the long-term fiscal situation and three major entitlement programs—Social Security, Medicare, and Medicaid—and previous efforts to address entitlement-related issues through commissions may help inform assessments of fiscal commission proposals. The long-term fiscal situation and major entitlement programs are discussed in Appendix B . A summary of legislative precursors to the commission proposals that are the subject of this report arguably would begin with congressional efforts to reduce the scale and number of U.S. military installations. These efforts resulted in the establishment of commissions to review a relatively narrow area of public policy, compared to the commission proposals examined elsewhere in this report. Base Realignment and Closure (BRAC) commissions have been cited favorably by multiple proponents of the current proposals as a procedural model for accomplishing their desired policy objectives. In the wake of reduced east-west tensions, the collapse of the Warsaw Pact military threat, and the Soviet Union's breakup from the late 1980s until 1991, most analysts agreed that the Department of Defense's (DOD's) base structure was larger than necessary to meet the department's needs. Nevertheless, there were differences concerning which, if any, additional bases should be closed, at what speed, and what criteria should be used for making those decisions. Significantly, the impact of a specific base closing would be keenly felt in one Member of Congress's state or district, but benefits in terms of savings could be spread widely among all citizens and taxpayers. In combination, these two factors—(1) the narrowly felt pain from an individual base closing and (2) the widely diffused benefits from closing many bases to save taxpayer funds—produced strong incentives for coalitions of Members of Congress to bargain in the legislative process to protect many bases from closure. At the same time, there were widespread concerns that, absent restrictions and safeguards, DOD might close, or not close, bases for political reasons. In the past, high-level representatives of DOD, in soliciting congressional support for favored programs, reportedly might have implied that if a Member of Congress voted against the program, a base might be closed in the Member's district. For example, former Representative and House Majority Leader Richard K. Armey said, [t]he fact is, unfortunate as it is, that historically base closings have been used as a point of leverage by administrations, Republican and Democratic administrations, as political leverage over and above Members of Congress to encourage them to vote in a manner that the administration would like. During the late 1980s, several bills were introduced in Congress to relax statutory restrictions that made closing a base difficult. The first enacted proposal was an elaborate framework prescribed by the Defense Authorization Amendments and Base Closure and Realignment Act (1988). The procedure established under that statute—relying on the services of a commission to draw up the Secretary of Defense's recommendations and a fast-track, no-amendment vote—proved so effective that a later statute, the Defense Base Closure and Realignment Act of 1990, created three subsequent Defense Base Closure and Realignment (BRAC) Commissions that operated in 1991, 1993, and 1995. This occurred notwithstanding arguments against the legislation on grounds that bases were closed without the legislation, and that the legislation was an abdication of congressional responsibilities to the executive branch. That said, the statute vested considerable power in both executive and legislative branches in the creation of the commission, and transferred that control to the commission itself once it was established. While the law gave the President the authority to appoint commissioners, it also stated that he "should" consult with the majority and minority leadership in both chambers in appointment of six of its nine members, and all commissioners were subject to the general "advice and consent of the Senate" requirement on all senior political appointees. The statute also spelled out the criteria under which installations were to be evaluated for realignment or closure, and both DOD and the commission were required to adhere to them in crafting their recommendations. The process required the Secretary of Defense to submit his recommendations to the commission by a date certain. The commission was then to review, accept, amend, or reject each of those recommendations and could create recommendations of its own, again by a date certain. The President was authorized only to accept the commission's entire list or return it one time to the commission for reconsideration, stating the basis of his concerns, and the statute placed a deadline on that approval. Upon the commission's resubmittal, the President could reject outright or approve the entire list. Unless Congress passed a joint resolution of disapproval within 45 days of the President's approval, the statute required the Secretary of Defense to implement all approved recommendations by a date certain—six years from the date of presidential approval. In mid-1997, Secretary of Defense William Cohen called for two new rounds of base closures and realignments. He explained that, while four previous rounds had achieved significant savings, it was important to continue the process of closing underutilized facilities. Despite DOD pressure, most Members of Congress were reluctant to support authorization of new base closure legislation, at least for the foreseeable future. A single additional round of base closures was authorized in 2001, to be implemented in 2005 under somewhat different procedures. This new authorization retained the basic form, structure, and process of the previous three rounds, but amendments to the governing statute included, among other provisions, an increase in the number of commissioners from eight to nine (to minimize the likelihood of tie votes on individual recommendations) and the requirement for a supermajority of votes in favor of an installation closure. In addition to providing for a commission and expedited procedures, the BRAC statute required extensive actions to ensure that recommendations were impartial, as objective as possible, and based on expert analysis. It required that the Secretary of Defense turn over documentation used in the drafting of his recommendation list to the commission for its review. It provided for the commission to be supported by a staff of experts, and it also required that the commission's documentation be open for public review. Legislation that was first introduced in the 107 th Congress by Senator Sam Brownback and Representative Todd Tiahrt also might be viewed as a precursor to the commission bills that are the subject of this report. Generally, the proposals would have established a commission to review multiple agencies and programs, required the commission to make recommendations, and required that the recommendations (in the form of draft legislation) be considered by Congress under expedited procedures. Variations on the bills, with somewhat different scopes and provisions, have been introduced or proposed in subsequent Congresses. They appeared as stand-alone bills, components of budget process reform legislation, and presidential proposals. In 2002, Senator Brownback and Representative Tiahrt introduced companion bills to establish a Commission on the Accountability and Review of Federal Agencies (CARFA; S. 2488 / H.R. 5090 ). The legislation would have established a commission of presidentially appointed members. In turn, the commission would have been required to review all executive agencies and programs, except for DOD, and make recommendations for the realignment or elimination of agencies and programs according to some general criteria. The commission's recommendations, in the form of draft legislation, then would have been subject to expedited procedures in Congress. The sponsors compared the legislation with the BRAC process. Neither bill received further action in the 107 th Congress, but versions of the legislation attracted considerably more attention in the next two Congresses. Proponents of different versions of CARFA often compared the proposals to the BRAC commissions, except that the proposed CARFA legislation would have focused on most or all agencies and programs of the executive branch of government. Proponents also argued that the mechanism would eliminate ineffective programs. Critics of CARFA and related legislation argued the proposals would constitute abdication of congressional responsibilities, including the ability to amend legislative proposals, and transfer power to the President by delegating congressional responsibilities to presidential appointees or to appointees primarily chosen by members of the political party of a sitting President. A hearing was held on a Senate version of the legislation in the 108 th Congress ( S. 1668 ). In the 109 th Congress, House leadership reportedly sought to move H.R. 5766 to a floor vote. Floor action was postponed indefinitely, however, reportedly in the face of opposition from Democrats, Republican moderates, and some Republican appropriators. Separately, Senator Judd Gregg, then chairman of the Senate Budget Committee, sponsored S. 3521 (109 th Congress), which included CARFA-like provisions as part of a broader budget reform package. The bill was reported with an amendment in the nature of a substitute. The report argued in support of the provisions, saying that "[p]rudent stewardship of the public's funds requires that Congress make every effort to ferret out wasteful spending and identify redundant activity." During committee markup, then-Ranking Member Kent Conrad proposed amending S. 3521 to strike the CARFA commission language and "[replace] it with the bipartisan membership of the Congressional committees of jurisdiction so that they can do their job," instead of "outsourcing responsibility for our nation's fiscal condition to largely unelected, unaccountable commission members." The amendment was defeated. After being reported, the bill received no further action. Notably, S. 3521 also included provisions that would have established a National Commission on Entitlement Solvency. The latter provisions were similar in some respects to the provisions that were included in S. 2063 of the 110 th Congress, a predecessor to S. 2853 (111 th Congress, one of the measures that is the subject of this report), and S. 276 (111 th Congress, another of the measures that is the subject of this report). Significant differences between the entitlement commission provisions in S. 3521 (109 th Congress) and "task force" provisions of S. 2063 (110 th Congress) and S. 2853 (111 th Congress) included the "task force" measures' requirements that most commission members be Members of Congress and that a larger supermajority be necessary to report and submit recommendations for legislative consideration. The federal government's experience with BRAC commissions appears to have informed development of the various fiscal commission proposals. Each bill provides special legislative procedures to encourage expedited consideration of legislation (i.e., a commission's approved recommendations). The special procedures would, among other things, restrict the amendment process and limit floor consideration or debate. A major difference between BRAC and the fiscal commission proposals, however, is the comparative breadth of the fiscal commissions' intended scopes. Most of the fiscal commission proposals include within the commission's scope all policies that may relate to the federal fiscal balance. As such, it is not clear what policy domains, if any, might fall outside a commission's scope, when drafting legislation for commission approval. In view of the potentially far-reaching scope of a commission's recommendations, some of the fiscal commission proposals' requirements for a supermajority approval by commission members and, if a commission's recommendations were considered by Congress, supermajority vote by each chamber of Congress for initial or final chamber passage, might be viewed as controls intended to channel recommendations toward a broader consensus package. In contrast with BRAC legislation, the various CARFA proposals and related measures were not enacted. Like the fiscal commission proposals that are the subject of this report, the CARFA proposals generally provided for far-reaching scopes, across multiple agencies and programs. The process-related provisions of the CARFA proposals, however, seemed to garner substantial opposition. Some of the criticisms that opponents consistently raised against these proposals were arguments that appointments of commission members would have been substantially subject to the control of the President or to members of one political party. If such arguments were considered to be valid, a combination of the appointment provisions with other process-related provisions, such as simple majority voting by commission members and expedited legislative consideration by Congress, arguably might have had substantial effects on power relationships if the legislation had been enacted. In this light, one of the major differences between the fiscal commission proposals and the CARFA proposals is a movement toward appointment of Members of Congress as commission members, thereby potentially reducing the influence of the President. Another difference is the use of supermajority voting requirements for the commission's recommendations and also for congressional consideration of the commission's recommendations. The supermajority requirements probably would make it necessary to achieve broader compromise, in order to approve recommendations. As with the CARFA proposals, however, it could be argued that special legislative procedures prohibiting amendments and limiting debate might affect power relationships within Congress. In addition, in comparison with use of the regular legislative process, the use of a commission—even one composed primarily of Members—might raise questions whether commission members would be in a position to represent all of the interests that could be considered in the regular legislative process. Decisions about whether to establish and how to structure a commission may have impacts on both policy outcomes and the public choice process in Congress. The following section surveys three general issues that arise from the proposed fiscal commission legislation. First, what are the strengths and weaknesses of using a commission to address long-term fiscal issues, as opposed to the regular legislative process and the existing legislative committee system? Second, what are some implications of using fast-track procedures in conjunction with commission recommendations? Finally, what issues arise from the structural design of the commissions themselves? Throughout American history, Congress has occasionally found congressional advisory commissions to be useful tools in the legislative process. Commissions may be established, among other things, to cope with increases in the scope and complexity of legislation, to forge consensus, to draft bills, to promote inter-party communication, to address issues that do not fall neatly within the jurisdictional boundaries of congressional committees, and to bring together recommendations. These potential advantages may be grouped into five categories: expertise, issue and political complexity, consensus building and reducing partisanship, solving collective action problems, and visibility. Congress may choose to establish a commission when legislators and their staffs do not currently have sufficient knowledge or expertise in a complex policy area. By assembling experts with backgrounds in particular policy areas to focus on a specific mission, legislators can efficiently obtain insight into complex public policy problems. Complex policy issues may cause time management challenges for Congress. Legislators often keep busy schedules and may not have time to deal with intricate or technical policy problems, particularly if the issues require consistent attention over a period of time. A commission can devote itself to a particular issue full-time, and can focus on an individual problem without distraction. Complex policy issues may also create institutional problems, because they do not fall neatly within the jurisdiction of any particular committee in Congress. By virtue of their ad hoc status, commissions may be able to circumvent such issues. Similarly, a commission may allow particular legislation or policy solutions to bypass the traditional development process in Congress, potentially avoiding some of the impediments inherent in a decentralized legislature. Legislators seeking policy changes may be confronted by an array of interests, some in favor of proposed changes and some opposed. When these interests clash, it may become more challenging to reach consensus in the highly structured political institution of the modern Congress. By creating a commission, Congress may be able to place policy debates in a more flexible environment, where congressional and public attention can be developed over time. Solutions to policy problems produced within the normal legislative process may be subject to charges of partisanship. Similar charges may be made against investigations conducted by Congress. Commissions are not necessarily immune from such criticisms. However, the potential for a congressional advisory commission to take on a nonpartisan or bipartisan character may make its findings and recommendations less susceptible to such charges and more politically acceptable to diverse viewpoints. A perception of bipartisanship or nonpartisanship may give a commission's recommendations some credibility, both in Congress and among the public, even when dealing with divisive issues of public policy. Commissions may also give factions space to negotiate compromises in good faith, bypassing maneuvers that may accompany more public negotiations. Similarly, because commission members typically are not elected officials, in some circumstances they may be suited to suggesting unpopular policy solutions. A commission may allow legislators to address collective action problems, situations in which some legislators individually seek to protect the interests of their own district, despite widespread agreement that the collective result of such interests is something none may prefer. Legislators can use a commission to jointly "tie their hands" in such circumstances, allowing general consensus about a particular policy solution to avoid being impeded by individual concerns about the effect or implementation of the solution. The BRAC commissions typically are cited as examples of politically and geographically neutral bodies that made independent decisions about closures of military bases. The list of bases slated for closure by the commission was required to be either accepted or rejected as a whole by Congress, bypassing the potential for amendments to prevent individual bases from being closed, and potentially protecting individual Members from charges that they didn't "save" their district's base. Nonetheless, such "protection" did not necessarily prevent such charges from being made. By establishing a commission, Congress can often provide a highly visible forum for important issues that might otherwise receive less attention from the public. Commissions often are composed of notable public figures, allowing personal prestige to be transferred to policy solutions. Meetings and press releases from a commission may receive significantly more attention in the media than corresponding information coming directly from members of congressional committees. Upon completion of a commission's work product, public attention may be temporarily focused on a topic that otherwise would receive little attention, thus potentially increasing the probability of congressional action within the policy area. Congressional advisory commissions have been criticized by both political and scholarly observers. In addition to criticisms outlined above (where one person's perception of an advantage may be another person's perception of a disadvantage), these criticisms chiefly fall into three groups. First, critics often charge that commissions are an "abdication of responsibility" on the part of legislators. Second, they argue that commissions are undemocratic, often replacing elected legislators with appointed decision-makers who may not have interests that represent public constituencies. Third, critics also argue that commissions are financially inefficient; they are expensive, and their findings often ignored by Congress. Some critics of commissions argue that commissions are primarily created by legislators specifically for "blame avoidance." In this view, Congress uses commissions to distance itself from risky decisions when confronted with controversial issues. By creating a commission, legislators may be able to take credit for addressing a topic of controversy without having to take a substantive position on the topic. If the commission's work is ultimately popular, legislators can take credit for the work. If the commission's work product is unpopular, legislators can shift responsibility to the commission itself. Critics often charge that commissions are undemocratic. This criticism takes three forms. First, commissions may be unrepresentative of the general population; the members of most commissions are not elected and may not reflect all of the public's diverse interests on an issue. Even if commission members are elected officials, they may represent only a subset of the public and may pursue a correspondingly narrower set of goals than might occur through the regular legislative process. Second, commissions lack popular accountability. Unlike Members of Congress, commission members are often insulated from the pressures of elections and public opinion. Finally, commissions may not operate in public; unlike Congress, their meetings, hearings, and investigations may be held in private. A lack of openness or a perception of narrow representation may undermine the legitimacy of a commission's recommendations. A third potential criticism of commissions is that they have high costs and low returns. Congressional commission costs vary widely, ranging from several hundred thousand dollars to over $10 million. Coupled with this objection is the problem of congressional response to the work of a commission. In most cases, Congress is under no obligation to act, or even respond to the work of a commission. If legislators disagree with the results or recommendations of a commission's work, they may simply ignore it. In addition, there is no guarantee that any commission will produce a balanced product. Commission members may have their own agendas, biases, and pressures. Or they may simply produce a mediocre work product. Finally, some commentators argue that advisory boards may create economic and legislative inefficiency if they function as patronage devices, with Members of Congress using commission positions to pay off political debts. It is difficult to estimate the overall cost of any commission. Annual budgets for congressional advisory entities and executive branch federal advisory committees range from tens of thousands of dollars to millions of dollars annually. Overall expenses for any individual advisory entity are dependent on a variety of factors, the most important of which are the number of paid staff and the duration and scope of the commission. Many commissions have few or no full-time staff; others employ large numbers, such as the National Commission on Terrorist Attacks Upon the United States (hereafter 9/11 Commission), which had a full-time paid staff of nearly 80. Secondary factors that may affect commission costs include the number of commissioners, how often the commission meets or holds hearings, whether the commission travels or holds field hearings, and the number and size of publications the commission produces. Expedited or "fast-track" legislative procedures are special procedures that Congress adopts to promote timely committee and floor action on a specifically defined type of bill or resolution. The use of expedited legislative procedures may bring advantages and disadvantages. An observer's policy and procedural objectives may determine whether expedited procedures are advantageous or not. Perceived advantages and disadvantages, therefore, are often in the eye of the beholder. Congress has very rarely provided for the recommendations of a commission to be considered under expedited legislative procedures (e.g., prohibitions on floor amendments). In the case of the BRAC commissions, these instances appear to have been pursued to facilitate action on potentially controversial matters where, nevertheless, there was widespread (1) agreement on the specific nature of needed changes (e.g., closing unneeded military bases); (2) confidence that expert, impartial, and nonpartisan expertise would drive the recommendations; and (3) concern that without expedited procedures, filibusters or vote-trading might undermine the achievement of widely shared congressional goals. Such processes and discrete "decision packages" also may help elected officials to communicate with constituents about difficult trade-offs in a tangible way. Procedural changes also may result in changes to power relationships among Congress, the President, agencies, and other participants in high-stakes legislative, budget, and policy processes. Use of expedited procedures may affect relationships and opportunities for influence within Congress, as well. As noted in another CRS report, "there are a number of characteristics that typify the legislative process—more or less, and more often than not." In general, expedited procedures are, to greater or lesser degrees, inconsistent with five of these characteristics, including the following: (1) committees generally control their agendas, schedules, and workloads; (2) the House and Senate generally consider only measures that have been approved by their committees; (3) a voting majority of Representatives or Senators generally can determine whether a measure will be considered on the floor; (4) setting the floor agenda and the daily schedule generally is a prerogative of the majority party, acting through its leadership; and (5) the House and Senate generally can set conditions for floor debate and amendment that are appropriate for each measure that they consider. Special procedures contained in the fiscal commission bills may be inconsistent with several or all of these characteristics. All of the bills that are the focus of this report would require the commission or task force to submit proposed legislative language for congressional consideration. Each also would create special procedures to encourage expedited consideration of a commission's proposed legislative language. By including expedited procedures, the commission proposals begin to resemble aspects of the BRAC process for Department of Defense installations, insofar as amendments and floor debate would, for the most part, be prohibited. S. 276 stands out from the other proposals, however, in allowing "relevant" amendments. S. 2853 and S. 276 would require three-fifths votes of Members of Congress, duly chosen and sworn, for final passage or to proceed to a vote on initial passage, respectively. The other two proposals, S. 1056 and H.R. 1557 , by contrast, do not include requirements for supermajorities for initial or final chamber passage. The overall structures of each of the proposed commissions are similar in many respects, both to each other and to previous independent advisory entities established by Congress. Specifically, the proposed commissions would all study a particular policy problem, serve in an advisory capacity, and report a work product detailing the findings, conclusions, and recommendations of the commission. That said, each particular proposed commission has unique elements. This section discusses and compares three aspects of the proposed commissions' structures: (1) their membership and appointment structure, (2) the partisan balance of appointments, and (3) supermajority requirements. A more detailed comparison of the provisions of each commission is in Appendix A . Congressionally created commissions use a wide variety of appointment structures. The statutory scheme may designate members of the commission, such as a specific cabinet official or congressional leader. In other cases, selected leaders, often with balance between the parties, appoint commission members. A third common statutory scheme is to have selected leaders, such as committee chairs and ranking members, recommend candidates for appointment to a commission. These leaders may act either in parallel or jointly, and the recommendation may be made either to other congressional leaders, such as the Speaker of the House and President pro tempore of the Senate, or to the President. The decisions made when devising a commission's appointment structure may be significant, particularly concerning Member participation as commissioners. Inclusion of legislators on such panels ensures that Congress will be able to exercise a certain degree of control over the operations or outcome of the entity concerned. At the same time, service by Members on commissions is arguably antithetical to two of the typical rationales for creating a commission in the first place: to reduce the workload of Congress by delegating certain functions to temporary bodies and to produce independent advice. Even in the absence of direct membership on a commission, in drafting the particulars of an appointment scheme, legislators can dictate, to some degree, the measure of autonomy a commission enjoys. For example, although the legislation creating the 9/11 Commission did not stipulate that Members of Congress must be included in the commission's membership, it did call for nine of the 10 members of the commission to be selected by congressional leaders, so that Congress would remain influential in shaping the commission. Attention to the proper balance between the number of members appointed by congressional leaders and by other individuals, or to the number of Members of Congress required to be among the appointees, or to the qualifications of appointees, can be significant factors in enabling a commission to fulfill its congressional mandate. A commission's appointment scheme may affect both the ability of the commission to fulfill its statutory duties and the final work product it produces. For instance, if the appointment scheme includes qualifying provisos so specific that only a small set of private citizens could serve on the panel, the final work product of the commission may represent a narrow range of viewpoints. In general, each fiscal commission proposal provides for similar appointment structures. Each proposal involves "hybrid" appointments by both Members of Congress and the President instead of just one or the other branch making appointments. In each case, the majority of appointments would be made by Members of Congress, rather than executive branch representatives. However, the relative weight of congressional appointments varies from a bare majority of eight out of 15 ( S. 276 ) to strong majorities of 14 out of 16 ( H.R. 1557 ) and 16 out of 18 ( S. 2853 and S. 1056 ). Each proposal would provide for a portion of the commission's membership to be drawn from Members of Congress. This is somewhat unusual. Between the 101 st (1989-1991) and the 110 th Congress (2007-2009), 12 out of approximately 80 congressional advisory commissions have either explicitly required, or otherwise contained language that could allow, Members to serve as commissioners. Using Members of Congress as commission members may complicate one of the potential advantages of the typical commission structure—the use of unelected experts one step removed from the political process. On the other hand, if a commission has the ability to construct legislative packages that would be subject to expedited congressional consideration, appointment of non-Members to a commission might be viewed as a delegation of legislative power away from Congress. In addition, some proposals for commissions in previous Congresses arguably would have transferred some power to the President. From either perspective, appointment of commissioners who are not Members of Congress might raise questions about Congress delegating power and authority to the President or unelected, nongovernmental interests. As described previously, each of the proposals employs a structure that provides for appointments by both the majority and minority parties in Congress, as well as by the executive branch. One of the proposals, S. 276 , would provide for an even partisan balance of appointments, with an equal number of appointments from majority and minority congressional leaders, as well as a requirement that the seven presidential appointments be three Democrats, three Republicans, and one person who "shall not be affiliated with any political party." S. 2853 and S. 1056 would both provide for an even partisan balance of congressional appointments, but also include two partisan executive branch appointments (the Secretary of the Treasury and one discretionary presidential appointment in S. 2853 ; the Secretary of the Treasury and the Director of OMB in S. 1056 ). H.R. 1557 would provide for a majority advantage in congressional appointments and two partisan executive branch appointments (the Director of OMB and the Secretary of the Treasury). Both H.R. 1557 and S. 1056 would include two non-voting members, the Comptroller General and the Director of the Congressional Budget Office. Most past congressional commissions have been structured to be bipartisan, with either an even split of appointments between majority and minority or with a one- or two-member advantage for the majority. For example, the 9/11 Commission had an even partisan split of appointments. By achieving a nonpartisan or bipartisan character, congressional commissions may make their findings and recommendations more politically acceptable to diverse viewpoints. The bipartisan or nonpartisan arrangement can give recommendations strong credibility, both in Congress and among the public, even when dealing with divisive issues of public policy. Similarly, a commission bill that is perceived as partisan may have difficulty gathering the necessary support in Congress. In some cases, however, seeking bipartisanship may reduce the potential legislative coalition for the bill, if supporters believe that the commission's work would be compromised by creating a bipartisan commission. Bipartisanship also can arguably impede a commission's ability to complete its mandate, because consensus among commission members may be more difficult to achieve. In situations where a commission is tasked with studying sensitive issues that are often viewed through a partisan lens—such as oversight of executive branch activities—the appointment of an equal number of majority and minority commissioners may serve to promote partisanship within the commission rather than suppress it. Each proposed commission would be tasked with issuing a final report detailing its findings, conclusions, and recommendations. As a permanent entity, S. 276 would also require reports every five years after its initial report. In addition, each of the proposals requires that the commission achieve supermajority support in order to approve recommendations. S. 1056 would require that 13 of 18 members vote in favor of submitting legislative proposals to Congress. H.R. 1557 would require a three-fourths vote. S. 276 would require 10 of 15 commissioners to approve its reports. S. 2853 would require 14 of 18 commissioners to approve a report. The use of supermajority voting requirements may have a significant effect on the final work product produced by the commission. Commissions with significant supermajority thresholds for approval of final reports may produce work products with fewer specific, concrete findings and more general statements that are unlikely to produce wide dissent. Such requirements also may enhance the ability of minority coalitions of commission members (which would not necessarily be of the same political party) to extract concessions in negotiations. However, while supermajority voting requirements typically require considerable consensus-building in order to advance recommendations, a lack of supermajority procedures does not preclude the achievement of a bipartisan or non-partisan work product from the commission. It is not uncommon for a congressional commission to deliver a work product that is unanimously agreed to by all members. For example, the final reports of both the 9/11 Commission and Commission on the Prevention of Weapons of Mass Destruction Proliferation and Terrorism were unanimously agreed to by all members. Appendix A. Side-by-Side Comparison of Proposals Appendix B. Long-Term Fiscal Situation and Major Entitlements This appendix discusses the long-term fiscal situation of the federal government and three major entitlement programs: Social Security, Medicare, and Medicaid. Although the three programs relate to only some of the federal government's current revenue and spending policies, CBO and many observers focus on projections for these entitlement programs, and particularly Medicare and Medicaid, when assessing the federal government's long-term fiscal situation. Issues related to these topics may inform assessments whether the use of a commission, coupled with expedited consideration of a commissions' proposals, may be appropriate for addressing the federal government's long-term fiscal situation; and, if a commission proposal were considered, how a commission proposal might be structured. Long-Term Fiscal Situation and Major Entitlements Long-Term Outlook In its August 2009 budget report, CBO identified fiscal challenges related to future health care costs as a major issue affecting the country's long-term budget outlook. Overall, rising health care costs per beneficiary and the nation's aging population seem likely to keep combined Medicare, Medicaid, and Social Security costs rising faster than per capita GDP. For Medicare and Medicaid, "excess cost growth"—the extent to which the increase in health care spending for an average individual exceeds the growth in per capita gross domestic product (GDP)—is the main factor contributing to large projected increases in the two health care programs. Medicare and Social Security provide benefits to individuals who are mostly elderly. Medicaid provides benefits to individuals who are mostly non-elderly low-income people, but the elderly and disabled account for two-thirds of the program's spending. In a June 2009 report, CBO wrote that "under any plausible scenario," increasing health care costs and the aging of the U.S. population will cause federal spending to rise rapidly under current law. More specifically, "almost all of the projected growth in federal spending other than interest payments on the debt comes from growth in spending on the three largest entitlement programs—Medicare, Medicaid, and Social Security." According to CBO estimates, Medicare and Medicaid will account for 80% of this growth between now and 2035, and 90% between now and 2080. In 2003, CBO's then director Donald Marron testified that "[l]ittle disagreement exists about the cause of [the fiscal] situation.... It stems primarily from federal policies aimed at improving the well-being of retirees, the disabled, and the chronically ill." CBO concluded that the current mix of federal fiscal policies is unsustainable in the long term and that "[s]lowing the growth rate of outlays for Medicare and Medicaid is the central long-term challenge for federal fiscal policy." Nevertheless, CBO separately observed an additional, complicating factor in addressing the long-term fiscal situation. "At this point," according to CBO, "experts do not know exactly how to structure such reforms so as to reduce federal spending on health care significantly in the long run without harming people's health," and furthermore, "many of the specific changes that might ultimately prove most important cannot be foreseen today and could be developed only over time through experimentation and learning." For purposes of illustrating the issue of sustainability, keeping future federal outlays at 20% of GDP, approximately its current share, and leaving revenue policies unchanged, according to CBO current-law projections, could require either drastic reductions for all spending other than that for Social Security, Medicare, and Medicaid, or reining in the projected cost growth of these three programs. In 2006, the then-acting director of CBO stated that, "by 2030 ... spending for those programs [Social Security, Medicare, and Medicaid] is projected to reach roughly 15 percent of GDP.... If that increase happened ... the rest of the budget would have to be cut by more than half" to keep overall spending close to its current level." These programs present differing challenges to the long-term fiscal position of the federal government. Estimates of the long-term fiscal gap between Social Security (Old-Age, Survivors and Disability Insurance) outlays and Social Security revenues as a proportion of long-term GDP are generally much smaller than estimates of the long-term fiscal gap between Medicare (Part A, Part B, and Part D) outlays and revenues as a portion of long-term GDP. These long-term estimates of fiscal imbalances are sensitive to changes in assumptions regarding productivity growth and interest rates. Spending projections for Medicare and Medicaid are sensitive to medical inflation. Past projections that medical inflation would slow have proved to be overly optimistic. Long-term fiscal challenges facing the federal government are complicated by the current state of the U.S. economy. As the economy recovers strength, some may call for stabilizing the government's annual deficit as a percentage of GDP. This would require some combination of lower spending and higher revenues than currently projected and faster economic growth. On the other hand, labor and real estate markets may remain weak for the medium term, and some state and local governments are likely to face severe budgetary challenges in coming years. Some, therefore, may call for additional economic stimulus or a delay before the imposition of more austere fiscal policies. Views differ about the timing when action is necessary to address the long-term fiscal situation. Significantly postponing spending and revenue adjustments may nevertheless have serious economic consequences. Debt is not free and requires interest payments that strain budgets. High debt levels also could limit the government's flexibility in meeting its obligations or in responding to emerging needs of its citizens. Major Entitlement Programs Concerns about entitlement programs, including long-term trends for revenues and spending related to entitlement programs, are not new. Numerous efforts have been pursued to study and address such concerns. Some were pursued through commissions established by Congress or the President, where the commissions were used to tap expertise and facilitate bargaining that involved significant trade-offs and high political risks. Some commissions have focused on entitlements or health care, generally. However, other efforts to study and address policy concerns about entitlements have been pursued by Congress through the regular legislative process, without the involvement of a special commission. For example, in the 111 th Congress, considerable effort has been undertaken to address health care and health insurance reform through the legislative process without the central involvement of a commission. Several of the fiscal commission proposals that are the subject of this report expressly highlight major entitlement programs. Three programs in particular are the federal government's largest: Social Security, Medicare, and Medicaid. The sections below describe the programs and how commissions have been involved in some past efforts to address entitlement financing, among other issues, generally without the use of expedited legislative procedures. Social Security Social Security is one of the largest federal programs, with 159 million covered workers (and their employers) paying into the system and 52 million beneficiaries receiving monthly cash benefits. The program, which began in the 1930s as a social insurance program aimed at improving the economic circumstances of the elderly following the Depression, has been modified by Congress many times over its history. Today, Social Security provides workers and their families protections against the loss of income due to retirement, disability, and death. Social Security's trust funds, the combined federal Old-Age, Survivors and Disability Insurance (OASDI) trust funds, currently take in more revenue than they pay in benefits. The trust funds' income comes primarily through a 6.2.% payroll tax that is levied separately on employers and employees (for a total payroll tax of 12.4%), with additional income from interest on the trust funds' investments and income taxes paid by some beneficiaries on their benefits. The excess monies are invested in non-marketable obligations of the U.S. government that are held in the trust funds. Starting in 2016, Social Security's annual expenditures on benefits are projected to exceed tax revenue. At that time, Social Security will start to redeem its public debt obligations in order to pay full benefits until the trust fund assets are exhausted, which is projected to occur in 2037. After the trust funds are exhausted, current payroll tax rates are projected to be sufficient to pay 76% of scheduled benefits in 2038, declining to 74% of scheduled benefits by 2083. For the 75-year projection period, the actuarial deficit is projected to be equivalent to about 2 percentage points of Social Security's taxable payroll; in other words, an increase in the payroll tax of roughly 2%, from 12.4% to 14.4%, would close the system's financial shortfall. Social Security's shortfall represents about 0.72% of GDP, on average, over the period from 2009 to 2083. A number of bipartisan commissions have addressed Social Security's financial and benefit structure, including two commissions within the last 28 years. The National Commission on Social Security Reform was established in 1981 through President Ronald Reagan's Executive Order (E.O.) 12335, in response to projections that the system would run short of funds by mid-1983. A majority of members of the commission, also known as the "Greenspan Commission," agreed on a consensus package of proposals to meet the short-range deficit and about two-thirds of long-range financial requirements. In accordance with the executive order, the commission transmitted its recommendations to the President, the Secretary of Health and Human Services, and both houses of Congress on January 20, 1983. Congress held hearings on the commission's report during early 1983 and incorporated most of the commission's recommendations into P.L. 98-21 , "The Social Security Amendments of 1983," which was signed by President Reagan in April 1983. A provision of the Social Security Act required that an Advisory Council on Social Security meet every four years beginning in 1969. The last Advisory Council was appointed in late 1994 and released their final report in 1997, which included three different options to address system financing and the adequacy and equity of benefits. The Social Security Administrative Reform Act of 1994 ( P.L. 103-296 ), which created the Social Security Administration as an independent agency, also replaced the Advisory Councils with the Social Security Advisory Board. The President's Commission to Strengthen Social Security was established in 2001 by President George W. Bush through E.O. 13210. The President directed the commission to meet several principles, including a mandate to include voluntary personal retirement accounts and prohibitions against increasing the payroll tax or changing the benefits of retirees and near-retirees. Chaired by Senator Daniel Patrick Moynihan and Richard Parsons, the commission submitted its findings and recommendations to the President in a final report issued on December 21, 2001. The report put forward three model reform plans, each of which included voluntary personal retirement accounts. The three models differed in how they addressed financing shortfalls and benefit structure. Health Care Programs: Medicare and Medicaid Health care costs have increased significantly as a proportion of the U.S. economy over the past decades, from 7.2% of GDP in 1970 to likely more than 17% in 2009. Within the federal government, the costs of federal health insurance programs, and especially the two largest programs Medicare and Medicaid, have grown as well. According to CBO, between FY1975 and FY2008, federal spending for Medicare rose from 0.8% of GDP to 2.7%, in part because of increased enrollment, which climbed from 25 million in 1975 to 45 million in 2008. Over the same period, total spending for Medicaid, including spending by the states, increased from 0.8% of GDP to 2.5%. Medicare provides federal health insurance for 45 million people who are elderly or disabled (the elderly make up about 85% of enrollees) or who have end-stage renal disease or amyotrophic lateral sclerosis (also known as Lou Gehrig's disease). People become eligible for Medicare on the basis of age when they reach 65; disabled individuals become eligible for Medicare 24 months after they become eligible for benefits under Social Security's Disability Insurance program. Medicare consists of four distinct parts: Part A (Hospital Insurance [HI]); Part B (Supplementary Medical Insurance [SMI]); Part C (Medicare Advantage [MA]); and Part D (prescription drug benefit). The Part A program, which covers inpatient services provided by hospitals as well as skilled nursing and hospice care, is financed primarily through payroll taxes levied on current workers and their employers, which are credited to the HI trust fund. The HI trust fund has faced a projected shortfall almost from its inception. When observers refer to the pending insolvency of Medicare, they actually are referring to the pending insolvency of the HI trust fund. The HI and SMI trust funds are overseen by a board of trustees that makes annual reports to Congress. The 2009 report projects that under intermediate assumptions, the HI trust fund will become insolvent in 2017, two years earlier than projected in 2008. The National Bipartisan Commission on the Future of Medicare was established in 1997 and was required to review the long-term financial condition of Medicare, identify problems that threaten the financial integrity of the program's trust funds, and analyze potential solutions. Former Senator John Breaux and Former Representative Bill Thomas jointly chaired the Commission. On March 16, 1999, the commission held its final meeting to consider and vote on a Medicare reform proposal by the commission's co-chairs. On a motion to report to Congress and the President, the commission voted with 10 ayes and 7 nays. Eleven votes were required to make formal recommendations to the Congress and the President. Other proposals for Medicare-related commissions recently have been proposed, including for elevation of the Medicare Payment Advisory Commission (MedPAC) into an executive agency with the authority to set Medicare provider payment rates and make other policy decisions (e.g., S. 1380 ). Medicaid is a joint, federal-state means-tested entitlement program that finances the delivery of primary and acute care medical services and long-term care for certain low-income populations including children, pregnant women, individuals with serious disabilities and/or multiple chronic conditions, other special needs populations, and the elderly. Medicaid is the largest or second-largest item in most state budgets and is second only to Medicare in terms of federal spending on health care. The federal government's share of Medicaid's spending for benefits varies among the states but averages about 57%. The Medicaid and CHIP programs act as an health safety net for the low-income population. However, the programs face many challenges. Even prior to the recent economic downturn, the Medicaid program's financing represented a growing share of federal and state budgets. High unemployment levels and financial challenges facing many state governments are likely to exacerbate the issue. A poor economy affects how much money states can dedicate to the programs while at the same time has the potential to vastly increase the number of individuals eligible for coverage. Yet, the programs are targeted at populations that have special health needs, or are at higher risk of being uninsured. The policy debate will likely focus on how to balance Medicaid's and CHIP's rising health costs, both in the short-term with the current economic state and in the long-term, against the health insurance needs of vulnerable populations. In May 2005, the Secretary of the Department of Health and Human Services, Michael O. Leavitt, established a Medicaid Commission under P.L. 92-463 and the Federal Advisory Committee Act, to advise the Secretary on "ways to modernize the Medicaid program so that it can provide high-quality health care to its beneficiaries in a financially sustainable way." The commission transmitted its reports on September 1, 2005, and December 29, 2006. In the latter report, the commission recorded support of the report's recommendations by a vote of 11 ayes, one nay, and two abstentions, with two commissioners not present.
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In the 111th Congress, Members have introduced several proposals to establish a commission that would make potentially far-reaching recommendations on how to address the federal government's long-term fiscal situation. Generally speaking, the measures would include Members of Congress as some or most of a commission's membership, provide for a majority of commission members to be appointed by congressional leaders, have varying degrees of partisan balance in membership, and require supermajority votes of commission members to approve recommendations. Each of the bills also would provide special legislative procedures to encourage expedited consideration of a commission's recommendations. This report provides a comparative analysis of four fiscal commission proposals introduced in the 111th Congress that would address some, or all, aspects of the federal government's long-term fiscal situation. The four proposals are S. 2853 (the "Bipartisan Task Force for Responsible Fiscal Action Act of 2009," sponsored by Senator Kent Conrad ); S. 1056 (the "SAFE Commission Act," sponsored by Senator George Voinovich); H.R. 1557 (the "SAFE Commission Act," sponsored by Representative Jim Cooper); and S. 276 (the "Social Security and Medicare Solvency Commission Act," sponsored by Senator Dianne Feinstein). The report also discusses potential issues for Congress that may inform assessments whether the use of a commission, coupled with expedited consideration of a commission's proposals, may be appropriate for addressing the federal government's long-term fiscal situation; and, if a commission proposal were considered, how a commission proposal might be structured. The report begins with brief summaries of the proposals. To provide context, the report next discusses legislative precursors to the proposals that are the subject of this report. Thereafter, the report includes analysis of potential issues for Congress, including a discussion of advantages and disadvantages of using a commission, potential implications of expedited legislative procedures, and matters related to the structure of proposed commissions. Finally, Appendix A provides a more detailed side-by-side comparison of provisions of each bill. Appendix B discusses the long-term fiscal situation of the federal government and three major entitlement programs (Social Security, Medicare, and Medicaid). At the end of the report, a table provides a list of CRS subject matter experts who are available to answer questions related to many aspects of these legislative proposals.
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Since the invention of the first computer-assisted industrial control system (ICS) device over 40 years ago, both the technical and national security communities have voiced concerns about software and hardware vulnerabilities and potential security risks associated with these devices. Such concerns have generally involved the infiltration of a computer system for purposes of degrading its capabilities, manipulating data, or using the device to launch cyber attacks on other systems. The Stuxnet worm, which was first reported in June 2010 by a security firm in Belarus, appears to be the first malicious software (malware) designed specifically to attack a particular type of ICS: one that controls nuclear plants, whether for power or uranium enrichment. The malware attacks and disrupts a Microsoft Windows-based application that is employed by a particular ICS produced by the German company Siemens. The worm can be spread through an air-gapped network by a removable device, such as a thumb drive, and possibly through computers connected to the Internet, and it is often capable of remaining hidden from detection. It is difficult to determine the geographic origin of the malware, as cyber attackers often employ sophisticated methods such as peer-to-peer networking or spoofing IP addresses to obviate attribution. Likewise, malware placed on a removable device may contain no signatures that would identify its author. Some security analysts speculate that Stuxnet could have been developed by a Siemens insider who had direct access and knowledge of the system; others contend that the code's sophistication suggests that a nation state was behind the worm's development, either through proxy computer specialists or a government's own internal government and military capabilities. To date, numerous countries are known to have been affected by the Stuxnet worm to varying degrees of disruption in their technology systems. These include Iran, Indonesia, India, Pakistan, Germany, China, and the United States. A lack of publicly available information on the damage caused by Stuxnet in these countries makes it difficult to determine the malware's potency. In attempting to assess the Stuxnet worm's potential targets and ascertain how best to identify and slow progress of its spread to other ICSs, numerous researchers have speculated as to the identity of the software code's developer. To date, no country or group has claimed responsibility for developing what has been termed by some as "the world's first precision guided cybermunition." Given the Stuxnet worm's reported technical sophistication, numerous researchers and media outlets have speculated that a government most likely produced it. According to these accounts, the developer had to be financially well resourced, employ a variety of skill sets (including expertise in multiple technology areas), have an existing foreign intelligence capability in order to gain access and knowledge of a foreign system, and be able to discretely test the worm in a laboratory setting. Moreover, states appear to possess a motive to develop Stuxnet because, unlike other forms of malware, the worm is not designed to steal information, but rather to target and disrupt control systems and disable operations. Countries thought to have the expertise and motivation of developing the Stuxnet worm include the United States, Israel, United Kingdom, Russia, China, and France. In addition to speculating on the developer's identity, observers have formulated theories about the worm's intended purpose. For example, some argue that Stuxnet's developer may not have intended the worm to spread beyond its desired target, thus bringing unwarranted attention to this emerging cyber capability. Furthermore, it is likely the developer did not consider the unintended consequence of the worm becoming widely available and subject to manipulation to make it less identifiable and more potent. A terrorist organization intent on carrying out attacks on a nation's critical infrastructure may also be interested in targeting a type of ICS known as supervisory control and data acquisition (SCADA) systems. It is widely believed that terrorist organizations do not currently possess the capability or have made the necessary arrangements with technically savvy organizations to develop a Stuxnet-type worm. However, the level of attention the Stuxnet worm has received creates a possible proliferation problem and what some have termed a "cyber arms race." The Stuxnet code itself is now freely available on the Internet, as are the particular vulnerabilities it exploits, as well as the web addresses of unsecured SCADA systems. As software developers often revise and reformulate existing code, Stuxnet's design revelations may make it easier for terrorist organizations to develop such capabilities in the future. Melissa Hathaway, former acting senior director for cyberspace for the National Security and Homeland Security Councils, was recently quoted as saying, "Proliferation [of cyber weapons] is a real problem, and no country is prepared to deal with it. All of these [computer security] guys are scared to death. We have about 90 days to fix this [new vulnerability] before some hacker begins using it." It is also worth noting that, in the future, a non-state actor may not necessarily need to possess the Stuxnet code in order to use the worm. Cybercrime organizations have been said to "rent" networks of infected computers, known as "botnets," for use in politically motivated cyber attacks on government websites and computer networks. It may become possible for organizations to develop and either rent or sell malware such as Stuxnet or access to infected computers for malicious use against government or civilian infrastructure. In addressing concerns about threats emanating from cyberspace from a variety of potential actors, Deputy Defense Secretary William J. Lynn III noted, "Once the province of nations, the ability to destroy via cyber means now also rests in the hands of small groups and individuals: from terrorist groups to organized crime, hackers to industrial spies to foreign intelligence services." Early reports indicated that the intended target of Stuxnet may have been SCADA-controlled nuclear facilities in Iran that used the Siemens product. If a country developed Stuxnet and the target was a single country's infrastructure, the worm's spread to multiple countries has implications for the lack of precision targeting of cyber weapons, their unknown secondary and tertiary effects, and for the rules of engagement for responding to a cyber attack. Iran has apparently suffered the most attacks by the Stuxnet worm and, as noted, may well have been its main target. A September 2010 study by Symantec argued that the "concentration of infections in Iran likely indicates that this was the initial target for infections and was where infections were initially seeded." As of September 25, 2010, Iran had identified "the IP addresses of 30,000 industrial computer systems" that had been infected by Stuxnet, according to Mahmoud Liaii, director of the Information Technology Council of Iran's Industries and Mines Ministry, who argued that the virus "is designed to transfer data about production lines from our industrial plants" to locations outside of Iran. Iranian officials have indicated that the worm infected computers associated with the country's nuclear power plant under construction near Bushehr. Dr. Mohammad Ahmadian, an Iranian Atomic Energy Organization official, stated in October that the worm may have been transferred to computers at the reactor site via "CDs and Flash memory sticks," adding that the affected computers have since been "inspected and cleaned up." Some of those responsible for transferring the worm were "foreign experts who had been frequenting industrial centres," Iran's minister of communication Reza Taqipur stated in October. Iranian officials have indicated that the reactor, which is not yet operational, has not been affected by Stuxnet. Olga Tsyleva, press-secretary of the Atomstroyeksport, the Russian contractor for the Bushehr project, confirmed October 5, 2010, that the worm had spread to the Bushehr facility's computers but had not caused any damage. In addition to Liaii's description of Stuxnet's purpose, reports of the Stuxnet infections in Iran have, as noted, fueled speculation that the virus was part of an effort by some countries, including the United States and Israel, to sabotage Tehran's nuclear programs. In addition to the Bushehr reactor, Iran has constructed both a pilot and a commercial gas centrifuge-based uranium enrichment facility near Natanz. Tehran continues enrichment operations at the Natanz facilities, according to a November 23, 2010, report by International Atomic Energy Agency Director-General Yukiya Amano. Uranium enrichment can produce fuel for nuclear reactors, but can also produce fissile material for use in nuclear weapons. Iran's uranium enrichment facilities seem to be a more likely target for a cyber attack than does the Bushehr reactor. Mark Fitzpatrick, former acting Deputy Assistant Secretary of State for Non-proliferation, argued in September that such an attack would not make sense because the reactor is not a prime proliferation concern, the Financial Times reported. Iranian officials have themselves indicated that the Bushehr reactor may not have been the worm's only target. For example, an October 5 statement from Iran's Foreign Ministry spokesman Ramin Mehmanparast appeared to reference Iran's uranium enrichment program. Moreover, Ali Akbar Salehi, the head of Iran's Atomic Energy Organization, suggested September 29 that "enemies" had attempted to infect nuclear facilities other than Bushehr. More recently, some experts have argued that, because Stuxnet was designed to manipulate equipment used in centrifuge facilities, the worm may have been developed to sabotage Iran's enrichment plant. Whether the Natanz facility contains Siemens components that would be affected by the virus is unclear. The presence of such components in the Bushehr reactor appears to be more likely because Siemens originally worked on the project. Stuxnet's impact on Iran's nuclear facilities is unclear. Although, as noted, some Iranian officials have stated that the Bushehr reactor was not affected, some accounts suggest that the malicious software may have slowed down or disabled operations at Iran's enrichment facilities. For example, Iranian President Mahmoud Ahmadinejad said of the cyber attack that unnamed perpetrators "were able to cause minor problems with some of our centrifuges by installing some software in electronic parts. They did wrong. They misbehaved but fortunately, our experts discovered it." Moreover, an unnamed "senior diplomat" suggested that Stuxnet may have caused Iran to shut down its commercial centrifuge facility for a few days in November 2010, Reuters reported November 23. Iranian officials have attributed the Stuxnet infections to a cyber attack, with some suggesting that Western countries are responsible. For example, Mahmoud Liaii characterized the worm as part of an "electronic war [that] has been launched against Iran." Additionally, Mehmanparast suggested October 5 that the "West" is taking "steps and efforts to use every possible means to prevent the peaceful nuclear activities of our country." An October 20 Open Source Center analysis, however, observed that Iranian officials have "largely remained vague" about Stuxnet's "target, intent, and origin." There have been previous allegations of efforts by the United States and other governments, including Israel, to sabotage Iran's centrifuge program. The New York Times reported in January 2009 that such efforts have included "undermin[ing] electrical systems, computer systems and other networks on which Iran relies," according to unnamed senior U.S. and foreign government officials. One effort involved foreign intelligence services sabotaging "individual power units that Iran bought in Turkey" for Tehran's centrifuge program. "A number of centrifuges blew up," according to the Times . Western governments have reportedly made other efforts to sabotage centrifuge components destined for Iran, according to some non-governmental experts. Additionally, New York Times reporter James Risen wrote in 2006 that, according to unnamed U.S. officials, the United States engaged in a covert operation to provide Iran with flawed blueprints for a device designed to trigger a nuclear explosion. Vulnerabilities in industrial control systems have long been an issue of concern to both the security and technology communities. Modern critical infrastructure facilities rely on computer hardware and software continuously to monitor and control equipment that supports numerous industrial processes, including nuclear plant management, electrical power generation, water distribution and waste control, oil and gas refinement, chemical production, and transportation management. The Department of Homeland Security (DHS) categorizes 18 critical infrastructure sectors as "essential to the nation's security, public health and safety, economic vitality, and way of life." The advent of the Stuxnet virus has raised questions on the vulnerabilities of national critical infrastructure. In the absence of specific information on the full impact of Stuxnet, one can speculate that all of these sectors may be at risk. Many observers fear that a successful infiltration and attack could degrade or stop the operation of a critical infrastructure facility that delivers water, gas, or other essential utility, or affect multiple facilities due to the interdependent nature of the nation's infrastructure sectors responsible for providing essential services. Sean McGurk, the Department of Homeland Security's acting director of the National Cybersecurity and Communications Integration Center, stated during a November 2010 hearing, "We have not seen this coordinated effort of information technology vulnerabilities and industrial control exploitation completely wrapped up in one unique package. To use a very overused term, it is a game-changer." Unclassified reports suggest that the Stuxnet worm was specifically developed to seek out and exploit vulnerabilities in software that manages ICSs found in most critical infrastructure facilities. One type of ICS, a Supervisory Control and Data Acquisition (SCADA) system, is a computer that controls industrial processes and infrastructures. SCADA systems can be accessed and managed directly at computer terminals, either from remote locations that are connected to the control system, or through the emerging trend of controlling these systems from mobile wireless devices. In 2009, DHS conducted an experiment that revealed some of the vulnerabilities to cyber attack inherent in the SCADA systems that control power generators and grids. The experiment, known as the Aurora Project, simulated a computer-based attack on a power generator's control system that caused operations to cease. The same vulnerabilities are said to exist in other critical infrastructure, which, if disabled, could both cripple the economy and have physical consequences; an electrical blackout for a prolonged period of time could potentially lead to loss of life if essential services were not restored. Yet some experts argue that the cyber threat to critical infrastructure is exaggerated, regardless of the perpetrators' capabilities. For example, although the computer systems that control electricity plants could be penetrated by a sophisticated hacker, some infrastructure experts argue that the multitude of public and private companies and the overlapping nature of their operations creates a resiliency that would make long-term and widespread damage implausible. Moreover, the North American power grid is segmented into four large regions, reducing the risk of a nation-wide failure. Yet due to their interconnected nature, it is possible that a failure in one system could cause cascading effects across an entire region. An example of this was seen in August 2003, when high-voltage power lines in Ohio came in contact with trees, triggering the automatic safety system to disconnect. Safety mechanisms of other generators then shut down and severed links between them, causing a blackout throughout the northeastern United States and Canada. Experts offer various recommendations to address the vulnerabilities described above. Some information security experts advocate mandatory encryption of computer data in SCADA-controlled utilities transmission and distribution systems. The Department of Energy is undertaking research and development efforts to modernize the electric grid with new information technology and thereby create a so-called "Smart Grid" that will be more prevalent and accessible throughout the nation and may also be more secure. However, some security observers argue that creating a dependency on ubiquitous computer technologies will increase vulnerabilities to hacking, worms, viruses, or other cyber threats, and that a multi-layered, redundant network creates a higher level of protection. Another option is to enhance the protection of the physical aspects of the nation's critical infrastructure, thus mitigating possible damage from a Stuxnet worm type of attack and also better preparing facilities to respond to natural or man-made threats. Whether it is electricity, telecommunications, transportation, or other essential services, many federal government activities rely on critical infrastructures that are predominately owned and operated by the private sector, which has an expectation of immediately accessible and fully operational use of these resources. Should the ICS of a critical infrastructure facility become affected by a Stuxnet worm or similar malicious code, disruptions could hamper the government's ability to provide domestic and international security, safety, and essential services for lengthy periods of time. Such an occurrence could also degrade the government's ability to pursue or maintain national security goals and thereby make the nation more vulnerable to a variety of foreign and domestic threats or contribute to a loss of public confidence in the government. The predominant view of many security observers appears to be that the recent emergence of the worm may be a new type of threat that could potentially lead to short- and long-term adverse global security consequences. However, some security experts claim that the threat of cyberwar in general is exaggerated by security firms and government entities in an effort to procure more resources and control over information technology. Yet these claims are not related specifically to Stuxnet. In October 2010, Dr. Udo Helmbrecht, executive director of the European Network and Information Security Agency, stated, "Stuxnet is really a paradigm shift, as Stuxnet is a new class and dimension of malware. Not only for its complexity and sophistication ... the fact that perpetrators activated such an attack tool can be considered as the 'first strike,' i.e. one of the first organized, well prepared attack against major industrial resources. This has tremendous effect on how to protect national (critical infrastructure) in the future." The Stuxnet worm is unique because the software code appears to have been designed to infiltrate and attack an ICS often used by critical infrastructure facilities in order to cause long-term physical damage to them. Although the full extent of damage caused by Stuxnet is unknown, the potential implications of such a capability are numerous in that the worm's ability to identify specific ICSs and wait for an opportune time to launch an attack could have catastrophic consequences on nations' critical infrastructures. The possibility of this type of cyber threat to national critical infrastructure raises several questions for policymakers. It is said that actions in cyberspace are conducted in milliseconds. When the consequences of retaliatory actions in cyberspace may be unknown, is an immediate response required, or a longer, more deliberative process? The lack of clear attribution further complicates the issue. If a cyber attack appeared to be launched from an unsuspecting neutral country, it may not be possible to formally engage that country in stopping an attack that is taking place in milliseconds. What authorities should be in place if such an attack were deemed to warrant an immediate response from the affected nation? Is an international treaty or convention necessary to curb proliferation and use of cyber-based weapons? Many arms control treaties are built upon inspection, verification, and compliance regimes. As nefarious activities in cyberspace defy geographical boundaries and often attribution, how would such activities be conducted in a cyber arms control treaty? Another issue raised by Stuxnet is the government's role in protecting critical infrastructure. Is the Department of Homeland Security equipped to protect national infrastructure? Would new authorities be necessary in order to oversee the defense of privately owned critical infrastructure facilities? What is the military's role in defending national critical infrastructure from cyber attack? What role should intelligence agencies have in monitoring private infrastructure? Is the threat of cyber war exaggerated in order to shift power over the Internet to the military and intelligence agencies? Is the private sector the first line of defense in the event of a cyber attack on critical infrastructure? Is new legislation required to standardize and regulate critical infrastructure protection throughout the various sectors?
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In September 2010, media reports emerged about a new form of cyber attack that appeared to target Iran, although the actual target, if any, is unknown. Through the use of thumb drives in computers that were not connected to the Internet, a malicious software program known as Stuxnet infected computer systems that were used to control the functioning of a nuclear power plant. Once inside the system, Stuxnet had the ability to degrade or destroy the software on which it operated. Although early reports focused on the impact on facilities in Iran, researchers discovered that the program had spread throughout multiple countries worldwide. From the perspective of many national security and technology observers, the emergence of the Stuxnet worm is the type of risk that threatens to cause harm to many activities deemed critical to the basic functioning of modern society. The Stuxnet worm covertly attempts to identify and exploit equipment that controls a nation's critical infrastructure. A successful attack by a software application such as the Stuxnet worm could result in manipulation of control system code to the point of inoperability or long-term damage. Should such an incident occur, recovery from the damage to the computer systems programmed to monitor and manage a facility and the physical equipment producing goods or services could be significantly delayed. Depending on the severity of the attack, the interconnected nature of the affected critical infrastructure facilities, and government preparation and response plans, entities and individuals relying on these facilities could be without life sustaining or comforting services for a long period of time. The resulting damage to the nation's critical infrastructure could threaten many aspects of life, including the government's ability to safeguard national security interests. Iranian officials have claimed that Stuxnet caused only minor damage to its nuclear program, yet the potential impact of this type of malicious software could be far-reaching. The discovery of the Stuxnet worm has raised several issues for Congress, including the effect on national security, what the government's response should be, whether an international treaty to curb the use of malicious software is necessary, and how such a treaty could be implemented. Congress may also consider the government's role in protecting critical infrastructure and whether new authorities may be required for oversight. This report will be updated as events warrant.
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The Post-9/11 Veterans Educational Assistance Act of 2008 (Post-9/11 GI Bill ® )—enacted as Title V of the Supplemental Appropriations Act, 2008 ( P.L. 110-252 ) —provides educational assistance payments to eligible individuals (servicemembers and veterans, and their dependents) from the Department of Veterans Affairs (VA) in accordance with their military service. The Department of Education's (ED's) Federal Pell Grants, as authorized by Title IV-A-1 of the Higher Education Act (HEA), provide grant aid payments to eligible undergraduate students in accordance with their financial need, regardless of military service record. Timely, efficient, and student-friendly administration is important in ensuring that each federal program achieves its policy objectives with respect to the target population. Each program has developed administrative processes, systems, and procedures designed to streamline aid administration. This report compares and contrasts administration of Post-9/11 GI Bill benefits and Pell Grant payments. Some participants have criticized the administration of Post-9/11 GI Bill payments for taking too long and asserted that the penalties for participants who received an overpayment of benefits are too high as compared to ED student aid programs. Some participant criticism is a result of simultaneous experience navigating the processes to receive Post-9/11 GI Bill benefits and Pell Grant payments. Since passage of the Post-9/11 GI Bill, the House Veterans' Affairs Committee has held several oversight hearings to ensure administration of the Post-9/11 GI Bill meets the needs of servicemembers transitioning to civilian life. The hearings have focused on automation, timeliness of payments, and accuracy of benefits. Some of the differences in aid processing are a consequence of the programs' purposes. However, other differences in the processing design and operation may expose opportunities for improvement. This report is designed to assist congressional staff seeking an exploration of ways in which the administration of Post-9/11 GI Bill benefits might be improved through the adoption of practices employed in the administration of Title IV aid. The report approaches this task through an examination of the statutory and regulatory provisions that are pertinent to the design and administration of Post-9/11 GI Bill benefits and Pell Grants, the Title IV aid program that is seemingly the most comparable to Post-9/11 GI Bill benefits. The report also examines the operational practices employed to implement statutory and regulatory provisions. Information on operational practices, particularly those relevant to aid administration, has been obtained through a review of sub-regulatory guidance materials, manuals providing guidance to staff involved in administering aid, and through a limited set of interviews and site visits with individuals at federal agencies and colleges who are directly involved in administering aid. The report presents a thorough description of the administrative practices used for each of these educational assistance programs and attempts to identify differences and reasons for differences in the administrative practices used across the programs. It also identifies some ways in which existing practices might be enhanced, and discusses possible ways Post-9/11 GI bill benefit administration might be improved by adopting some Title IV practices. It is hoped that this examination can help inform the dialogue on ways in which practices employed in the administration of one program may warrant consideration for their potential to streamline or enhance the administration of the other. The report does not intend to compare benefit levels, evaluate the process and rationale for calculating benefit amounts, or contrast the processes for approving GI Bill programs of education and for determining institutional eligibility and eligible programs of education for the Pell Grant program. Of the GI Bills administered by the VA and federal student aid programs administered by ED, the Post-9/11 GI Bill and Pell Grant programs were chosen for this analysis because of their commonalities. Neither program requires recipients to repay the funds, barring extenuating circumstances. Both programs are the largest educational assistance direct payment programs in terms of the numbers of participants and direct funding in each agency. This report begins with a brief overview of the two programs and a table summarizing the key administrative activities and differences. Please note that the statutory authorizations and administrative processes are designed and implemented independently without any required intersection. Subsequent sections of the report provide an in-depth explanation of the administrative activities from the application process to the calculation of benefits to the disbursement of funds and the process for participants and educational institutions to resolve GI Bill payments that exceeded a participant's eligibility (overpayments). The final section highlights associated and articulated issues and concerns about the administrative processes to explicate opportunities for improvement in each. For assistance with frequently used acronyms, see Appendix B . This section provides a brief overview of program aspects that are helpful in understanding key similarities and differences in their administration. While the Post-9/11 GI Bill and Pell Grant programs are mutually exclusive, an individual may receive benefits from both programs concurrently if the individual is eligible for both programs independently. For a more detailed description of the Post-9/11 GI Bill, see CRS Report R42755, The Post-9/11 Veterans Educational Assistance Act of 2008 (Post-9/11 GI Bill): Primer and Issues , by [author name scrubbed]. For a more detailed description of the federal Pell Grant program, see CRS Report R42446, Federal Pell Grant Program of the Higher Education Act: How the Program Works and Recent Legislative Changes , by [author name scrubbed]. The federal government supports the readjustment of veterans through continued education and training, principally through programs authorized under Title 38 and Title 10 of the U.S. Code. The programs, known as GI Bills, offer educational assistance through monetary payments to veterans and servicemembers, and their family members. The active GI Bills are the Post-9/11 GI Bill, Montgomery GI Bill-Active Duty (MGIB-AD), the Survivors' and Dependents' Educational Assistance Program (DEA), the Montgomery GI Bill-Selected Reserve (MGIB-SR), the Reserve Educational Assistance Program (REAP), and the Post-Vietnam Era Veterans Educational Assistance Program (VEAP). In FY2014, about $12 billion in GI Bill benefits were paid on behalf of approximately 1 million individuals. The Post-9/11 GI Bill (Title 38 U.S.C., Chapter 33) is intended to support qualifying individuals who served on active duty in the uniformed services on or after September 10, 2001, in their readjustment to civilian life, and to support retention in the uniformed services. Qualifying individuals may receive educational assistance payments while enrolled in approved programs of education or training. Approved programs include, but are not limited to, secondary school, non-college degree programs (NCD), postsecondary degree programs, vocational flight training, correspondence programs, apprenticeship or on-the-job training, and licensure, certification, and academic tests. The programs may be outside the United States. Dependents of qualifying individuals who are pursuing an approved program of education may also be eligible for Post-9/11 GI Bill benefits. Dependents may receive a transfer of entitlement (ToE) from a qualifying individual or may receive entitlement (Marine Gunnery Sergeant John David Fry Scholarship Program, Fry Scholarship) as a result of a qualifying individual's death in the line of duty while on active duty on or after September 11, 2001. Program benefit levels were originally designed to reward individuals for their service during a time of arduous conflict by covering the full cost of public undergraduate education for in-state students. Eligible individuals may receive one or more of the following payments: tuition and fees, Yellow Ribbon GI Education Enhancement Program Payments (YR payments), housing allowance, books and supplies stipend, tutorial assistance, licensing and certification test fees, national test fees, relocation and travel assistance, supplemental assistance, and Tuition Assistance "Top Up" payments. Statutory provisions establish maximum amounts for most of the payments. Individuals may receive less than the maximum for a variety of reasons, including, but not limited to, the eligible individual's type of enrollment or pursuit, rate of enrollment or pursuit, active duty status, and aggregate length of qualifying active duty service. Eligible individuals are entitled to 36 months (or the part-time equivalent) of Post-9/11 GI Bill benefits, which must be used within a period specified in statute. Entitlement is charged one day for one day of full-time pursuit, a proportional percentage of a day for less-than-full-time pursuit, or one day depending on the amount of the payment. The period during which entitlement may be used depends on the qualifying individual's length of service, and either the qualifying individual's date of discharge or release from active duty or the child's age or receipt of a high school diploma or the equivalent. Individuals apply to the VA for benefits, and it certifies their eligibility. Once an individual's educational institution or training establishment certifies enrollment or pursuit of an approved program of education, the VA pays benefits to the individual and institution, as appropriate. Over three-quarters of a million individuals received over $10 billion in Post-9/11 GI Bill benefits in FY2013. In academic year 2012-2013, there were, on average, 73 Post-9/11 GI Bill participants at each educational institution that had at least one. Approximately 14% of institutions with a Post-9/11 GI Bill participant enrolled only one recipient, and approximately 16% enrolled 100 or more recipients. Educational institutions and training establishments receive a reporting fee of $12 per GI Bill and Vocational Rehabilitation and Employment program (VR&E) participant and $15 per GI Bill and VR&E participant that receives an advanced payment. The fee may be used to support the costs of certification or programs for veterans. The VA paid over $10 million in reporting fees in FY2013, in addition to participant benefits. The federal government supports access to postsecondary education, primarily through programs authorized by the Higher Education Act (HEA). Title IV of the HEA authorizes a broad array of federal student aid programs that assist students and their families with paying for or financing the costs of obtaining a postsecondary education. The programs include Pell Grants, Stafford Loans, Federal Supplemental Educational Opportunity Grants (FSEOG), the Teacher Education Assistance for College and Higher Education (TEACH) Grant program, Federal Perkins Loans, and Federal Work-Study programs. In FY2014, nearly $134 billion in HEA Title IV aid was made available to almost 13 million students. The Federal Pell Grant program, the single largest source of federal grant aid supporting postsecondary students, is intended to increase access to postsecondary education for financially needy individuals. Eligible individuals may receive a grant of money while enrolled in eligible programs at an eligible institution of higher education (IHE; see Appendix A for a description of an IHE). The benefits were originally designed to help qualified high school graduates with exceptional financial need take advantage of the benefits of higher education. Pell Grants are intended to be the foundation for all federal student aid. To be eligible for a Pell Grant in award year 2014-2015, students must meet several criteria: completion of secondary school or an equivalent, citizenship or eligible noncitizen status, Selective Service registration, and pursuit of an eligible program at an eligible institution. Several situations related to a drug conviction, other Title IV aid (e.g., defaulting on student loans), and institutionalization may disqualify otherwise eligible individuals from receiving a Pell Grant. Pell Grant funds are available to students enrolled for the purpose of earning a certificate or degree in an eligible program at a domestic, Title IV-participating IHE. Given statutory and regulatory criteria, eligible programs may be undergraduate courses of study; post-baccalaureate K-12 teacher certification or licensure programs if enrolled at least half-time; one year of noncredit or reduced-credit remedial coursework; correspondence programs; flight school programs; English as a second language (ESL) courses; cooperative education programs; and for students with an intellectual disability, as defined in the HEA, a comprehensive transition and postsecondary program for students with intellectual disabilities. Cumulative lifetime eligibility for Pell Grant aid is limited to six awards or 12 full-time semesters (or the equivalent) for all recipients. During each award year, eligible individuals may receive up to a maximum amount ($5,730 in award year 2014-2015) determined by statutory provisions. The amount may be reduced depending on the financial need of the student and his/her family, the student's educational expenses, and the student's enrollment status. Individuals apply for a Pell Grant by filling out the Free Application for Federal Student Aid (FAFSA ® ). ED information technology systems process the FAFSA to determine the individual's basic eligibility and expected family contribution (EFC). The financial aid administrator at an IHE calculates the Pell Grant amount and awards it to the student's school account. The program is estimated to have provided over $35.7 billion to approximately 9.7 million undergraduate students in FY2011. In award year 2011-2012, approximately 41% of all undergraduates in Title IV-participating IHEs were estimated to have received Pell Grants. Of those IHEs with Pell Grant recipients, there were, on average, over 1,000 Pell Grant recipients at each one. Approximately 15% of IHEs with Pell Grant recipients had fewer than 60. The Pell Grant program pays participating institutions an administrative cost allowance of $5 per enrolled recipient. This allowance is expected to offset some of the administrative costs of the Pell Grant program and other smaller Title IV aid programs. There are several differences in the administration of the Post-9/11 GI Bill and Pell Grant programs. Table 2 provides a succinct overview of some key differences. A full explanation of each is available in the appropriate section following the table. Some of the administrative differences may be a consequence of the relatively younger age of the Post-9/11 GI Bill; what may arguably be termed greater benefit complexity for the Post-9/11 GI Bill; and the complexity of DOD records. Because the Post-9/11 GI Bill was enacted in 2009 and the Pell Grant program was enacted in 1973, ED, IHEs, and Congress have had more time and resources to develop a suite of fully automated and integrated information systems, which administer Pell Grants in concert with the other HEA Title IV aid programs, and to improve process and system efficiency through administrative, regulatory, and legislative enhancements. And although the VA has administered several GI Bill programs since 1944, the Post-9/11 GI Bill benefit architecture was not compatible with the legacy GI Bill information systems. Pell Grants are a single payment type intended to cover educational costs; while the most common Post-9/11 GI Bill benefit includes four different payments (tuition and fees, YR, housing, and books) intended to cover different educational costs and thus requiring differing award rules. Besides the most common Post-9/11 GI Bill payments, there are additional payment types covering less commonly utilized educational costs that require different information for certification and payment. Differences in the level of automation are crucial to processing speed and accuracy. Finally while ED checks several Pell Grant eligibility criteria through automated database matching programs with other federal agencies, VA has been unable to fully automate the calculation of qualifying active duty service. As a consequence, initial FAFSA processing is automated, but initial processing of applications for veterans education benefits is primarily manual. It may be of note that despite initial FAFSA automation, at least one data element on the application of almost half of all eligible applicants is verified manually by an FAA to ensure system integrity. Both programs allow individuals to apply online. The Post-9/11 GI Bill application requires most applicants to choose the most advantageous GI Bill. The Pell Grant application requires more information, including personal financial information, that confuses some applicants. A veteran may apply for and receive a certificate of eligibility for Post-9/11 GI Bill benefits at any time within their entitlement period even if he or she does not plan to use the benefits in the immediate future. A Pell Grant application is only processed for eligibility during college admissions or while attending college. The initial benefit application is processed to determine eligibility. With respect to the Post-9/11 GI Bill, the VA cross references DOD data and several legacy systems and issues a certificate of eligibility (COE) to the individual within approximately 20 days. The COE summarizes the individual's qualifying service and resulting benefit level (40%-100%), remaining entitlement, and delimiting date (the last date of eligibility for education benefits). With respect to Pell Grants, ED's Central Processing System (CPS) automatically verifies basic eligibility for HEA Title IV aid, not necessarily the Pell Grant program in particular, by matching data from several federal agency databases. Within 3-5 days, CPS provides the applicant with a student aid report (SAR) that summarizes the application data and data match results, indicates the applicant's expected family contribution (EFC) and resulting potential Pell Grant amount, and provides additional HEA Title IV aid information for the application academic year. After the initial application process, the VA and educational institutions share processing responsibility for Post-9/11 GI Bill benefits, whereas the remaining Pell Grant processes are primarily the responsibility of the IHEs. This difference may contribute to the differences in the time required to pay benefits and concerns regarding who is responsible for Post-9/11 GI Bill overpayments—the participant or educational institution. An overpayment occurs when a benefit amount is paid on behalf of a Post-9/11 GI Bill participant to the participant or to the educational institution, and then it is subsequently determined that the individual is eligible for a smaller amount. Secondary claim/application processing determines benefit payment amounts based on actual or planned enrollment. An IHE may complete secondary processing in order to inform prospective students of their HEA Title IV aid package and encourage enrollment. The VA completes secondary processing only to award payments. For registered or enrolled students, the educational institution reports enrollment to the VA in order for the VA to calculate and make Post-9/11 GI Bill payments accordingly. The federal government encourages educational institutions to counsel GI Bill participants on the complexities of higher education and financial aid. For registered or enrolled students, the IHE may in special circumstances adjust some data elements used in calculating the HEA Title IV aid package, including Pell Grant payments, and make payments accordingly. The IHE reports Pell Grant payments to ED for payment. The key differences between the handling of overpayments from the Post-9/11 GI Bill and Pell Grant programs have to do with the total amount of the overpayment and the related programs. A Pell Grant overpayment occurs when a student receives more aid than that which he or she is eligible. A single Post-9/11 GI Bill payment may exceed $20,000. A single Pell Grant disbursement in FY2014 was no more than $2,865. For purposes of Post-9/11 GI Bill payments, VA first sends debt notification letters to the participant explaining how the participant may choose to resolve the debt, before VA notifies credit reporting agencies and refers the debt to the Department of the Treasury. For purposes of Pell Grants, the FAA will first adjust a student's Title IV aid package during the current award year to eliminate an overpayment and then attempt to recoup the funds from the student before referring the debt to ED's Debt Resolution Services. The onus is primarily on the participant for Post-9/11 GI Bill purposes and on the IHE for Pell Grant purposes. One difference key to every process step is the greater transparency in the Post-9/11 GI Bill program from the perspective of the participant. Many veterans may with little assistance correctly assess their Post-9/11 GI Bill eligibility and the payment amounts that they may receive. The eligibility criteria and calculations for Pell Grants would be difficult for students to duplicate accurately. For example, the key criterion for Post-9/11 GI Bill eligibility is the individual's service record, which may be obtained from their service unit if the exact dates are not remembered. A key criterion for Pell Grant eligibility is EFC, which is based on calculations using financial information, benefit receipt, and statutory provisions. The first step in benefit administration is notification from the individual of a desire to take advantage of a benefit. Individuals must apply for the Post-9/11 GI Bill and Pell Grant programs. Eligible individuals apply for most GI Bill benefits, including Post-9/11 GI Bill benefits, by mail or by completing the Veteran's Online Application (VONAPP). There are separate paper forms for qualifying individuals, Fry scholarship beneficiaries, and transferees. VONAPP allows servicemembers and veterans, and their families, to apply for various VA benefits, including, but not limited to, education, burial, or pension benefits. The application may be submitted as soon as the individual becomes eligible for the Post-9/11 GI Bill and must be submitted within one year of enrollment or the pursuit for which the individual would like payment. The VA provides multiple modes of assistance to individuals completing the application and guarantees that it will respond to emailed questions within five to seven working days. The application form requests the applicant's identifying information (e.g., Social Security number) and other information that assures the VA can contact the individual, make payments to the individual, and determine eligibility (e.g., service record). For dependents, the application also requires identifying information for the qualifying individual; and for Fry scholarship applicants, it requires a record of other VA benefits that the applicant has applied for or received. In addition, individuals must choose the education benefit program from which they would like to receive benefits. Qualifying individuals who are applying for Post-9/11 GI Bill benefits and who are eligible for at least one of the MGIB-AD, MGIB-SR, or REAP programs must make and date an irrevocable election to receive Post-9/11 GI Bill benefits in lieu of one of the aforementioned programs. The application notifies individuals that application processing may be expedited by sending proof of their service record and evidence of eligibility for supplemental benefits. Once the application has been submitted, applicants may follow their application and benefit information through eBenefits. eBenefits is a portal for veterans, servicemembers, and their families to research, find, access, and eventually manage their benefits, as well as manage their personal information. The Free Application for Federal Student Aid (FAFSA) is the method for applying for a Pell Grant, other forms of HEA Title IV aid, and, in some instances, aid offered by states and IHEs. Most commonly, students complete and submit the FAFSA online; however, students may also submit the FAFSA by mail. Alternatively, schools may complete the FAFSA on behalf of students through the FAA Access to Central Processing System (CPS) Online portal. The FAFSA may be submitted as early as the January preceding the award year for which the individual would like aid, and it must be submitted before the end of the same award year (June 30). ED provides multiple modes of assistance to individuals completing the FAFSA, and many educational institutions, including high schools and nonprofit organizations, offer assistance. There are over 100 questions on the FAFSA, but most applicants are not required to respond to all of them. The online form, FAFSA on the Web (FOTW), uses skip logic to present questions based on prior responses. For example, once a student identifies as female, the questions regarding registration for the draft are not posed because only males are required to register. As of February 2015, students complete FOTW in 20 minutes, on average. The FAFSA requests two types of information—identity and financial. The identity information includes contact information, information used to determine eligibility for HEA Title IV aid, data used to award state aid, and up to 13 questions to determine dependency status. Identity information is required for the applicant and, as applicable, a spouse and/or parents. In addition, applicants are prompted to list the schools that they want to receive their FAFSA information and to indicate interest in work-study. Financial information is also required for the applicant and, as applicable, a spouse and/or parents. This includes federal income tax return status and information, earnings and income, assets, child support, payments to savings plans, living allowances received, and veterans' noneducation benefits. The online form allows applicants to permit the system to retrieve the federal income tax form data directly from the Internal Revenue Service (IRS) and their tax return(s) through the IRS Data Retrieval Tool. The veteran's application for benefits and the FAFSA must be processed to verify the applicant's eligibility. GI Bill applications, also known as original claims, are processed at one of the four VA Regional Processing Offices (RPOs). Claims are routed to RPOs depending on either the address of the educational institution or training establishment or the address of the applicant. The capability to process a claim that has been routed to one RPO at another RPO is limited until the claimant's electronic file has been transferred to preserve claims management integrity. The original claim (application for VA education benefits) is processed by the VA Veterans Claims Examiner (VCE) using several IT systems ( Table 3 ). The VA has several legacy systems that are used to administer the other GI Bills and veterans benefits more generally. The VA developed the Long Term Solution (LTS) to automate processing of Post-9/11 GI Bill claims; however, LTS must work within the legacy system architecture. Claim information is entered into The Image Management System (TIMS) for VCE review. The VCE is responsible for verifying the claimant's eligibility and either issuing a certificate of eligibility (COE) or issuing a letter explaining why the claimant is not currently eligible. The first verification check reviews DOD records. The primary source is the Veterans Affairs/Department of Defense Identity Repository (VADIR). VADIR interfaces with LTS, which makes an initial eligibility determination; however, the VCE is often called upon to do additional research of missing information. The VCE may verify the service record and DOD education-related service obligations or benefits in the Veterans Information Solution (VIS), on a copy of the DD-214, on a copy of the Kicker contract, in the Beneficiary Identification and Record Locator Subsystem (BIRLS), or through contacting DOD or the service branch. The LTS calculates the aggregate period of qualifying service. For dependents, the VCE reviews records of the qualifying individual, the dependent, and, if applicable, the transfer of entitlement (ToE). VIS contains dependency and ToE data. The VCE reviews the Benefits Delivery Network (BDN) for usage of other GI Bills that may affect Post-9/11 GI Bill entitlement, verifies that the individual properly made an irrevocable election if required, validates the bank deposit routing number in BDN, updates the individual's contact information in BDN if applicable, and notes in TIMS whether the individual made the $1,200 contribution for MGIB-AD benefits. In addition, if the information is available the VCE may review whether the individual is eligible to pursue his/her desired program of education. The program of education review is also conducted as part of the secondary processing step discussed in the next section. To facilitate future process audits and avoid duplicative efforts, the VCE captures and records in TIMS the sources and data used to confirm eligibility/ineligibility along with helpful notes. If a claimant is ineligible for Post-9/11 GI Bill benefits, LTS generates a letter explaining the reason(s), evidence, and next steps. If needed, letters may also be prepared and customized using the Personal Computer Generated Letters (PCGL) system and then mailed manually. Denied claimants must work directly with the RPO to correct and resolve any issues. If the claimant's eligibility for Post-9/11 GI Bill benefits is verified, LTS generates a COE. In order to prepare the COE, the VCE must ensure LTS is appropriately and accurately populated. Although LTS does not interface with VONAPP, it does pull in the appropriate information from VADIR. The VCE verifies and changes any data in LTS, as required, based on the eligibility verification research. Once LTS has been populated, the VCE adjudicates the claim in BDN. VA has established additional processes to ensure accurate claims processing. After the VCE completes processing of the COE in LTS but before the COE is mailed to the individual, a second VCE or Senior VCE must authorize the original claim. The authorizer reviews the records in TIMS and LTS to ensure the verification and research was done fully and accurately in accordance with policy and law. In addition to the authorization step, each RPO has a procedure for checking a certain number of claims per VCE per month to ensure accuracy. Once the original claim has been authorized, the VCE may print and mail the COE letter. The COE states that the individual is entitled to benefits for an approved program of education or training under the Post-9/11 GI Bill; instructs the individual to take the COE to the school; informs the individual that the school must certify the individual's enrollment in order to receive payments; confirms the individual's qualifying and non-qualifying periods of active duty service; and indicates the individual's benefit level, remaining entitlement, delimiting date, and Kicker entitlement. If the individual's proposed program of education is not approved for GI Bill purposes, the VCE may customize the COE to indicate this. Finally, the COE describes the individual's right to appeal the decision and describes the process steps required for an appeal. In FY2014, the VA processed original claims in an average of 17 days. The processing time has decreased from 39 days in 2010 as the VA has implemented improved technology systems, primarily the LTS, and proactive caseload and process monitoring and improvements. Data submitted on a FAFSA or through FAA Access is processed by the ED Central Processing System (CPS). CPS is an automated system that processes all applications for HEA Title IV aid (see box below). It performs several processes fundamental to Pell Grant processing: verifying eligibility, calculating the Expected Family Contribution (EFC), and notifying applicants and institutions of applicant eligibility. CPS is operated, maintained, and managed by an ED contractor. CPS matches and edits the data from the FAFSA in order to determine the student's eligibility for HEA Title IV aid programs, including Pell Grants. The data are checked for inconsistencies and matched against existing personal data held by ED, the Social Security Administration (SSA), the VA, DOD, Department of Justice (DOJ), Department of Homeland Security (DHS), and Selective Service System. ED maintains computer matching agreements with each federal agency in order to complete the verification. Some mistakes and inconsistencies will be overwritten by CPS. The financial information on the FAFSA is used by CPS to calculate the EFC of the applicant's family. The EFC is the amount that, according to the federal need analysis methodology, can be expected to be contributed by a student's family toward the student's cost of education over a nine-month period during the upcoming award year. The calculation is prescribed in statutory provisions. The student's family may consist of (1) the student alone; (2) the student and spouse; (3) the student, spouse, and dependents; (4) the student and dependents; or (5) the parents/stepparents and parents' dependents, including the student. The calculation is based on consideration of available income and, for some families, available assets as reported on the FAFSA. There are three basic EFC formulas that may be applied depending on the type of applicant: those who are considered dependent on their parents; independent students with no dependents, other than a spouse (if any); and independent students with dependents other than a spouse (e.g., children). Generally, EFC is calculated on the basis of income and assets, using various assumptions defined in statutory provisions, and adjusted for the number of family members in college. The asset contribution is not included if the family income is less than $50,000 and one of the following apply: a family member received means-tested federal benefits; the family was eligible to file or filed certain federal income tax returns; or a student, spouse, or parent is a dislocated worker. Three groups of individuals may receive an automatic zero EFC. Otherwise Pell Grant-eligible dependent students and independent students with dependents other than a spouse can qualify for an automatic zero EFC if 2013 family income was $24,000 or less and one of the following apply: a family member received means-tested federal benefits; the family was eligible to file or filed certain federal income tax returns; or a student, spouse, or parent was a dislocated worker. Individuals who had a parent or guardian die as a result of military service in the U.S. Armed Forces in Iraq or Afghanistan after September 11, 2001, and who were under 24 years old or were enrolled at an IHE at the time of the parent's or guardian's death qualify for an automatic zero EFC if Pell Grant-eligible; or an Iraq and Afghanistan Service Grant (IASG), if they would otherwise be Pell Grant-eligible but for their EFC. Once the FAFSA is checked, CPS produces two output documents (posting, or printing and mailing, as required). CPS provides each applicant with a Student Aid Report (SAR) by mail or by email with instructions on how to access the report online. CPS also provides each IHE designated by the applicant on the FAFSA with an Institutional Student Information Record (ISIR) accessible to the FAA through FAA Access to CPS Online. The SAR and ISIR contain the application data, results of the data matches and any inconsistencies, and the EFC if calculable. Depending on the EFC, the SAR will indicate whether the student may be eligible to receive a federal Pell Grant and other federal student aid. If a sufficient problem is found with the matches and checks, the SAR and ISIR will indicate that the student's record needs to be amended in order to receive aid. The SAR also informs the student of the next steps, including the need for updated tax information and the school completing the financial aid process. In addition, the SAR shows graduation, retention, and transfer rates for the schools selected and the total amount of federal student loans owed by the applicant. FAFSAs submitted electronically are processed within 3-5 days, and paper FAFSAs are processed within 7-10 days. The SAR is often available within 3-5 days online but may take as long as three weeks after submitting the FAFSA if provided by mail, depending on the method of FAFSA submission and whether an email address was submitted. Once initial claim and application processing determine eligibility, intervention by the prospective or actual educational institution or training establishment is integral in secondary processing, which may lead to a disbursement or payment of benefit funds. As soon as an individual's eligibility for Post-9/11 GI Bill benefits has been certified and the individual either enrolls in or completes a portion of education or training, VA may process payments (supplemental claims) on behalf of the eligible individual according to the processes outlined below. The educational institution or individual must certify enrollment. The payments are a mix of up-front lump sum payments and payments that support completed portions of education or training. The educational institution must certify the individual's enrollment to the VA. This section describes the school certifications required for individuals pursuing non-college degree and degree programs not by correspondence. The School Certifying Official (SCO) at the educational institution is notified by the individual of the desire to use GI Bill benefits either in person or through some institution-developed form or process. The SCO may be in the student services center, the financial aid office, the veterans' services center, or another office of the educational institution. If available, the individual provides a copy of the COE to the SCO, thus expediting the process. If an individual does not have a COE, the process of determining eligibility as initiated by the individual and the processing of payments as initiated by the educational institution may occur concurrently. The SCO certifies the student's enrollment by completing a certificate of enrollment (Cert) in the VA-Online Certification of Enrollment (VA-ONCE). VA-ONCE is a VA Internet-based application used to certify student enrollment and submit Notices of Change in Student Status for VA education benefits. The Cert requires the individual's identifying information; the type of training (undergraduate degree, non-college degree, or graduate degree); the name of the approved program of education; the individual's educational objective (e.g., associate of art degree, associate of science degree, master of art degree, or non-degree); the number of resident training credits in which the student is enrolled, the number of distance learning credits in which the student is enrolled, the number of clock hours per week, and the number of residential remedial or deficiency credits; the number of credits considered to be full-time by the institution, if graduate training is being pursued; dates of the academic term or program (if not on a term basis) including breaks; and the applicable net in-state tuition and fee charges, and if applicable out-of-state tuition and fee charges and available Yellow Ribbon payment. The applicable net in-state tuition and fee charges are such charges reduced for DOD tuition assistance (TA) benefits, and reduced for any waivers, scholarships, or other assistance that is designated for the sole purpose of reducing a student's tuition and fee cost and provided directly to the institution, except Pell Grants and loans. The applicable fees are mandatory charges and thus exclude optional fees for such activities as study abroad, parking, or penalties. The SCO may only certify applicable courses. Only courses and subjects that apply to the student's program of education may be certified, and audited courses cannot be certified. Institutionally required remedial and deficiency courses may be certified. The SCO may certify courses that an individual repeats in order to meet the institution's completion criteria. An individual may request that the SCO certify fewer credits than actually enrolled in in order to preserve entitlement. SCOs may be required to include various notes in the remarks section of VA-ONCE in special circumstances. There are standard remark terms and free space for other circumstances. Remarks are required for students enrolled in cooperative programs, incarcerated as a result of a felony conviction, or enrolled in practical training or student teaching. An individual may enroll in more than one institution in pursuit of an educational objective. The primary or parent institution must verify that the individual will take specified courses at the other named institution(s) for credit at the primary institution. The secondary institution(s) may subsequently certify the individual's actual enrollment in VA-ONCE and indicate the individual's primary institution. The secondary institution(s) may only certify the courses by the primary institution. In order to expedite processing and ensure timely benefit payments, the VA encourages educational institutions to submit Certs for each academic term as early as possible even if the institution cannot submit tuition and fee charges until later. The SCO may certify multiple terms at one time, especially when the terms may overlap. In the event that the Post-9/11 GI Bill participant does not inform the educational institution in a timely manner that he or she would like to use GI Bill benefits, the SCO may certify up to one year after the education or training. Also as part of the initial enrollment certification, educational institutions, training establishments, and individuals must certify vocational flight training, apprenticeships or on-the-job training, tutorial assistance, correspondence training, licensing and certification tests, national tests, and relocation. These certifications and related agreements are supported through VA-ONCE, paper forms, and other communications. The administrative processes for these forms of education and training are detailed in Appendix C because the processes represent a small portion of Post-9/11 GI Bill participants and funding and these forms of education and training (with the exception of correspondence) are not comparable to those permitted for Pell Grant awards. Please note, however, that these forms of education and training affect the processes and systems developed and implemented by the VA to administer the Post-9/11 GI Bill program. The educational institutions and training establishments are required to maintain a file on each individual and his/her educational or training progress. The file must contain the documents required by statutory provisions, regulations, and other instructions. These documents include, but are not limited to, a record of all VA paperwork, school transcripts, academic records, grade reports, drop slips, registration slips (for those courses dropped during drop/add), tuition and fee charges, transcripts from previous schools with evaluations of same, the student's school application, records of disciplinary action, a program outline, a curriculum guide or graduation evaluation form, graduation or program completion, and any other pertinent forms and information. Once the educational institution, training establishment, or individual certifies the individual's enrollment, training, or expenditure, the RPO verifies eligibility and processes the payment, if eligible. Some Certs are processed automatically by LTS; the remainder require VCE intervention. Generally, individual VCEs only process certain kinds of Certs, reflecting the diversity of processes. For example, a VCE may specialize in test fee certifications. The information from Certs entered in VA-ONCE is automatically populated into LTS and TIMS. Certs that request tuition and fees, Yellow Ribbon payments, housing allowances, reenlistment incentives, and books and supplies and that do not include remarks may be automatically processed, including payment calculations and payment notification letter printing. Mailing the letters is still a manual process. The automated calculations may include awards for overlapping terms. The payment amounts are transferred from LTS to BDN to make the actual payments. If there are remarks in the VA-ONCE Cert or issues arise in the automated processing, a VCE will complete processing. The VCE may re-verify the claimant's eligibility as if issuing a COE to update any changes, resolve any discrepancies, and properly populate LTS and BDN. The educational objective, prior education and training, and professional licenses may be used by the VCE to ensure the objective is not prohibited by statutory provisions, ensure the individual has not already achieved the objective, ensure the program of education leads to the objective, limit changes in the program of education, and ensure that the enrolled courses and pursued training are generally acceptable to meet the requirements for the objective. In addition, the VCE verifies that the program of education is approved in the Web Enabled Approval Management System (WEAMS). The program approval in WEAMS is captured in TIMS. An award letter or denial letter is mailed to the GI Bill participant for every Cert processed. The letters may be generated by LTS or constructed with a template from PCGL and information from BDN and LTS. The award letter provides recent payments, remaining benefits, and contact information. It describes the individual's qualifying active duty service and resulting benefit level. It also summarizes the enrollment and program of education charges submitted on Certs during the academic year, describes how payment amounts were determined, and presents the amounts and timing of each payment type issued. Finally, the letter provides contact information in the event that the individual has questions and describes the individual's right to appeal, including the process. When processing Certs, VCEs may also need to incorporate information received by email on the outcome of compliance surveys (audits). Audits, conducted by the VA and SAAs, are designed to ensure that educational institutions, training establishments, and approved courses are in compliance with all applicable provisions of the law governing GI Bills. The audit may result in restrictions on Cert processing. Post-9/11 GI Bill payments are processed, determined, and calculated by LTS once authorized by LTS or a VCE. LTS is programmed with rules based on statutory provisions and regulations to calculate the variety of payments authorized. Authorized payments may be available for tuition and fees, the Yellow Ribbon program, a housing allowance, a books and supplies stipend, tutorial assistance, test fees, relocation and travel assistance, and Kickers. Kickers are additional benefit amounts that supplement the housing allowance of eligible Post-9/11 GI Bill participants. Payment eligibility and amounts depend on the individual's benefit level, the program of education (e.g., program leading to a degree, vocational flight, test fee, etc.), rate of pursuit, institutional control and location, type of institution (institution of higher learning, vocational flight school, etc.), other tuition and fees benefits, educational delivery mechanism (distance or in-residence), duty status (active duty or otherwise) of the qualifying individual, number of days in education/training for the month, need for tutorial assistance, test fee, Kicker contract, Yellow Ribbon agreement, residence and the residence's relationship to the educational institution, and the relationship to the qualifying individual. See Table 3 for the maximum amounts for tuition and fees, housing, and books and supplies for the academic year beginning August 1, 2014. Payment timing also differs. Generally, payments are made at the beginning of the month for the previous month. Payments may be delayed to subsequent months if there is a delay in processing or certification. The Payment History Inquiry Screen (TINQ) in the "SHARE" system, an automated computer system that maintains claim receipt dates and benefit payment dates, indicates when payments are made. The VA's call center may review SHARE to determine recent benefit information. In most instances, the tuition and fees and YR payments are sent to the institution by check or Electronic Funds Transfer (EFT). The tuition and fees and YR payments may be sent up to two weeks before the start of the academic term or once the Cert has been processed. In most instances, the individual's Post-9/11 GI Bill entitlement is charged one day for each day the individual is enrolled full-time (or the equivalent for part-time enrollment). The VA also mails each institution a weekly Vet Rep Listing Report, which lists all the individuals and payments (tuition and fees and YR payments) made directly to the institution. Other than payments covering tuition and fees charges, payments are made directly to the eligible individuals by check or EFT. Post-9/11 GI Bill-eligible individuals may receive one or more of the following payments directly: a monthly housing allowance at the beginning of each month for the previous month(s); the books and supplies stipend at the beginning of each academic term; tutorial assistance in a lump sum upon completion of tutoring; supplemental assistance and Kickers added to the housing allowance at the beginning of each month for the previous month(s); test fees in a lump sum after test administration; relocation and travel assistance in a one-time lump sum upon certification; and a refund of contributions to the MGIB-AD in a one-time lump sum added to the final housing allowance paid when the individual's entitlement is exhausted. As of December 2014, the LTS processed over 50% of supplemental claims received electronically from end-to-end within one day of receipt. In FY2014, the VA processed supplemental claims for returning students in an average of six days. On average, educational institutions submitted certifications for 60 Post-9/11 GI Bill recipients in academic year 2010-2011; although 13% of educational institutions certified fewer than three Post-9/11 GI Bill recipients in academic year 2010-2011. After initial processing of FAFSA is complete, Pell Grants are administered by IHEs concurrently with other HEA Title IV aid and often with state, institutional, and other aid. Every institution that administers HEA Title IV aid must maintain policies and procedures that govern its process for verification that are consistent with the federal statutory and regulatory provisions. IHEs are responsible for reporting suspected cases of intentional misrepresentation or fraud to ED's Office of Inspector General. The students' point of contact at the IHE is the financial aid administrator (FAA). The FAA may receive the SAR or ISIR in FAA Access to CPS Online for an applicant, registering student, or currently enrolled student and begin secondary processing. There are three scenarios that require a student's eligibility to be reviewed. If the SAR or ISIR indicate critical inconsistencies, the applicant or FAA must correct the inconsistencies on the FAFSA, or the applicant must provide to the FAA original and adequate documentation such that the FAA can override the CPS error codes. The IHE is ultimately responsible for resolving discrepancies prior to the disbursement of any federal aid and ensuring proper Pell Grant payments. In addition to the initial CPS eligibility verification, CPS and each IHE select a number of applications for additional verification. If an application is chosen for verification, the applicant must present supporting documentation to the FAA. An eligible student's annual Pell Grant award is determined on the basis of a set of award rules defined in statute and regulations that use the student's EFC, cost of attendance (COA), enrollment status, maximum Pell Grant award, and minimum Pell Grant award. COA is a measure of a student's educational expenses for the period of enrollment. For Pell Grant purposes, the period of enrollment is always based on full-time attendance for a full academic year (e.g., 12 credit hours per semester for two semesters requiring at least 30 weeks of total instruction). Statutory provisions determine the types of costs included in COA, and the IHE and FAA determine the appropriate and reasonable amounts of those costs. Examples of the permissible types of expenses, depending on the student's circumstances, are tuition and fees; books, supplies, transportation, and miscellaneous personal expenses; room and board; and dependent care. The maximum Pell Grant award for each award year is specified in the annual appropriations act and HEA. For award year 2014-2015, the total maximum Pell Grant is $5,730. For award year 2014-2015, the minimum Pell Grant award, as defined in HEA, is 10% of the total maximum Pell Grant award. In some instances, the FAA may use professional judgment to adjust COA and/or data used to calculate EFC. The FAA may use discretion and adequate documentation to adjust for a student's individual and special circumstances. For example, an adjustment may be made to accommodate unusual healthcare costs or recent unemployment. Professional judgment may not be used to change the letter or intent of the statutory provisions or regulations governing aid administration. To calculate the Pell Grant award amount for the full award year, the FAA can enter the COA, EFC, and expected enrollment status in a software program, such as EDExpress, to calculate the award or manually access payment schedules published by ED. EDExpress is available free of charge from ED to IHEs to process and manage federal student aid records (see box). Once the FAA determines the student's Pell Grant award for the full award year, the FAA calculates the amount(s) to disburse during the award year based on the student's attendance pattern. Pell Grants must be paid in installments over the award year. A student receives a Pell Grant only for the payment period (e.g., academic term) for which he/she is enrolled. For example, a student who enrolls full time for two semesters during a standard trimester award year will receive at least two Pell Grant disbursements, one for each semester, totaling the student's Pell Grant award for the full award year. Conversely, a student who enrolls full time for only one semester during a standard trimester award year receives one disbursement equal to approximately one-half of the Pell Grant award for the full award year. And finally, a student who enrolls full-time for three semesters (fall, spring, and summer) during a standard trimester award year will receive at least two Pell Grant payments, typically one each for the fall and spring semesters. After calculating the Pell Grant award, the FAA will package the remainder of the student's Title IV aid. Packaging is a process by which the FAA combines HEA Title IV aid, institutional aid, employer education assistance, private loans, and other aid from non-federal sources such as states to meet the financial need of students and cover the students' educational costs. The federal components of the package are determined by HEA Title IV statute and regulations and IHE policies and philosophy. The Pell Grant or IASG award is considered the first source (foundation) of the package. Software, such as EDExpress and those programs offered by commercial vendors, may facilitate packaging. A full description of aid packaging is outside the scope of this report. The full package of various aid sources and amounts is presented to each student in an award letter. Educational funds that are not part of the aid package include GI Bill benefits, vocational rehabilitation assistance, Senior Reserve Officers' Training Corps (ROTC) scholarships (Title 10 U.S.C., Chapter 103), and some additional non-Title IV aid. The student and parents, if applicable, with the assistance of the FAA, if requested, must choose which aid within the package to accept. The IHE must disseminate information to ensure student aid applicants are notified of the terms and conditions of aid programs, sources and amounts of aid offered, the method for disbursing and applying aid, student's rights and responsibilities, institutional processes, and other Title IV-required disclosures of consumer information. If a student accepts a Pell Grant or IASG, the FAA disburses the funds according to schedule and records the disbursements in the Common Origination and Disbursement (COD) system. COD is an ED system to which IHEs have access in order to request, report, and reconcile HEA Title IV funds. Pell Grant awards and disbursements must be recorded in COD. Before the actual disbursement, the FAA must confirm that the student remains eligible, has received any required information disclosures, and is enrolled in or attending the IHE, as required. The IHE has some flexibility in the schedule for disbursing Pell Grant funds. Assuming the student applies and is determined eligible in a timely manner, the disbursements may occur up to 10 days prior to the start of the payment period but not before the student completes the prior payment period. For example, an IHE may choose to disburse funds after the course add/drop date. The IHE also has the flexibility to provide each disbursement to a student in multiple installments if it is in the best interest of the student. The disbursement may be deposited in the student's school account or paid directly to the student or family. Most IHEs deposit the funds in the student's account. After crediting a student's account with Pell Grant funds, the IHE will deduct from the account unpaid tuition, fees, and institutionally provided room and board due for the current program year. Any remaining Pell Grant funds may be paid directly to the student for personal use. In general, the remaining funds must be paid or made available to the student or family within 14 days. In addition to ensuring student eligibility and calculating Pell Grant awards, IHEs are responsible for proper management of Pell Grant funds and associated recordkeeping and disclosures. ED has developed two basic methods for disbursing Pell Grant funds to IHEs: ED may obligate the funds to the IHE upfront or reimburse the IHE for disbursements. In the upfront approach used by most IHEs, ED establishes an authorization of Pell Grant funding in COD against which an IHE may request (draw down) funds. The authorization level is based on actual disbursement records accepted by the COD system. Once the IHE draws down funds, it must make payments to students as soon as administratively feasible but no later than three business days after receiving (drawing down) the funds from ED. IHEs for which ED has a concern about their ability to meet Title IV participation requirements may receive funds from ED through Reimbursement or one of the Cash Monitoring payment methods. Under these methods the IHE is paid back for funds it has disbursed to students. IHEs receive Pell Grant funds and other Title IV funds by electronic funds transfer (EFT) using ED's G5 payment system. G5 is an electronic grants management and payments system that supports the planning, obligating, authorizing, disbursing, and final closing of ED grant awards and payments. After the school awards all the Pell Grant funds due to students, the school returns any remainder to ED. The IHE must have policies and procedures in place to ensure proper management of HEA Title IV funds. Information must be shared between offices and departments within the IHE. Each IHE must designate a coordinating official to ensure Title IV aid is administered correctly; however, no single person or office may authorize payment and disburse or deliver Title IV funds. As described, IHEs must make several notifications to students and parents throughout the financial aid process. Most notifications and disclosures may be sent and authorizations received electronically by schools unless regulations specifically require the use of U.S. mail. Voluntary consent to participate in electronic transactions is required for all notices and authorizations to HEA Title IV aid recipients. Processing speed is determined by the availability of FAAs and IHE internal systems for processing. On average, there were 1,653 Pell Grant recipients for each IHE that awarded Pell Grants in award year 2011-2012. After payment(s) for the initial academic term or pursuit have been distributed, subsequent payments may be distributed or previous payments adjusted. Both the Post-9/11 GI Bill program and Pell Grant program have processes to ensure subsequent payments are made properly and adjustments are made to match the student's circumstances and the programs' objectives. Educational institutions, training establishments, and individuals must certify enrollment or pursuit every academic term, month, year, or program, depending on the type of education and training. Once the supplemental claim is approved for an academic term at an educational institution for a program other than by correspondence, LTS automatically approves and initiates subsequent payments for the housing allowance and books and supplies stipend throughout the certification period unless there is a change to the certification. Payments for completed education and training (i.e., tutorial assistance) are processed by the RPO as described above upon receipt of a Cert. In most instances, an individual need not reapply to continue receiving benefits. In addition to the regular certification of enrollment, an educational institution may need to correct or revise a previous Cert if the participant's rate of pursuit changes, the participant fails to maintain satisfactory academic progress or conduct, the participant takes a leave of absence or terminates enrollment, or the participant receives an incomplete grade. The changes should be reported within 30 days or as soon as possible. Depending on the change, the SCO may adjust the number of hours, amend the term dates or charges, or terminate an individual's attendance. The SCO must maintain a change record in the student's file. Based on the adjustment, amendment, or termination; reason; and effective date, VA recalculates the benefits for which the participant is eligible for the academic term. If the benefit amounts increase, the next payment(s) will reflect the increased amount that was not received previously. If the benefit amounts decrease, the next payment(s) will reflect the decreased amount but not make up for overpayments received previously. The educational institution must notify the VA if a GI Bill participant is placed on academic probation or is not making satisfactory progress and is terminated or has been suspended or dismissed for unsatisfactory progress, attendance, or conduct. Notification of placement on academic probation is provided through the VA's "Ask a Question" via the Internet Inquiry System (Right Now Web). Notification of unsatisfactory progress, attendance, or conduct is made through VA-ONCE. The VA encourages educational institutions and training establishments to notify the GI Bill participants of counseling and tutorial assistance available through the institution or establishment and the VA. Likewise, the VA will reach out to the individual to offer assistance. Educational institutions and training establishments are responsible for defining and enforcing their standards of academic progress, attendance, and conduct. Participants are not eligible for benefits for periods during which they are not pursuing an approved program of education. Individuals on academic probation may continue to receive GI Bill benefits. Individuals who are not making satisfactory progress cannot receive GI Bill benefits until the issue is resolved with the educational institution. To resume receiving benefits, the individual may re-enroll in the same program at the same institution under the terms of the institution. The reasons for resumption are recorded in the individual's student file. Alternatively, the individual may submit a Request for Change of Program or Place of Training to the VA to gain approval for a change of program, which is more suitable to the individual, once the reason for prior unsatisfactory progress is resolved. For GI Bill participants who desire to change educational institutions or training establishments or change educational objective, the change must be recorded and approved. The participant must submit a Request for Change of Program or Place of Training to VA to gain approval for a change of program. Participants changing educational institutions or training establishments submit the form manually to the SCO for retention in the student's file. If a student changes his/her program while enrolled at the same educational institution, a record of the change must be recorded in the student's file and changed in VA-ONCE. The student does not need to notify VA through the Change of Program form. To be eligible for a Pell Grant in a subsequent academic year, a prospective student or ongoing student must complete a FAFSA each subsequent academic year for which they would like to receive HEA Title IV aid. For students who submitted a FAFSA the prior year, FAFSA on the Web can prefill prior-year information (Renewal FAFSA) to simplify the submission process. In contiguous subsequent years, students must maintain satisfactory academic progress (see description below) and may renew their FAFSA online by correcting any items that have changed. Most students receive a system-generated renewal reminder by email or regular mail in January or February if they received aid in that same academic year. After the student submits FAFSA for a subsequent academic year, CPS verifies eligibility and calculates the student's EFC, and the FAA calculates COA, packages the student's aid, and disburses payments. To receive additional Pell Grant funds during a single academic year, the FAA may need to release additional installments during the academic term, release additional disbursements for subsequent payment periods (payment periods are usually the academic term) in the same academic year, and adjust or re-estimate the aid package. To be eligible for a second Pell Grant disbursement during a single academic year, a student generally must maintain satisfactory academic progress (see description below). Disbursements for subsequent payment periods in the same academic year may occur after 10 days prior to the start of the payment period but not before the student completes the prior payment period. For clock-hour programs and nonterm credit-hour programs, disbursement for the second payment period occurs when the student successfully completes 50% of the weeks of instructional time and 50% of the credit-hours/clock-hours in the academic year or program or the remaining portion of a program that is more than one-half of an academic year but less than a full academic year. Any adjustments and disbursements must be recorded in COD. There are few instances in which IHEs are required to recalculate the Pell award for the current or subsequent payment periods. If the EFC is corrected mid-payment period or if the student fails to attend at least one day in one or more classes, the Pell award for the current payment period must be recalculated. The recalculation may lead to an additional disbursement for the payment period, an adjustment to the disbursement for a subsequent payment period in the same award year, or an overpayment. If a student's enrollment rate changes from one payment period to the next payment period in the same award year, the Pell Grant disbursement for the next payment period is based on the enrollment rate in that next payment period. IHEs may establish policies to recalculate Pell Grants in other circumstances. The FAA may need to adjust or recalculate the rest of the aid package in the event that the student's circumstances change. Common changes include a finding that the student is ineligible, the student receiving more aid than allowed by the program, the aid exceeding the student's financial need, the aid exceeding the student's COA, the enrollment status of a student changes, the student's EFC being adjusted in the middle of an award year, or the student receiving more financial assistance than originally estimated. The adjustment or recalculation may result in an overaward . An overaward exists when a student's aid package exceeds the amount to which the individual is eligible according to HEA. With the exception of the aforementioned circumstances, a correctly determined Pell Grant is never adjusted in a package that is overawarded. The adjustments must come from forms of aid controlled by the school other than the Pell Grant. If the overaward cannot be resolved by receiving a payment from the student or through a subsequent disbursement in the same academic year, it becomes an overpayment. Satisfactory academic progress is delineated by policies developed by each participating IHE, but these policies must meet minimum federal standards. Federal standards require a minimum GPA or the equivalent and successful completion of courses at a pace to ensure successful program completion in a maximum timeframe, which is usually 150% of the program's published duration. Students enrolled in programs of more than two years must also at the end of the second year have a GPA of C or better, its equivalent, or the IHE's graduation requirement. With two exceptions, students who fail to make satisfactory academic progress are not eligible for Pell Grants in the subsequent payment period—academic year or payment period for one-year or less-than-one-year programs. Students may regain Pell Grant eligibility by making satisfactory academic progress in a subsequent payment period. After failing to make satisfactory academic progress, a student may regain eligibility in the immediately subsequent payment period if placed on financial aid probation or warning. Students who fail to make satisfactory academic progress as a result of special circumstances and who are likely to be able to make satisfactory academic progress in the future may appeal, if the IHE permits appeals, and be placed on financial aid probation in order to be Pell Grant eligible in the immediately subsequent payment period. IHEs may place students on financial aid warning for a single payment period. The resolution of overpayments is an issue for Post-9/11 GI Bill participants and educational institutions, as well as IHEs that participate in the HEA Title IV aid programs. A common complaint of Post-9/11 GI Bill participants and IHLs regarding benefit administration is the incurring and resolution of overpayments. An overpayment occurs when the VA reduces a student's benefit amount after providing a payment that exceeds that amount. Overpayments most often occur when Post-9/11 GI Bill participants reduce their course enrollment rate after the VA has paid tuition and fees as a lump sum based on the higher enrollment rate. Most overpayments are the responsibility of the individual to resolve. An educational institution may be liable for overpayments based on amounts that it received directly from the VA. (Training establishments are not generally responsible for overpayments since they do not receive payments directly from the VA.) An educational institution is liable for an overpayment of amounts received directly from the VA if the GI Bill participant fails to attend any classes, the participant withdraws on or before the first day of the term, the participant dies, the educational institution receives an erroneous payment (i.e., a duplicate payment, a payment above the certified amount, or a payment for the wrong student), or the institution submits an amended enrollment certification with reduced charges or a Yellow Ribbon amount that was not the result of the individual's change in enrollment. The law also provides a school liability provision under which the school may be liable for overpayments to the claimant if the overpayment was the result of willful or negligent improper certification. In the event of an overpayment for which the educational institution is responsible, LTS calculates the amount of the debt, populates information in BDN, and generates a letter to the SCO regarding the nature and amount of the overpayment. Within three days, BDN automatically sends the debt information to the VA's Debt Management Center (DMC). DMC processes most debts for the VA. DMC notifies debtors by mail of their debt and the available processes for repayment. Within three days, DMC will send a Notice of Indebtedness (NOI) to the SCO explaining that the institution must resolve (repay or dispute) the debt within 30 days. Once DMC notifies the SCO, the debt must be resolved with DMC; the SCO may dispute the overpayment by contacting DMC via phone or email. Alternatively, the SCO and institution may remit the overpayment amount to DMC. Unless the debt is resolved or disputed, DMC will send a second NOI to the SCO explaining that the institution must resolve the debt within 30 days. If the debt is not resolved within the 30 days, DMC will send a third NOI to the SCO explaining that the institution must resolve the debt within 60 days. If the debt remains unresolved within 60 days of the third NOI, DMC refers the debt to the Treasury Offset Program (TOP) for further collection. Debts referred to TOP are no longer the jurisdiction of the VA or DMC. TOP deducts the debt and an administrative fee from other federal payments that would have gone to the institution. TOP remits the collected funds to DMC in order to administratively resolve the debt. In the event that the debt is disputed, DMC, with assistance from the RPO as necessary, reviews the debt and make a decision/determination. LTS, BDN, and TIMS are updated accordingly. VA sends monthly "School AR Reports" listing school debts to SCOs. The report lists students' names, file numbers, debt balances, and when debts were created and includes a cover letter explaining how to return payment. In most instances, GI Bill participants are responsible for overpayments related to their benefits. LTS calculates the amount of the debt, populates information in BDN, and sends a letter to the GI Bill participant regarding the nature and amount of the overpayment. The GI Bill participant is expected to contact the RPO in writing to resolve the debt. The GI Bill participant may resolve the debt by repaying the debt; requesting, in writing, a payment agreement with the VA that assures the debt will be repaid within one year; requesting, in writing, a waiver from all or a portion of the debt within 30 days of debt notification if the collection would be unfair and create a financial hardship and avoid the offset of future GI Bill payments for debt collection; requesting, in writing, a waiver from all or a portion of the debt after 30 days but within 180 days of debt notification if the collection would be unfair and create a financial hardship and have future GI Bill payments offset for debt collection; or submitting, in writing, a compromise offer for the debt and a Financial Status Report (form available from VA by phone). The RPO also contacts DMC. If the GI Bill participant fails to respond to the first letter within 10 days, DMC will send a demand letter. Once DMC provides notification, the debt must be resolved with DMC. Unless action is taken by the beneficiary within 30 days of creation of a debt, the VA offsets overpayments from each monthly housing stipend until recovered. In addition, if the participant does not contact DMC within 30 days, DMC will send a second demand letter explaining that the GI Bill participant must resolve the debt within 30 days. If the debt is not resolved within the 30 days, DMC will send a warning letter explaining that the individual must resolve the debt within 60 days. Within 30 days of the warning letter, DMC notifies credit agencies. Within 60 days of the warning letter, DMC refers the debt to TOP. If the debt is not resolved with TOP within 60 days, it is referred to private collection agencies. Concurrent with the VA's overpayment collection process, the educational institution will calculate any refund that the GI Bill participant will receive from or owes to the institution. The educational institution calculates any amounts and makes payments based on its policies and procedures. In 2013, VA identified $870,000 in improper payments for the Post-9/11 GI Bill, Montgomery GI Bill-Selected Reserve, and Reserve Educational Assistance programs combined. An overpayment of Pell Grant funds may consist of student debt and IHE debt. The amount of student debt and IHE debt are calculated by the FAA. IHE debt must be returned to ED. The IHE is initially responsible for trying to collect from the student the amount of the student's overpayment. A school is liable for any incorrect payments made to the student due to school error (i.e., not following ED regulations). For overpayments for which the school is responsible, the school is liable for the amount and for physically returning the funds. This includes administrative, filing, and processing errors. School officials may be subject to a $10,000 fine, a prison sentence, or both if they knowingly make false or misleading statements. If an overpayment is generated, the IHE must initiate a R eturn of Title IV funds (Return) to the federal government. An IHE may calculate the amount of funds to be returned using the Return of Title IV Funds on the Web (R2T4) in FAA Access to CPS Online. The amount of the Return does not include the amount of the overpayment for which the student is responsible. IHEs must have or make arrangements for adequate cash reserves to return Title IV funds within 45 days in the event that a student withdraws. The IHE may return the funds through the G5 payment system, a check to ED, or disbursing to another eligible student. The IHE must return funds to ED within 30 days if the student fails to begin attendance. The IHE must record returned funds in COD. The IHE may seek to regain the returned funds from the student, but this debt to the IHE does not affect a student's eligibility for future HEA Title IV aid. Students are liable for any overpayments for which the IHE is not liable. For example, the student will be liable for the overpayment when making a mistake on the FAFSA, providing faulty tax returns, or other scenarios where student error caused an incorrect EFC to be calculated. Also as discussed earlier in the section entitled Subsequent or Adjusted Payments, the student may be liable for an overpayment resulting from an enrollment status change after the student begins attending. If the student is liable, the IHE is responsible for trying to collect the amount of the student's overpayment. A student is not liable for overpayments under $25 if they are not a remaining balance. The school may choose to help the student repay these funds at their discretion, such as by establishing a repayment plan for the student or repaying the overpayment on behalf of the student. Two years is the maximum time a school may allow for repayment. The student is ineligible for subsequent Title IV funds until the overpayment is resolved. If the student fails to resolve the repayment within 45 days by returning or making arrangements to return the funds to the school, the IHE refers the overpayment to ED's Debt Resolution Service. ED's Debt Resolution Service helps students resolve HEA Title IV aid debt that is in defaulted status. ED provides a centralized web portal to facilitate the process. The student may negotiate overpayment collection with the Debt Resolution Service. The rate of errors that require extra or returned funds was 3.7% in 2008, falling to 3.1% in 2010. However, the dollar amount nearly doubled between the two years, from $17 billion in 2008 to $32 billion in 2010. This section highlights a few salient and distinctive issues and concerns regarding the administration of benefit payments under the Post-9/11 GI Bill. This information supplements the administrative process descriptions by describing some consequences and challenges associated with various process steps. Where applicable, potential opportunities to address the issues by adopting mechanisms or practices employed in the administration of Pell Grants are explored. In addition, possible limitations that may arise from applying Pell Grant administrative processes to the Post-9/11 GI Bill processes are identified in order that they may be considered and mitigated. Some concerns have arisen about the extent to which individuals are maximizing the value of the assistance available through both programs. Individuals who meet the eligibility requirements for the Post-9/11 GI Bill and for Pell Grants, and other HEA Title IV aid, may receive benefits from all of the programs concurrently. In 2008, Congress excluded GI Bill benefits from being counted in determining eligibility for HEA Title IV aid in order to maximize veteran eligibility for federal educational assistance. In 2012, Congress enacted legislation to support "the best use of education benefits" by veterans through the provision of specified information. At the educational institution, Post-9/11 GI Bill benefits are administered by the SCO using VA systems, guidance, and forms, and Pell Grants are administered by the FAA using ED systems, guidance, and forms. Depending on the institution, the SCO and FAA may not be the same individual and may not be in the same organizational unit of the institution. There is no statutory requirement for program coordination or intra-program consideration. Some participants and advocacy organizations are concerned that Post-9/11 GI Bill participants may not be counseled on how to maximize program benefits and minimize future loan liability. This concern can be related to acceptance of Pell Grants and is often related to HEA Title IV loans. For example, a combined SCO/FAA may counsel a student to use HEA Title IV aid while pursuing an associate's degree at a community college and subsequently combine Post-9/11 GI Bill benefits and HEA Title IV aid while pursuing a bachelor's and master's degree at more expensive four-year institutions. In another example, a combined SCO/FAA may stress to a Post-9/11 GI Bill recipient that the individual may choose to accept none of or less than the maximum HEA Title IV loan for which he/she is eligible given the amount of Post-9/11 GI Bill benefits that may be received. Alternatively, this same information could be relayed directly from either the Department of Veterans Affairs or Department of Education, or both, through other disclosures and outreach. At issue is whether or not benefit recipients have a clear sense of the most advantageous sequence or combination in which to use each form of assistance. There are options that may help beneficiaries of GI Bill benefits and HEA Title IV aid maximize those benefits. Statutory provisions could require that the SCO, FAA, and student jointly review the student's long-term educational objectives and plan and review benefits eligibility. If the SCO and FAA were the same person, consideration of both benefits may occur spontaneously; however, some expertise in the programs and focus on each target population may be lost as the SCO/FAA is required to do more. Alternatively, the administrative processes or systems could be merged to consider both forms of assistance. In 2008, Congress excluded GI Bill benefits from consideration in the calculation of HEA Title IV aid to reduce the perceived financial harm to veterans that was occurring with the coordination of benefits and thus increase college aid and support for veterans and military families. Another option that could occur outside the administration of benefits is to ensure beneficiaries receive financial counseling and understand the information specific to the coordination of benefits. The Post-9/11 GI Bill requires many eligible individuals to make significant and sometimes irrevocable decisions and actions in order to use their benefits as desired. A lack of understanding regarding these actions or improper timing may result in unfulfilled educational objectives and unused benefits that could have been beneficial. Three key actions are the selection of the Post-9/11 GI Bill, the irrevocable election to relinquish another GI Bill, and finally the designation of dependents to which to transfer benefits. The application form requires eligible individuals to choose the GI Bill for which they are applying. For a small minority of individuals, the Post-9/11 GI Bill is not the most advantageous GI Bill. Most individuals who serve on active duty on or after September 11, 2001, are eligible for more than one GI Bill. It is the individual's responsibility to choose the applicable and most beneficial GI Bill from which to receive benefits during the application process. The VA does make tools available through its website and the VA call center to help inform this decision if individuals choose to avail themselves of them. Some stakeholders have suggested requiring that all eligible individuals receive benefit counseling prior to using their benefit; however, this may be resource intensive and may be insulting or irksome to eligible individuals who are informed. In addition, the application form requires individuals who are also eligible for the Montgomery GI Bill-Active Duty (MGIB-AD), Montgomery GI Bill-Selected Reserve (MGIB-SR), or Reserve Educational Assistance Program (REAP) to make a dated irrevocable election to receive Post-9/11 GI Bill benefits in lieu of one of those other GI Bills. Some participants and advocacy organizations have indicated the choices may be confusing. The VA Office of Inspector General (OIG) indicates that many veterans do not know which GI Bills they are eligible for and which to relinquish. Failure to relinquish a benefit or date it correctly has delayed the receipt of benefits for some individuals. The suggestion of requiring benefit counseling prior to using their benefit would also address this issue. Servicemembers may transfer their Post-9/11 GI Bill benefits to eligible family members while serving on active duty or in the Selected Reserve, after serving at least six years, and upon promising to serve an additional four years. Some individuals have not designated any transfer or not updated the designation with new dependents while serving. This failure has disappointed some eligible individuals who have no recourse to transfer those benefits after retirement or discharge. DOD and the service branches provide some outreach to servicemembers regarding this limitation. One option for helping active duty members would be including this information in the mandatory portions of the Transition Assistance Program, which provides pre-separation services and counseling on a number of transition-related topics to separating members of the Armed Forces. In general, Pell Grant applicants and recipients are not required to make any decisions regarding program eligibility. With respect to selecting a GI Bill and relinquishing a GI Bill, LTS or the VCE could make a default decision unless the applicant opts for an alternative. Conversely, Congress could eliminate the likelihood of individuals being eligible for multiple GI Bills by consolidating or eliminating some GI Bills. Perhaps, the only analogous decision required of Pell Grant eligible students is the rare decision not to accept a Pell Grant award presented in their financial aid package. A savvy and informed student may choose to bank their Pell eligibility for periods of greater personal need. There is no requirement that FAAs help students discern whether to decline a Pell award because the assumption is that Pell-eligible students are financially needy. Post-9/11 GI Bill claimants and SCOs would like easily accessible real-time information on the status of claims, eligible benefit amounts, expected payment dates, or pending issues. Although a claimant and SCO can check the status of their claim by calling the VA, the VA call center is not considered easily accessible in the age of online information. eBenefits provides information on entitlement and school enrollment, but does not yet provide real-time access to information such as claim status, payment amounts, and remaining entitlement. The HEA Title IV aid process does make more real-time information available. The status of an applicant's FAFSA (complete or incomplete data entry, selection for verification, EFC, and loans outstanding) is available online either immediately if submitted online or within 7-10 days of processing if submitted by mail. However, Pell Grant applicants are similarly limited to real-time information on the secondary school processing by calling or contacting their FAA. Despite improved claim processing speeds since 2009, a major complaint continues to be the length of time required to process original claims, in particular. The VA has indicated that additional funds for information technology improvements could facilitate streamlining the initial claims processing. For example, VADIR lacks some service information, thus preventing an automated eligibility determination. Service records for individuals in the reserves or National Guard often required additional research; however, system interfaces have been improved to reduce this. Also, for example, VONAPP and LTS are not currently interfaced. In addition to system issues, claimants make errors or miss questions on the application that require the claimant's and VCE's time to resolve with proper documentation. For example, individuals may not (1) make the requisite irrevocable election, (2) date the irrevocable election properly, or (3) choose a program for which they are eligible. In addition to VA processing systems, the VA Office of Inspector General (OIG) has indicated that processing delayed by the submission of inaccurate and incomplete applications (especially the selection of an irrevocable election) might be improved by better educating veterans on the form. Another issue that has arisen in all phases of Post-9/11 GI Bill claims processing is RPO and LTS errors. One example is VCEs not computing an individual's qualifying length of service properly. Another example is incorrect payment calculations as programmed into LTS. A similar common audit finding by ED for HEA Title IV aid is the incorrect calculation of Pell Grant amounts by FAAs. ED suggests that IHEs improve their internal controls, training, procedures, and internal audits. The options for expediting processing and improving calculation accuracy could include information technology systems improvements, a simplification of the eligibility requirements and process steps, and improved training and resources for VCEs. For example, the HEA Title IV aid information technology systems are continually updated by ED contractors to reduce the incidence of issues and remain current with legislative changes. However, despite the mature HEA Title IV aid information technology systems, FAFSA data entry errors must be corrected manually and almost half of eligible applicants are flagged for verification of at least one application question. The tracking and manual work required of SCOs to properly certify, including amendments, adjustments, and terminations; record payments; verify proper payments; and research issues results in an administrative burden on educational institutions and training establishments, slows the disbursement of Post-9/11 GI Bill benefits, and results in improper payments. SCOs must complete calculations for certifications and amendments, adjustments, and terminations before manually entering the requested data in VA-ONCE. Educational institutions have invested in or developed their own Post-9/11 GI Bill application forms, software systems, or spreadsheets to track the requisite underlying data and administer the benefits. The VA OIG determined that approximately half of VA improper payments for housing allowances and book and supplies stipends may be related to inaccurate and/or incomplete information on Certs. The additional burden on SCOs to administer Post-9/11 GI Bill benefits is mirrored by the additional burden on FAAs to administer Pell Grants. IHEs often purchase or develop auxiliary software to support data entry into ED-funded software systems. ED has found that IHEs have difficulty reporting changes in student enrollment status accurately, measuring and monitoring satisfactory academic progress, and reporting in a timely manner. Some IHE representatives have indicated that this student tracking and the subsequent calculation of the amount of aid to return is excessively complicated and burdensome. This results in some students receiving HEA Title IV aid for which they are not eligible. Both the GI Bill programs and Pell Grant program pay institutions a fee to defray the cost of the administrative burden based on the number of beneficiaries. It would be difficult for either federal agency to redevelop their systems to accommodate the variety of internal systems used by educational institutions, IHEs, and training establishments to track their own students and trainees. The VA and ED could provide a single interface or system and calculate benefits using the same information in order to reduce the institutional burden. A long-standing complaint of Post-9/11 GI Bill participants and educational institutions regarding benefit administration is late payments. A few months after initial implementation of the Post-9/11 GI Bill in October 2009, average processing time for initial applications and eligibility determinations (original claims) exceeded 59 days, and the average processing time for enrollments and payments (supplemental claims) exceeded 48 days. The VA implemented several short-term solutions to increase the processing speed and continued implementation of its Long-Term Solution (LTS), an automated processing system. In FY2014, the average processing time was reduced to 17 days for initial claims and six days for supplemental claims. Payments have also been delayed as a result of inclement weather events affecting RPO operations, educational institutions and training establishments not submitting Certs in a timely manner, remarks entered in VA-ONCE that require manual follow-up by VCEs to resolve, and individuals not requesting benefits in a timely manner. In 2014, the VA Office of Inspector General (OIG) indicated that processing is delayed when Certs are submitted late (i.e., after the academic term begins). The OIG recommended that processing speeds could be improved by educating veterans and SCOs on their responsibilities and having the RPO effectively monitor the timeliness of SCO submissions. As a result of some payment delays, some educational institutions make special allowances for Post-9/11 GI Bill recipients for whom tuition and fees are not received by institutional deadlines, including short-term loans or extended deadlines. There is anecdotal evidence that some Post-9/11 GI Bill participants have had to change housing arrangements or withdraw from school as a result of delayed payments. There are several options for expediting payments. While LTS and the remainder of the VA processing architecture automate many but not all of the required processes, additional automation and system integration could reduce processing times. For example, ED relies on a suite of automated and integrated systems, including COD, CPS, and NSLDS, to facilitate processing HEA Title IV aid. Automating the paper Certs may reduce the burden on individuals, educational institutions, and training establishments. In addition, the VA, State Approving Agencies (SAA), and VA Education Liaison Representatives (ELRs) could conduct or make available additional training and outreach to improve the accuracy and timeliness of Certs. Timing of the housing allowance payment has created issues for some individuals. Statutory provisions require that educational assistance benefits be paid only for periods of enrollment or pursuit unless an individual qualifies for an advance payment. The first monthly housing allowance of an academic term is paid, at the earliest, after the term begins—typically at the beginning of the second month for the previous month's enrollment. Some individuals would like to receive the first housing allowance of the term before the term begins. Pell Grant awards provide a lump sum payment up to 10 days prior to the start of the payment period that may, if adequate, be used to defray housing costs throughout the payment period. The Post-9/11 GI Bill could consider a similar lump sum payment prior to the start of the academic term; although, this would likely increase the incidence and amount of overpayments and debts. The possible variation in tuition and fees payment amounts from term to term for individuals attending private educational institutions may make personal financial management more difficult. Statutory provisions define the maximum annual tuition and fees benefit for individuals attending private educational institutions. The VA allows individuals attending private educational institutions to receive the maximum annual tuition and fees benefit in the first academic term of the academic year if eligible. Therefore, the tuition and fees benefit in subsequent terms of the same academic year may be lower or $0 unless the individual is eligible for a Yellow Ribbon payment. For example, if a student attending a private educational institution in academic year 2014-2015 is charged $12,000 tuition and fees for the fall term, $12,000 tuition and fees for the spring term, and $6,000 tuition and fees for the summer term, the student could receive Post-9/11 GI Bill tuition and fees benefits of up to $12,000 for the fall term, $8,235.02 for the spring term, and $0 for the summer term ($12,000 + $8,235.02 + $0 = $20,235.02, the academic year 2014-2015 tuition and fees cap). The payment differences may affect recipient attendance decisions. The Pell Grant disbursement methodology attempts to avoid this inconsistency by calculating a maximum award amount for the year and disbursing no more than a prorated amount based on the number of expected payment periods in the year. For example, an individual with a maximum award of $5,000 for the year will receive no more than $2,500 for the fall semester and $2,500 for the spring semester. The Post-9/11 GI Bill tuition and fees at private and foreign institutions could follow a similar methodology to reduce the variation in amounts from term to term. There are, however, several potential issues that may arise with such a change. Pell Grant recipients do not receive the maximum award amount to which they are eligible for the year if they do not enroll in each of the expected payment periods. For example, in the above scenario, the student would not receive the remaining $2,500 of the $5,000 maximum if not enrolled in the spring semester. This change may reduce the perceived benefit of the Post-9/11 GI Bill and affect recipient's attendance decisions. In addition, the change may affect the cost of the Yellow Ribbon program. Complaints have arisen because educational institutions and Post-9/11 GI Bill participants believe that overpayments are erroneously assigned to them, and they have been unable to resolve overpayments or the ensuing debt with the least amount of difficulty or without adverse consequences. Specifically, both educational institutions and participants are unclear of the process required to resolve overpayments and debts. In addition, the process is perceived as being unnecessarily punitive. Reports indicate that this confusion has variously resulted in students dropping out of school to resolve overpayments, schools reassigning debt to students, and students' credit ratings being reduced. There are several options for diminishing confusion and adverse consequences. The VA could improve communication. For example, the VA could improve its explanation of the genesis of each overpayment and the steps for resolution. Although all of this information is included in the overpayment notification letters from the VA RPO and DMC, the text of the letters and timeline for action may not be comprehensible to all parties. The VA could make real-time information on the status of overpayments and the timeline for action easily accessible, and make their resolution available online regardless of whether the overpayment/debt resides with the RPO, DMC, or Treasury. Also along the lines of improved communication, the VA could provide VCEs with access to view the claimant's overpayment, debt, timeline for action, and terms of the debt resolution so that the VCEs could assist GI Bill participants with questions and issues. The VA could consider alternate forms of communication in addition to mail. The VA and Congress could also change and/or clarify the process for mitigating adverse consequences. For example, the VA could complete implementation of monthly enrollment certification by participants. In the event that SCOs do not notify the VA of enrollment changes in a timely manner, the participant would at the end of each month have the opportunity to inform the VA. This may reduce the amount of some overpayments. Conversely, the VA could induce or penalize SCOs to encourage the timely amendment or adjustment to Certs. Another approach might be for the VA to begin immediate and minimal collection of overpayments from future benefits such that some individuals who choose not to proactively resolve an overpayment in a timely manner could avoid referral to Treasury and credit agencies. The minimal reduction might encourage individual action toward a more beneficial resolution of the overpayment. As an alternative to an automatic and minimal collection rate, the VA could automatically offset each future Post-9/11 GI Bill payment until the overpayment is resolved or the participant makes alternative arrangements. Finally, the RPO, DMC, and Treasury could improve system coordination or communication such that debtors are not penalized for remitting payments to the wrong entity. For example, a participant who sends a payment to the DMC after the debt has been referred to Treasury may be subject to Treasury action before the DMC, participant, and Treasury have an opportunity to appropriately apply the payment. Issues related to assigning responsibility for HEA Title IV overpayments are not as prominent, but calculating the HEA Title IV debt amount is an issue. IHEs determine whether the student or IHE is responsible for the overpayment. If the student is responsible for a Pell Grant overpayment, the FAA will first attempt to resolve the overpayment through a reduction in subsequent disbursements in the same award year and then by contacting the student for repayment. However, the calculation and process by which IHEs complete a Return of Title IV Funds is a major source of concern for ED and IHEs. ED has determined that IHEs often make errors in calculating the amount of funds by using incorrect dates or making mathematical errors. In addition, IHEs fail to follow ED regulations and IHE policy regarding the timeframe for returning funds. IHEs have requested a simplified process and more time to process returns. The adverse consequences of not resolving a GI Bill or Pell Grant overpayment within the specified timeframes are very similar: individuals lose eligibility for future benefits, debts are referred to the next agency organizational level (VA DMC or ED's Debt Resolution Services) and finally Treasury. Appendix A. Comparison of Institutions of Higher Learning and Institutions of Higher Education Appendix B. Acronyms Acronyms Related to the Post-9/11 GI Bill Information Systems Programs Other Acronyms Acronyms Related to the Pell Grant Program: Information Systems Other Acronyms Appendix C. Post-9/11 GI Bill Secondary Processing and Disbursement of Funds for Additional Forms of Education and Training The administration of Post-9/11 GI Bill vocational flight training, apprenticeships or on-the-job training (OJT), tutorial assistance, correspondence training, licensing and certification tests, national tests, and relocation differs significantly from the administration of other degree and non-college degree (NCD) programs at educational institutions. The following explains the processes with respect to the secondary processing (supplemental claims) and disbursement of funds. Certification of Flight Training As part of the initial enrollment certification, the flight school must complete VA-ONCE or the applicable sections of the Certifications for VA Enrollment Certification (VA FORM 22-1999). This certification is used to indicate the student's eligibility for the flight training program and indicate the flight training plan. The form requires the individual's identifying information; name of program; certification that the student has a private pilot's license; certification that the student has a class I and/or II medical certificate on file at the school, as applicable; credit allowed for previous education and training; number of hours/units of instruction in current training plan; training dates; and charges. Flight schools that are not institutions of higher learning (IHLs) must certify the number of training hours completed by each student monthly using VA-ONCE or the Monthly Certification of Flight Training (VA FORM 22-6553c). The form requires the individual's identifying information, course, type of instruction, applicable horsepower, hours, charge rate, total instructional charges, a summary of cumulative instruction, medical certification, course completion or interruption, remarks, and the signatures of the student and SCO. Finally, the paper Cert is signed by the student and SCO and mailed to the appropriate RPO. Certification of Apprenticeships or On-the-Job Training Certs for pursuit of approved programs of apprenticeships or OJT are generally completed on paper and mailed or emailed to the relevant RPO. The Cert may be completed using VA Form 22-1999, VA Enrollment Certification, or on letterhead of the training establishment. Apprenticeship and OJT Certs certify training completed in the previous month. The earliest the Cert can be submitted is the last calendar day of the month being certified. The Cert must identify the eligible individual, program of education, training dates, hours during which the individual was employed and training, and number of hours in a standard work week. Finally, the Cert must be signed by both the eligible individual and certifying official. In addition, the Cert must be accompanied by a signed copy of the training agreement outlining the training program and wage scale. The training agreement may be completed using VA Form 22-8864, Training Agreement for Apprenticeship and Other On-The-Job Training Programs, or another comparable method. A training agreement describes the trainee, credit for previous training or experience, planned training period, wage progression, skills to be achieved and expected timing for achievement, and any required educational curriculum or training provided outside the job. The training agreement must be signed by the VA Education Liaison Representative (ELR), trainee, and a designated representative of the training establishment. The ELR acts as the liaison between the RPO and area educational institutions and training establishments, conducts some program approval functions, and ensures educational institutions and training establishments follow laws and policies. Many individuals who pursue OJT or apprenticeship programs also enroll in NCD programs. For example, individuals pursuing permanent employment as police officers may attend a NCD program at a law enforcement academy and pursue OJT through a field training program. Certification of Tutorial Assistance An Application and Enrollment Certification for Individualized Tutorial Assistance (VA Form 22-1990t) is used to certify tutorial assistance received in the previous month(s). The individual must need tutoring to pass a course in which he/she is currently enrolled and which is required for the approved program of education, and must be enrolled at least half-time in a postsecondary program. The Cert must be submitted no later than one year after the tutorial assistance. The form requires the individual's identifying information, credit hour load, educational objective, course that requires tutoring, tutor's identifying information, and tutoring schedule and charges. Finally, the Cert must be signed by the student, tutor, course professor or instructor, and SCO and mailed to the applicable RPO. Certification of Correspondence Training Correspondence training is certified by mail on VA Form 22-1999 (Enrollment Certification). The Cert requires the individual's identifying information; the type of training (flight, correspondence, or apprenticeship or other on-the-job training); the name of the approved program of education; the number of credits the student received for previous training; and the date and number of correspondence lessons sent to the student, including charges. The Cert must be signed by the SCO of the educational institution. In addition, the Cert must be accompanied by a signed copy of the enrollment agreement affirming that the student has, upon reflection, determined that the course is suitable to the student's abilities and interests. The enrollment agreement is completed using VA Form 22-1999c, Certificate of Affirmation of Enrollment Agreement Correspondence Course. The enrollment agreement lists the trainee, course name, date agreement signed, educational institution, and credit for previous training or experience. The enrollment agreement must be signed by the student and mailed to the educational institution. The educational institution submits the enrollment agreement and Cert to the applicable RPO. Certification of Pursuit by Eligible Individual Reimbursement for licensing and certification tests, national tests, and relocation only requires certification by the eligible individual. Licensing and Certification Tests Eligible individuals who want to be reimbursed for approved licensing and certification tests must complete the Application for Reimbursement of Licensing or Certification Test (VA Form 22-0803-ARE) or a self-prepared request for reimbursement. VA Form 22-0803 provides the individual identifying information; the applicable GI Bill program; the test name, date taken, and cost; and the organization that issues the applicable license or certificate. The eligible individual must sign and date the form or request. The form or request and either (1) a copy of the test results or (2) proof of payment and a copy of the license or certification must be received by the appropriate RPO within one year of taking the test. National Tests Eligible individuals who want reimbursement for approved national tests must submit a signed and dated request to the appropriate RPO. The request must provide individual identifying information; the test name, date taken, cost, and sponsoring organization; a copy of the test results; and, depending on the test, proof of payment. Relocation Eligible individuals who want to be reimbursed for rural relocation expenses must complete the Application for Rural Relocation Benefit under the Post- 9/11 GI Bill (VA Form 22-0848). The form requires the individual's identifying information; current and prior addresses; the nature of the relocation; and proof of the rural address and air transportation, if applicable. The eligible individual must sign and date the form before mailing it to the appropriate RPO. Processing of Certifications Flight Certs for training that is not at an IHL are imaged into TIMS. The VCE re-verifies the claimant's eligibility as if issuing a COE and manually populates LTS and BDN. The VCE verifies that the claimant's medical certification is up to date in TIMS. The VCE also verifies that the program of education is approved and is being pursued in accordance with the WEAMS program requirements and VA-FORM-1999 training plan. For example, the VCE must ensure that individuals are not paid for flight training hours that exceed those required for the program. The program approval in WEAMS is captured in TIMS. Finally, the VCE reviews prior flight training Certs to ensure the current training is not duplicative. The VCE calculates the payment amounts. Apprenticeship, OJT, and correspondence training agreements and Certs are imaged into TIMS. The VCE re-verifies the claimant's eligibility as if issuing a COE and manually populates LTS and BDN. The VCE verifies that the program of education is approved in WEAMS and COOL (a database of apprenticeship and OJT providers, including employer information, the SCO's identifying information, program descriptions, journeyman rates, planned hours, and program length) and is being pursued in accordance with the training agreement, including wage levels and program length. The program approval in WEAMS or COOL is captured in TIMS. LTS calculates the books and supplies and housing stipends automatically, primarily based on the number of certified hours, but the VCE may be required to make adjustments and manually calculate the amounts. A monthly housing benefit is paid for completed and certified training. The books and supplies stipend is paid as a lump-sum for upcoming training. For individuals who do not complete their program, a portion of the books and supplies stipend may become an overpayment (see Overpayments section), but the housing stipend will not. Licensing, certification, and national test Certs are imaged into TIMS. The VCE re-verifies the claimant's eligibility as if issuing a COE and manually populates LTS and BDN. The VCE verifies that the program of education is approved and for what amount in WEAMS and COOL. Finding licensing and certification tests in WEAMS involves a cumbersome text search by VCEs, especially since some test names may not be uniformly referenced. The test approval in WEAMS or COOL is captured in TIMS. If the test is not approved, the VCE sends the claimant a denial letter that may advise the claimant to contact the SAA to gain approval. The VCE also ensures that the claimant has sufficient entitlement remaining. Payments are generally made within two to three days of VCE authorization.
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This report compares and contrasts the administration of the Post-9/11 Veterans Educational Assistance Act of 2008 (Post-9/11 GI Bill®)—enacted as Title V of the Supplemental Appropriations Act, 2008 (P.L. 110-252)—and Federal Pell Grants, as authorized by Title IV-A-1 of the Higher Education Act (HEA). The Post-9/11 GI Bill provides educational assistance payments to eligible servicemembers and veterans, and their dependents. One of its primary objectives is readjustment of veterans to civilian life and the workforce. The federal Pell Grant program provides grant aid payments to eligible and financially needy undergraduate students, regardless of military service record. One of its primary objectives is to increase postsecondary education access of low-income individuals. The report investigates whether the administrative processes supporting Pell Grants can provide lessons for achieving more timely, efficient, and student-friendly administration of the Post-9/11 GI Bill, thus ensuring that it achieves its policy objectives with respect to educational achievement of the target population. There are several differences between the programs and their administration. Post-9/11 GI Bill eligibility is contingent on service in the uniformed services, whereas Pell Grant eligibility is contingent on financial need. Post-9/11 GI Bill benefits must be used within several years of discharge from active duty, whereas Pell Grants can be used at any stage of an individual's life. The Post-9/11 GI Bill benefit was designed to meet most costs of education, whereas the Pell Grants were designed to meet a portion of an individual's financial need. Eligible individuals may receive both benefits concurrently. When comparing the administrative processes of the programs, there are at least three important considerations. One is the difference in the number of beneficiaries/recipients—estimates indicate there were fewer than 1 million Post-9/11 GI Bill participants and more than 9 million Pell Grant recipients in FY2014, which leads to economies of scale and greater familiarity for Pell Grant administrators. Another is the greater variety of programs of education approved for the Post-9/11 GI Bill, which increases administrative complexity. Finally, while the Post-9/11 GI Bill went into effect in 2009, the Pell Grant administrative processes are more mature, having been developed and administered for decades. There are areas in which the Post-9/11 GI Bill processes and procedures arguably could be improved if compared to the Pell Grant program. The key area would be a larger investment in system automation and internal controls to more fully automate the processes and maintain them with respect to ongoing legislative changes. For example, Post-9/11 GI Bill eligibility determinations could be more fully automated. VA systems could choose the most advantageous GI Bill programs based on applicant information. Exact payments and unmet costs may be estimated for Post-9/11 GI Bill participants prior to enrollment to encourage informed enrollment. Providing payments to educational institutions to disburse to students may eliminate an extra processing step by the VA and speed payments and adjustments. Overpayments of Post-9/11 GI Bill payments could be resolved through deductions from subsequent Post-9/11 GI Bill payments or other VA benefit payments. However, there may be underlying issues that prevent or hinder improvements and may suggest a limited advantage from them. For example, a single lump sum housing allowance payment before the start or at the beginning of the academic term may help pay early housing expenses; however, it may increase the incidence and amount of overpayments and debts.
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Much is written on the topics of current gaps in the education and training of a cybersecurity workforce and the need for technology research and development (R&D) to solve cybersecurity technical issues. This CRS report directs the reader to authoritative sources that address many of these prominent issues. The annotated descriptions of these sources are listed in reverse chronological order, with an emphasis on material published in the past several years. It includes resources and studies from government agencies (federal, state, local, and international), think tanks, academic institutions, news organizations, and other sources related to Table 1 —education and training, including scholarships, internships, the cybersecurity workforce, and the National Cybersecurity Centers of Excellence (NCCoE); and Table 2 —R&D, including the Defense Advanced Research Project Agency (DARPA), National Science Foundation (NSF), Department of Defense (DOD), and private industry R&D programs and funding.
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Much is written on the topics of current gaps in the education and training of a cybersecurity workforce and the need for technology research and development (R&D) to solve cybersecurity technical issues. This CRS report directs the reader to authoritative sources that address these issues. The annotated descriptions of these sources are listed in reverse chronological order, with an emphasis on material published in the past several years. This report also includes resources and studies from government agencies (federal, state, local, and international), think tanks, academic institutions, news organizations, and other sources. Table 1 provides education and training resources, including scholarships, internships, the cybersecurity workforce, and the National Cybersecurity Centers of Excellence (NCCoE). Table 2 provides R&D resources, including the Defense Advanced Research Project Agency (DARPA), National Science Foundation (NSF), Department of Defense (DOD), and private industry R&D programs and funding. The following CRS reports comprise a series that compiles authoritative reports and resources on these cybersecurity topics: CRS Report R44405, Cybersecurity: Overview Reports and Links to Government, News, and Related Resources, by [author name scrubbed] CRS Report R44408, Cybersecurity: Cybercrime and National Security Authoritative Reports and Resources, by [author name scrubbed] CRS Report R44410, Cybersecurity: Critical Infrastructure Authoritative Reports and Resources, by [author name scrubbed] CRS Report R44417, Cybersecurity: State, Local, and International Authoritative Reports and Resources, by [author name scrubbed] CRS Report R44427, Cybersecurity: Federal Government Authoritative Reports and Resources, by [author name scrubbed] CRS Report R43317, Cybersecurity: Legislation, Hearings, and Executive Branch Documents, by [author name scrubbed] CRS Report R43310, Cybersecurity: Data, Statistics, and Glossaries, by [author name scrubbed]
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One consequence of unemployment is that individuals and their family members can lose their health insurance. Loss of insurance may have little impact on individuals who do not use many health care services. However, for those who have health problems or who are injured, loss of coverage can be serious. Without insurance, individuals often have difficulty obtaining needed care and have problems paying for the care they receive. Unemployed individuals and their family members who cannot postpone care may incur large bills that create or add to financial distress. Some of the unemployed and/or their family members will be eligible for Medicaid coverage. Others may be able to obtain insurance through a spouse or parent or by paying Consolidated Omnibus Budge Reconciliation Act (COBRA) premiums, though the cost of COBRA premiums can be prohibitive. The Patient Protection and Affordable Care Act (ACA, P.L. 111-148 as amended) is intended to improve access to health insurance coverage, but it does not necessarily provide immediate access to coverage for unemployed individuals and their family members. Some provisions of the ACA that improve access to care have been implemented, but they apply to specific populations (e.g., individuals with preexisting conditions). Other provisions of the ACA that more broadly apply to individuals, including unemployed individuals (e.g., health insurance exchanges), will generally not be implemented until 2014. This results in an interim period when unemployed individuals may have few health insurance options and/or lack the resources to pay for insurance. Concern about unemployment and health insurance has grown because of the recent economic recession and the jobless recovery. In December 2011, the nation's unemployment rate was 8.5% (about 13.1 million individuals), whereas the underemployment rate, which includes individuals who are working part-time because their hours have been cut and other individuals who have given up looking for jobs, reached 15.2% (about 23.4 million individuals). The Congressional Budget Office (CBO) expects the unemployment rate to remain above 8.0% through 2014, indicating that the impact of unemployment on health insurance is likely to continue for some time to come. This report contains information and analysis intended to inform congressional debate over whether to address these issues, and if so, how, and to what extent. It is divided into five parts: 1. analysis showing the diversity of the unemployed population; 2. analysis showing the relationship between unemployment and loss of employer-sponsored health insurance; 3. analysis of certain unemployed individuals at risk for being uninsured; 4. summaries of current federal programs and tax treatments that can help some unemployed individuals obtain or retain health insurance; and 5. additional options that might be considered. The unemployed are a diverse population in terms of age, gender, marital status, income, and other characteristics. These attributes indicate that they likely have differing health care needs and different capacities to pay for care and insurance. This section describes the diversity of the unemployed population, broken down by various demographic categories. Age can affect the probability that an individual will need health care services. One study finds that adults aged 55 to 64 are more likely to have chronic conditions and are more likely to have higher premiums and out-of-pocket costs compared to younger adults. Another study finds that only one-fifth of an individual's lifetime health care expenditures occur before age 41, while nearly half accrue after age 65. As follows, the older unemployed will most likely incur greater health care expenditures than the younger unemployed. The age of an unemployed individual can also affect the availability of financial resources. Younger unemployed individuals may have less savings to draw from compared to their older counterparts. However, younger unemployed individuals may also be able to rely more on parents for family assistance. For example, under the ACA, individuals under age 26 may be able to qualify for dependent coverage through a parent's health plan. Table 1 shows the unemployment rate by age group and the age distribution of the unemployed at the beginning of the last recession in December 2007 and again in December 2011. Unemployment rates have increased since 2007 across all age groups. While the unemployment rates remain highest among individuals aged 16 to 19 and 20 to 24, the unemployment rates increased the most between 2007 and 2011 among individuals aged 25 and older. For those aged 25 and over, unemployment rates nearly doubled across all age categories. The distribution of the unemployed shows that since the start of the recession in December 2007, unemployed individuals are increasingly older. In December 2011, the share of the unemployed population aged 16 to 24 declined compared to December 2007, while the share of the unemployed aged 25 and older increased (from 66.3% in 2007 to 73.2% in 2011). Among those aged 25 and older, the largest percentage point increase in the share of unemployed between 2007 and 2011 was among those aged 55 and older. Figure 1 shows the unemployed population by marital status, gender, and the presence of children in a household. The majority of the unemployed as of December 2011 were single men (36.7%), followed by single women without children (20.6%). Married men comprised 17.8% of the unemployed. Married women accounted for 14.9% of the unemployed, and single women with children comprised 10.0%. Marital status has a direct impact on the probability that an unemployed individual will continue to be covered by health insurance, in some cases making it more likely that an unemployed individual maintains access, and in other cases making it more likely that the unemployed individual and his or her entire family will lose coverage. Individuals married to a spouse who has a job and insurance coverage may be able to enroll in their spouse's plan if they lose their coverage. On the other hand, workers who are married (or who are the head of a household) may be providing the main health insurance for their families. In 2010, about half of the nonelderly with employer-sponsored coverage received that coverage as a dependent (i.e., as a spouse, partner, or child of an individual with employer-sponsored coverage). A single parent who is the head of household and unemployed is also at risk of losing employer-sponsored coverage for the family. The unemployed and/or their dependents may, however, be eligible for public assistance through Medicaid (see the discussion on " Medicaid " below) or the State Children's Health Insurance Program (CHIP). As of December 2011, 58.0% of unemployed individuals had been out of work for 15 weeks or longer. Nearly 43.0% had been unemployed for more than six months in December 2011, compared to 18.0% who were unemployed for more than six months when the recession began in December 2007. Research suggests that the longer a person remains unemployed and uninsured, the greater the delay in seeking medical treatment (see discussion on " Health Status " below). The health status of the unemployed could be affected by whether they have health insurance coverage, their demographic composition, and the duration of their unemployment. As noted earlier, the unemployed today tend to be older than at the beginning of the recession in December 2007, and health expenditures are typically greater for older compared to younger populations. Some research shows that age and health status are strongly correlated, indicating that because the unemployed are older, they may also be less healthy. Table 2 presents data by perceived health status by age (regardless of employment status). In all age groups, around 30.0% of the population reports very good health. However, compared with individuals aged 18 to 24, individuals aged 45 to 64 are more than twice as likely to report fair health and over six times more likely to report poor health. Compared to individuals aged 25 to 44, individuals aged 45 to 64 are about twice as likely to report fair health and more than three times more likely to report poor health. As noted earlier, the unemployed today are more likely to have been unemployed for longer than six months, which may further delay necessary medical treatment. One study shows that more than 70.0% of adults with gaps in health care coverage tend to forgo needed care because of cost, up from just over half in 2001. Uninsured adults are also less likely than those with insurance to obtain tests such as blood pressure, cholesterol, and cancer screening. These problems may be further exacerbated among the older unemployed and/or those with longer durations of unemployment. Individuals who become unemployed may be eligible for unemployment compensation (UC). Eligibility, benefit amount, and duration of UC is determined by each state. Generally, UC benefits are based on wages for covered work during a 12-month period. Most state benefit formulas replace half of a claimant's average weekly wage up to a weekly maximum. The average regular UC benefit duration as of December 2011 was 17.5 weeks. Approximately 3.6 million individuals claimed regular state UC benefits in a given week in December 2011. Average weekly unemployment benefits were $291, translating to an average monthly benefit of $1,261. The availability of other forms of income for the unemployed is important in determining their ability to pay for health insurance coverage or health care services directly out-of-pocket. Unemployment compensation by itself could be insufficient to pay for these costs. For example, among the unemployed whose only option is to purchase insurance in the individual market, the cost of coverage could be prohibitive. In 2010, the average monthly cost of premiums for coverage bought in the individual market was $301 for self-only coverage and $592 for family coverage. Assuming premiums did not increase in 2011 (which is unlikely), the average monthly cost of the premium for self-only coverage would consume 23.9% of the average monthly unemployment benefit, and the average monthly cost of the premium for family coverage would consume 46.9%. Data on the income distribution of those currently unemployed are not available. However, the most recent data from the Internal Revenue Service show the number of returns with UC by household income in 2009 (see Table 3 ). Individuals with household income of $15,000 up to $20,000 are the most likely to have UC, with 11.6% of all returns reporting UC. Examining the distribution of returns with UC by income, about 44% of those who received UC benefits had household income below $25,000, while nearly 30% had household income of $50,000 or more. The ability of the unemployed to purchase insurance depends on income from other sources in addition to UC, current living expenses, and other factors, such as whether individuals in the household have preexisting conditions that could significantly increase the cost of coverage. Beyond UC, individuals also may draw down their savings (including retirement savings) to pay for household expenses. Employer-sponsored health insurance represents the largest source of coverage to workers and their dependents. In 2010, about 68.0% of workers received employer-sponsored coverage from an employer, either in their own names (51.0%) or as dependents of another family member's employer (17.0%). Among other factors, the nature of unemployment for an individual (i.e., whether an individual is permanently or temporarily laid off) and the industry in which an individual had been employed can affect an individual's likelihood of having employer-sponsored coverage. Those most likely to have lost employer-sponsored coverage are the nearly 6.4 million unemployed who report that they have been permanently laid off from their jobs, comprising nearly half (48.3%) of the 13.1 million unemployed workers as of December 2011. Another 1.4 million individuals (9.0% of the unemployed) have been temporarily laid off. These workers may still have access to health insurance and other employer-provided benefits (if they were available prior to their change in work status). About 900,000 individuals, 7.0% of the unemployed, left their jobs voluntarily. A closer look at the industry characteristics of the unemployed provides some insight into their health insurance status prior to becoming unemployed. Individuals who had coverage prior to becoming unemployed may be better able to maintain or obtain coverage while unemployed. Table 4 shows the percentage of workers with health insurance in their own names in each industry in 2010, and the number of unemployed workers and the unemployment rate among industries as of December 2011. Workers laid off in the mining and manufacturing sectors had the highest likelihood of having health insurance through their previous employer. Workers laid off in wholesale and retail trade, construction, and leisure and hospitality were the least likely to have health insurance from their previous employer prior to being laid off. The industries with the largest numbers of unemployed individuals are professional and business services, wholesale and retail trade, construction, and leisure and hospitality. Combined, workers in these four industries account for about 46.0% of all unemployed individuals. Those considered unemployed include individuals seeking to enter or re-enter the workforce and actively looking for a job. Over one-third of the unemployed (35.4%) are just entering the labor force either for the first time (9.7%) or re-entering after being out for some time (25.7%). This latter group could include family caregivers looking to return to work, retirees looking to return to work to supplement their income in the "down" economy, or those looking to return to work after an extended illness. Those seeking to enter or re-enter the labor force did not necessarily lose employer-sponsored coverage in their own names because they may not have had access to such coverage. Some may have coverage through their spouse or parents, some may have retiree health benefits from a prior employer, or some may be purchasing COBRA; others may be uninsured. For those who do not have coverage, entering or re-entering the workforce may not provide immediate access to employer-sponsored insurance. In 2011, 72% of newly insured employees were subject to a waiting period before becoming covered, and the average waiting period was 2.2 months. Complicating the analysis of unemployment and insurance coverage are certain other at-risk groups who are not technically unemployed but who do not have coverage due to a change in work status. These other at-risk groups include involuntary part-time workers and discouraged workers who have left the workforce altogether. If these individuals were counted in the December 2011 unemployment rate, it would increase from 8.5% to 15.2%. Legislative proposals to help the unemployed with health insurance typically focus solely on individuals who do not have a job and are actively searching for work; however, individuals in other at-risk groups may also be without health insurance. The number of involuntary part-time workers has decreased over the past year, from 8.9 million to 8.1 million. These are individuals who wanted to work full-time but instead had to work part-time. Part-time workers are 1.5 times more likely to be uninsured (27.6%) compared to full-time workers (17.6%), as employers are more likely to provide health benefits to full-time workers than to part-time workers. In 2011, about 60.0% of all employers offered health benefits, but only 16.0% of these employers offered health benefits to part-time workers. Another group at risk for not having health insurance coverage is discouraged workers—individuals not currently looking for work because they believe jobs are not available for them. As of December 2011, there were approximately 945,000 discouraged workers. This number has more than doubled since the recession began in December 2007. Current federal law includes several programs and tax treatments that might help some unemployed with respect to health insurance. Programs and tax treatments for which coverage is directly or otherwise closely related to being unemployed include the mechanisms listed below. In subsequent sections, each of these programs and tax treatments is briefly summarized and assessed. The assessment considers the advantages and disadvantages of each mechanism from the perspective of unemployed individuals. COBRA Health Coverage Tax Credit Medicaid Itemized Deduction for Medical Expenses Health Savings Accounts Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA, P.L. 99-272 ) generally requires employers with 20 or more workers to provide employees and their families the right to continue participation in the company's group health plan in case of certain events, one of which is involuntary dismissal. Depending on the triggering event, the continuation period generally lasts up to 18 or 36 months. One attraction of COBRA for unemployed individuals is that they can continue in the health plan they had while working; this is especially important when the plan is linked to particular doctors and other providers. Additionally, employer plans have group rates, which often are lower than individual market insurance premiums for similar benefits when individuals are older or have health conditions. One limitation of COBRA for the unemployed has been that covered individuals usually have to pay 102% of the health plan's full premium (i.e., both the employee's and the employer's share, plus a 2% administrative fee). Without subsidies, typical premiums can consume a large part of an unemployment benefit, or even exceed it in the case of family coverage. A second limitation of COBRA for the unemployed is that if a firm files for bankruptcy under Chapter 7 of Title 11 of the U.S. Code, the employer ceases to exist. Because COBRA is provided through the employer, if there is no employer, there is no COBRA obligation. The Health Coverage Tax Credit (HCTC) is an individual income tax credit that is both refundable (allowing taxpayers to receive the full amount regardless of their tax liability) and advanceable to health plans (allowing taxpayers to benefit from the credit while they have coverage, not just after they file their returns the next year). The 72.5% credit can be applied to premiums for 11 types of health insurance, 4 of which (including COBRA) are available nationwide, but 7 of which first require state approval. Eligible taxpayers must be receiving Trade Adjustment Assistance (TAA) benefits (or would be except that they have not exhausted their unemployment benefits), Reemployment Trade Adjustment Assistance benefits, or pension benefits being paid because the Pension Benefit Guaranty Corporation has taken over their pension plan. Individuals are not eligible if they are enrolled in employer-sponsored insurance, Medicare Part B, Medicaid, or CHIP (among others), or if they are entitled to Medicare Part A (among others). One attraction of the HCTC for the unemployed is that the 72.5% premium credit applies regardless of annual income, which can help individuals who have income earned earlier in the year before they become unemployed or who have a spouse who remains employed. Limitations of the HCTC for the unemployed include restricted eligibility categories, short eligibility periods for some TAA beneficiaries (eligibility can range from less than a year to over two years, depending on state residency and other circumstances), and the inability of cash-strapped taxpayers to pay the remaining part of the premium. Medicaid is a federal-state entitlement program targeted toward low-income individuals. It finances health and long-term care services primarily for the elderly, individuals with disabilities, members of families with dependent children, and certain other pregnant women and children. Participants must meet low-income and sometimes limited-resource or asset tests that are established by states within federal guidelines. States must cover certain categorical groups and provide various defined services, but they have options to cover other groups and add other services. One attraction of Medicaid for the unemployed is that the program can pay for a wide range of medically necessary treatments, usually with small deductibles or copayments relative to employer-sponsored coverage. A limitation of Medicaid for the unemployed is that they might not meet income and asset tests the states impose, and some (such as childless, non-disabled adults) might not be categorically eligible. In addition, the doctors and other providers they had prior to becoming unemployed might not accept Medicaid. (See discussion about future expansions to Medicaid to non-traditional groups in section on " The Affordable Care Act and the Unemployed .") Taxpayers who itemize their deductions may deduct certain unreimbursed medical expenses that exceed 7.5% of their adjusted gross income. These medical expenses include insurance premiums, insurance deductibles and copayments, and direct payments to providers, among other things. Most state income tax systems also allow a deduction for medical expenses, providing additional tax savings. One attraction of the itemized deduction for the unemployed is that it has no employment-related eligibility tests; some individuals who have lost full-time jobs but are not defined as unemployed (such as those who can only find intermittent part-time work) could still use it. A limitation of the itemized deduction is that one must itemize deductions to use it; most lower-income taxpayers find that their standard deduction is larger. The 7.5% adjusted gross income floor further limits its use. In addition, deductions result in little tax savings for lower-income taxpayers because their marginal tax rates are relatively low (typically 10.0% or 15.0%). If taxpayers have no taxable income prior to considering their medical expenses, the deduction would not help them. A second limitation of the itemized deduction is that it is not advanceable. Individuals who plan to deduct their medical expenses must still pay for the medical expenses at the time they are used. For example, a medical expense paid in March 2010 could not be itemized until taxes are filed in 2011. This could be a significant financial burden for individuals, particularly for those who are unemployed. Health Savings Accounts (HSAs) are tax-advantaged accounts that individuals can use to pay unreimbursed qualified medical expenses such as deductibles, copayments, and services not covered by insurance. Contributions, which are either excluded from taxes (if made by employers) or deductible (if made by individuals) can be made only when individuals have qualifying high-deductible health insurance; for most, the annual contributions in 2012 are limited to $3,100 for self-only coverage and $6,250 for family coverage. Amounts not used one year can be rolled over to the next. Withdrawals used to pay health insurance premiums usually are taxable, but not when one is receiving unemployment benefits or within a COBRA continuation period. One attraction of HSAs is that they can serve as a rainy-day health care fund. If individuals contribute to them regularly over a number of years, they could accumulate a balance that can be used when they are unemployed. HSAs are portable and not tied to continued work for a particular employer. A limitation of HSAs for the unemployed is that one must have high-deductible insurance (deductibles of at least $1,200 for single coverage or $2,400 for family coverage in 2012) in order to be eligible to make contributions to the HSA; many individuals are reluctant to accept the risk of such a high deductible, even though high-deductible insurance premiums are somewhat lower. Individuals with high-deductible insurance sometimes do not contribute to an HSA or, if they do, they use the money soon afterwards and cannot build up substantial balances. The ACA provides a number of immediate reforms to the health insurance market. Several provisions of the ACA are intended to increase consumer access to health insurance. For example, the ACA creates the Pre-Existing Condition Insurance Plan (PCIP). The PCIP is a temporary, high-risk pool program that provides coverage to individuals who have been uninsured for at least six months, have a preexisting condition or have been denied coverage because of a health condition, and are U.S. citizens or legal aliens. The PCIP provides access to health insurance to these individuals, but it does not provide financial assistance to the individuals. The PCIP operates in every state and is to remain in effect until 2014, when individuals in the program will have access to coverage through the health insurance exchanges created by the ACA. As of November 2011, there were 44,852 individuals throughout the country enrolled in the PCIP. An ACA provision that is helping certain unemployed individuals under age 26 obtain or retain health insurance is the expansion of dependent coverage. Effective for plan years beginning after September 23, 2010, the ACA generally requires that if a plan provides for dependent coverage of children, the plan must continue to make such coverage available for an adult child until age 26. This provision is effective only if the parent has health insurance and that insurance covers dependents. Recently, the Department of Health and Human Services reported that since the policy took effect in September 2010, the percentage of adults aged 19-25 who are covered by private insurance has increased significantly, from 64% in September 2010 to 73% in June 2011. Beyond the immediate reforms to the health insurance market, beginning in 2014 the ACA will also provide premium tax credits and cost-sharing subsidies for certain eligible individuals who obtain coverage through a health insurance exchange, which could include some unemployed individuals. The premium tax credit will be an advanceable, refundable tax credit, meaning taxpayers can benefit from the credit before the end of the tax year and may claim the full credit amount even if they have little or no federal income tax liability. Those who qualify for premium credits and are enrolled in certain plans in the health insurance exchange could also be eligible for assistance in paying any required cost-sharing for their health services. In addition, in 2014, or sooner at state option, the ACA will expand Medicaid access to certain individuals who are under age 65 with modified adjusted gross income (MAGI) up to 133% of the federal poverty level ($30,657 for a family of four in 2012). The ACA not only expands eligibility to a group that is not currently eligible for Medicaid (low-income childless adults), but also raises Medicaid's mandatory income eligibility level for certain existing groups up to 133% of FPL. Since most of these provisions will not be implemented until 2014, this results in an interim period when unemployed individuals lack assistance in obtaining health insurance coverage. While some unemployed individuals may access coverage before then (due to possible early state expansions, for example), most unemployed individuals will not obtain financial assistance for coverage before 2014. It is difficult to predict how long Americans will continue to feel the effects of the recent economic recession. Even if economic growth recovers, growth in employment may lag; the CBO expects the national unemployment rate to remain above 8.0% through 2014. Unemployment could remain high in some areas and for some groups even after the national average goes down. Whatever the pattern, the unemployed might have difficulty obtaining and/or affording health insurance for some time. As shown in the preceding discussions, the unemployed are not a homogenous group. Some individuals lose employer-sponsored health insurance when they lose their jobs, but other unemployed individuals may not have coverage to begin with. In addition, there are involuntary part-time workers and discouraged workers who do not have coverage. These issues raise related policy questions, including, Should the federal government provide assistance to all of these groups? If so, what are the advantages and disadvantages of providing assistance? For those considering assistance, what are the advantages and disadvantages to giving higher priority to some groups? Several issues are involved: Given that many people will receive assistance in 2014, is it preferable to maintain the status quo until then? Among those who support more assistance and/or immediate assistance: In general, there appears to be a trade-off between concerns about cost and concerns about equity. Providing assistance to all the groups mentioned above would cost more than helping just those who lost employer-sponsored coverage, but on grounds of equity it may be difficult to justify not helping all. However, if the immediate goal is not to allow the number of uninsured individuals to increase, there is something to be said for giving higher priority to those who recently had coverage. If assistance is given to those who did not have employer-sponsored coverage, what form of coverage should they have? Should they be enrolled in public programs such as Medicaid or Medicare, or should they be permitted private insurance options? If the latter were allowed, what benefit and consumer protection standards might apply? While comprehensive health care reform has been enacted, it will not provide immediate health insurance coverage to all currently unemployed individuals. For those considering more immediate action, there are a number of legislative proposals that could be considered in the 112 th Congress. The proposed programs would likely be temporary, however, and would provide some coverage until the ACA is fully implemented and the health care exchanges are operational (in 2014). Legislative proposals to extend COBRA include extending the eligibility period for the COBRA premium subsidy included in the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5 and subsequently extended) to those unemployed after May 31, 2010, and/or extending the eligibility period for receiving COBRA at unsubsidized rates beyond 18 months. A provision of ARRA, as extended through subsequent amendments, provided a 65% COBRA subsidy in the form of an employer tax credit for eligible workers who became unemployed before May 31, 2010. The subsidy was limited to 15 months, and individuals had to pay the remaining balance. This provision has since expired. The COBRA premium subsidy was not available for those who lost their jobs after May 31, 2010. One advantage of further expanding eligibility for COBRA premium subsidies is that the legislative and regulatory frameworks (including administrative procedures and legal interpretations) are already in place. A disadvantage for the unemployed is that COBRA subsidies are limited to only a portion of those out of work, and they do not apply to those who may be just entering or re-entering the workforce after an extended absence. In addition, some employers find changes to COBRA administratively burdensome, and the extensions would add expenditures to an already strained federal budget. In addition to extending the COBRA premium subsidy, another possible option is to extend the COBRA eligibility period, which now is generally limited to 18 months. An extension could help individuals who need more time in a prolonged recession (or in its after effects) to find jobs that provide health insurance. As noted earlier, a limitation of unsubsidized COBRA for the unemployed has been that covered individuals usually have to pay 102% of the health plan's full premium. Because most employers subsidize health insurance premiums for their workers, the 102% COBRA premium may not be affordable for the unemployed, especially when compared with the average level of unemployment compensation. Employers might argue that extended coverage would be most attractive to individuals who have (or whose family members have) serious health problems. If this were the case, covering these individuals in the plan could raise costs for others in the plan. While extending COBRA would not increase federal expenditures, it would provide access to health insurance, but not necessarily financial relief from paying for the coverage, to individuals. As noted in the preceding discussion, individuals aged 55 and older are a growing segment of the unemployed population. Unemployed individuals in this age group often have more difficulty finding another job (or at least another job comparable to the one they lost), have fewer working years remaining to recover financially, and are at an increased risk of health problems. Some have proposed allowing older unemployed individuals to buy into Medicare early, that is, to join the Medicare program by paying premiums. Individuals are generally not eligible for Medicare until age 65. Many different design options need to be considered in this approach, including who would be eligible and the possibility of subsidies. One approach is not to provide subsidies, but instead to fully fund the program by charging premiums for individuals aged 62 to 64. Individuals who do not have employer-sponsored health insurance or Medicaid could voluntarily enroll in Medicare. Premiums would equal the average expected cost of the program plus an administrative fee of 5%. CBO estimated that the annual premium for single coverage would be $7,600 in 2011. CBO also estimated that this would indirectly increase mandatory spending for Social Security, as it may encourage some individuals to retire earlier than they otherwise would have. A Medicare buy-in is similar in some ways to expanding the eligibility period for COBRA beyond the 18-month window. Both would require enrollees to pay the full cost of the coverage. There are advantages, however, to the COBRA option versus the Medicare buy-in. First, the COBRA option would be available to all the unemployed who have access to employer-sponsored insurance through former employment, regardless of age. Second, for the older unemployed, the premiums would most likely be lower under the COBRA option because the pool of applicants would include a more diverse group in terms of age and the administrative cost (of 2%) is lower. The advantage of the Medicare buy-in proposal compared to the COBRA option is that the Medicare buy-in would cover older workers re-entering the labor force, whereas the COBRA option would apply only to those individuals who had left a job.
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When workers lose their jobs, they can also lose their health insurance. If that health insurance is family coverage, then a worker's family members can also become uninsured. For individuals who do not typically use many health care services, loss of insurance might have little impact. However, for individuals who have health problems or who are injured, loss of coverage can be serious. Without insurance, individuals often have difficulty obtaining needed care and problems paying for the care they receive. Unemployed individuals and their family members who cannot postpone care may incur large bills that create or add to financial distress. With the Congressional Budget Office expecting the unemployment rate to remain above 8.0% through 2014, retaining or obtaining health insurance may continue to be difficult for the unemployed and their family members. The 111th Congress passed legislation that temporarily addressed part of this problem through a temporary premium subsidy for health insurance coverage through Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA, P.L. 99-272). COBRA generally requires certain employers to provide employees and their families the right to continue participation in the employer's health plan in the case of certain events, including involuntary dismissal. To continue coverage, workers must pay both the employee's and the employer's share of the premium, plus a 2% administrative fee. The premium subsidy that reduced the cost of COBRA coverage for certain individuals who lost their jobs expired on May 31, 2010. The Patient Protection and Affordable Care Act (ACA, P.L. 111-148 as amended) is intended to expand access to health insurance coverage. Some ACA provisions made immediate market reforms to increase consumer access to health insurance, particularly for young adults, individuals with preexisting conditions, and other, higher-risk groups. For example, one provision of the ACA generally allowed dependents up to age 26 to remain eligible for insurance coverage through their parents' plans, which could help the younger unemployed. Some other provisions of the ACA that increase access to coverage do not become effective until 2014, however. Those provisions include expansion of Medicaid to those with modified adjusted gross income (MAGI) up to 133% of the federal poverty level (FPL) and insurance premium credits and subsidies for individuals and families with MAGI below 400% FPL. Currently, certain individuals cannot benefit from the expanded access to coverage under the ACA because either the provisions do not apply to them or because applicable provisions have not yet taken effect. These individuals could include unemployed individuals and their family members. This report examines access to health insurance coverage among the unemployed population and provides information and analysis to inform the congressional debate on this issue. The report is divided into five parts: (1) analysis showing the diversity of the unemployed population, (2) analysis showing the relationship between unemployment and loss of employer-sponsored health insurance, (3) analysis of certain unemployed individuals at-risk for being uninsured, (4) summaries of current federal programs and tax treatments that can help some unemployed individuals (and their families) obtain or retain health insurance, and (5) additional options that might be considered, including extending the COBRA eligibility period and allowing unemployed individuals under age 65 to "buy-in" to Medicare—that is, to pay premiums to join Medicare before they reach age 65.
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This report summarizes the potential consequences, with respect to congressional status, that may result when a sitting Member of the United States Senate is indicted for or is convicted of a felony. If a sitting United States Senator is indicted for a criminal offense that constitutes a felony, the status and service of that Member is not directly affected by any federal statute, constitutional provision, or Rule of the Senate. No rights or privileges are forfeited under the Constitution, statutory law, or the Rules of the Senate merely upon an indictment for an offense. Internal party rules in the Senate may be relevant, however, and the Senate Republican Conference Rules, for example, have required an indicted chairman or ranking Member of a Senate committee, or a member of the Senate party leadership, to temporarily step aside from his or her leadership or chairmanship position, although the Member's service in Congress would otherwise continue. It should be noted that Members of Congress do not automatically forfeit their offices even upon conviction of a crime that constitutes a felony. There is no express constitutional disability or "disqualification" from Congress for the conviction of a crime, other than under the Fourteenth Amendment for certain treasonous conduct after having taken an oath of office. Under party rules, however, Members may lose their chairmanships of committees or ranking Member status upon conviction of a felony, and this has been expressly provided under the Senate Republican Conference Rules. Conviction of certain crimes may subject Senators to internal legislative disciplinary proceedings, including resolutions of censure, as well as expulsion from the Senate upon approval of two-thirds of the Members. Expulsion of a Member from Congress does not result in the forfeiture or loss of one's federal pension, but the Member's conviction of certain crimes may lead to such forfeiture of retirement annuities, or the loss of all of the "creditable service" as a Member that one would have earned towards a federal pension. Indictment and/or conviction of a crime that is a felony does not constitutionally disqualify one from being a Member of Congress (nor from being a candidate for a future Congress), unless a Member's conviction is for certain treasonous conduct committed after taking an oath of office to support the Constitution. There are only three qualifications for congressional office and these are set out in the United States Constitution at Article I, Section 3, clause 3 for Senators (and Article I, Section 2, clause 2, for Representatives): age, citizenship, and inhabitancy in the state when elected. These constitutional qualifications are the exclusive qualifications for being a Member of Congress, and they may not be altered or added to by Congress or by any state unilaterally. Once a person meets those constitutional qualifications, that person, if elected, is constitutionally "qualified" to serve in Congress, even if under indictment or a convicted felon. No specific or formal Rule of the Senate exists concerning the status of a Senator who has been indicted with respect to chairmanships or ranking Member status on committees of the Senate. However, the political parties in the Senate may adopt internal conference and caucus rules that may affect a Senator's leadership and committee positions and assignments. For example, Senate Republican Conference Rules have provided for the temporary loss of one's position as the chairman or ranking Member of a committee, and the temporary loss of one's leadership position, if the Senator has been indicted for a felony; and if the Senator is convicted, the replacement of the chair/ranking Member on the committee. Although Members of the House of Representatives convicted of an offense that may result in two or more years' imprisonment are instructed under House Rule XXIII (10) to "refrain from participation in the business of each committee of which he is a member, and a Member should refrain from voting" on any question on the floor of the House until his or her presumption of innocence is restored (or until the individual is reelected to Congress), there is no comparable provision in the Senate Rules. Each house of Congress has the express authority under Article I, Section 5, clause 2, of the United States Constitution to punish a Member for "disorderly Behaviour" and, with the concurrence of two-thirds, to expel a Member. Although the breadth of authority and discretion within the Senate (and House) as to the timing, nature, and underlying conduct involved in an internal discipline of a Member of that body is extensive, the traditional practice in Congress, in cases where a Member of Congress has been indicted, has been to wait to impose congressional discipline, such as expulsion or censure against the Member, until the question of guilt has been at least initially resolved through the judicial system. Members of Congress, like many other individuals, have been indicted and charged with various offenses and then been subsequently exonerated in judicial proceedings. Both the Senate and the House have thus been reluctant to remove from Congress individuals who have been lawfully elected to represent their constituents based merely upon charges in an indictment. However, no impediment in law or rule exists for ongoing congressional inquiries concurrent with criminal proceedings (although such actions may complicate some evidentiary issues in subsequent judicial proceedings, and certain internal, concurrent congressional inquiries have in the past been postponed or partially deferred because of arrangements with the Department of Justice). An attempt to mandatorily suspend an indicted or convicted Member from voting or participating in congressional proceedings raises several issues. In general, elected Senators are not in the same situation as persons appointed to positions in the government with indefinite tenure, nor as private professionals, who might be suspended for a period of time merely upon suspicion or charges being levied, because Members of Congress are directly elected by, answerable to, and personally represent the people of their state or district in the Congress. The authority of either house of Congress to mandatorily suspend a Member from participation in congressional business has thus been questioned on grounds of both policy and power because such action would, in effect, disenfranchise that Member's constituency, deprive the people of their full constitutional representation in Congress, and would not allow the constituents to replace a Member, such as they could after an expulsion action. Conviction of a crime may subject a Member of the Senate to internal disciplinary action, including a resolution for censure of the Member, up to and including an expulsion from Congress upon a two-thirds vote of the Members of the Senate present and voting. The Senate has demonstrated that in cases of conviction of a Member of crimes that relate to official misconduct that the institution need not wait until all the Senator's appeals are exhausted, but that the Senate may independently investigate and adjudicate the underlying factual circumstances involved in the judicial proceedings, regardless of the potential legal or procedural issues that may be raised and resolved on appeal. No specific guidelines exist regarding actionable grounds for congressional discipline under the constitutional authority of each house to punish its own Members. Each house of Congress has significant discretion to discipline misconduct that the membership finds to be worthy of censure, reprimand, or expulsion from Congress. When the most severe sanction of expulsion has been actually employed in the Senate (and in the House of Representatives), however, the conduct has historically involved either disloyalty to the United States or the violation of a criminal law involving the abuse of one's official position, such as bribery. In the United States Senate, 15 Senators have been expelled, 14 during the Civil War period for disloyalty to the Union (one expulsion was later revoked by the Senate), and one Senator was expelled in 1797 for other disloyal conduct. Although the Senate has actually expelled relatively few Members, and none since the Civil War, other Senators, when facing a recommended expulsion for misconduct, have resigned their seat rather than face the potential expulsion action. In addition to expulsion, the Senate as an institution may take other disciplinary actions against one of its Members, including censure or fine. The Senate, like the House of Representatives, has taken a broad view of its authority to censure or otherwise discipline its Members for any conduct that the Senate finds to be reprehensible and/or to reflect discredit on the institution and which is, therefore, worthy of rebuke or condemnation. A censure by the Senate, whereby the full Senate adopts by majority vote a formal resolution of disapproval of a Member, may therefore encompass conduct that does not violate any express state or federal law, nor any specific Rule of the Senate. The Senate, in a similar manner as the House of Representatives in relation to its Members, has expressed reticence to exercise the power of expulsion (but not censure) for conduct in a prior Congress when a Senator has been elected or reelected to the Senate after the Member's conviction, when the electorate knew of the misconduct and still sent the Member to the Senate. The apparent reticence of the Senate or House to expel a Member for past misconduct after the Member has been duly elected or reelected by the qualified electors of a state, with knowledge of the Member's conduct, appears to reflect the deference traditionally paid in U.S. heritage to the popular will and election choice of the people. The authority to expel would thus be used cautiously when the institution of Congress might be seen as usurping or supplanting its own institutional judgment for the judgment of the electorate as to the character or fitness for office of an individual whom the people have chosen to represent them in Congress. Concerning a sitting Member of the Senate (or House) who is either indicted for or convicted of a felony offense, it should be noted that the United States Constitution does not provide for nor authorize the recall of any United States officials, such as United States Senators, Representatives to Congress, or the President or Vice President, and thus no Senator or Representative has ever been recalled in the history of the United States. Under the Constitution and congressional practice, Members of Congress may have their services ended prior to the normal expiration of their constitutional terms of office by their resignation, death, or by action of the house of Congress in which they sit by way of an expulsion or by a finding that a subsequent public office accepted by a Member is "incompatible" with congressional office (and that the Member has thus vacated his seat in Congress). The recall of Members of Congress was considered during the drafting of the federal Constitution, but no such provisions were included in the final version sent to the states for ratification, and the drafting and ratifying debates indicate a clear understanding and intent of the framers and ratifiers of the Constitution that no right or power to recall a Senator or Representative from Congress existed under the Constitution. As noted by an academic authority on this subject, The Constitutional Convention of 1787 considered but eventually rejected resolutions calling for this same type of recall [recall of Senators as provided in the Articles of Confederation].... In the end, the idea of placing a recall provision in the Constitution died for lack of support.... Although the Supreme Court has not needed to address the subject of recall of Members of Congress directly, other Supreme Court decisions, as well as other judicial and administrative rulings, decisions, and opinions, indicate that (1) the right to remove a Member of Congress before the expiration of his or her constitutionally established term of office resides exclusively in each house of Congress as established in the expulsion clause of the United States Constitution and (2) the length and number of the terms of office for federal officials, established and agreed upon by the states in the Constitution creating that federal government, may not be unilaterally changed by an individual state, such as through the enactment of a recall provision or other provision limiting, changing, or cutting short the term of a United States Senator or Representative. State administrative and judicial rulings have thus consistently found that there exists no right or power for an electorate in that state to "recall" a federal officer such as a United States Representative or Senator, regardless of the language of a particular state statute. No law or Rule exists providing that a Member of the Senate who is indicted for or convicted of a crime must forfeit his or her congressional salary. As discussed earlier concerning qualifications to hold the office of Member of Congress, indictment for or conviction of a felony offense is not a constitutional bar for eligibility to be elected or reelected as a Member of Congress, other than a conviction for treasonous conduct after having taken an oath of office, under the "disqualification" provision of the Fourteenth Amendment. Additionally, a congressional censure or expulsion does not act as a permanent disability to hold congressional office in the future. A person under indictment or a convicted felon, even one who has also been disciplined by Congress, may run for and, in theory, be reelected to Congress and may not be "excluded" from Congress, but must be seated, if such person meets the three constitutional qualifications for office and has been duly elected. Once a Member is seated, however, that Member may be subject to certain discipline by the Senate. Under the United States Constitution there is no impediment for the people of a state (or district in the case of a Representative) to choose an individual who is under indictment, or who is a convicted felon, to represent them in Congress. Furthermore, because the qualifications for elective federal office are established and fixed within the United States Constitution, they are the exclusive qualifications for congressional office, and may not be altered or added to by the state legislatures except by constitutional amendment. The states may not, therefore, by statute or otherwise, bar from the ballot a candidate for federal office because such person is indicted or has been convicted of a felony. The required qualifications, as well as the disqualifications, to serve in Congress were intentionally kept at a minimum by the framers of the Constitution to allow the people broad discretion to send whom they wish to represent them in Congress. That is, the people voting in a district or state, rather than the institutions of Congress, the courts, or the executive, were meant to substantially control their own decisions concerning their representation in the federal legislature. Officers and employees of the United States, including Members of Congress, do not, upon indictment for any crime, nor upon conviction of every crime that constitutes a felony, forfeit the federal pensions for which they qualify and the retirement income that they have accumulated. However, the federal pensions of Members of Congress will be affected in two general instances: upon the conviction of a crime concerning any of the national security offenses listed in the so-called "Hiss Act," and upon the conviction of any one of several felony offenses relating to public corruption, abuse of one's official position in the Congress, fraud, or campaign finance laws if the elements of the offense relate to the official duties of the Member. Under the so-called "Hiss Act," Members of Congress, in a similar manner as most other officers and employees of the federal government, forfeit all of their federal retirement annuities for which they had qualified if convicted of a federal crime which relates to disclosure of classified information, espionage, sabotage, treason, misprision of treason, rebellion or insurrection, seditious conspiracy, harboring or concealing persons, gathering or transmitting defense information, perjury in relation to those offenses, and other designated offenses relating to secrets and national security offenses against the United States. Additionally, under provisions of law first enacted in 2007, and then expanded in 2012, a Member of Congress will lose all "creditable service" as a Member for federal pension (and disability) purposes if that Member is convicted for conduct which constitutes a violation of any one of a number of federal laws concerning public corruption, fraud, and campaign finance regulation. The forfeiture provisions of this law will apply if the criminal misconduct was engaged in while the individual was a Member of Congress (or while the individual was the President, Vice President, or an elected official of a state or local government), and if every element of the offense "directly relates to the performance of the individual's official duties as a Member, the President, the Vice President, or an elected official of a State or local government." The laws within these pension forfeiture provisions include, for example, bribery and illegal gratuities; conflicts of interest; acting as an agent of a foreign principal; false claims; vote buying; unlawful solicitations of political contributions; theft or embezzlement of public funds; false statements or fraud before the federal government; wire fraud and mail fraud, including "honest services" fraud; obstruction of justice; extortion; money laundering; bribery of foreign officials; depositing proceeds from various criminal activities; obstruction of justice or intimidation or harassment of witnesses; an offense under "RICO," racketeer influenced and corrupt organizations; conspiracy to commit an offense or to defraud the United States to the extent that the conspiracy constitutes an act to commit one of the offenses listed above; conspiracy to violate the post-employment, "revolving door" laws; perjury in relation to the commission of any offense described above; or subornation of perjury in relation to the commission of any offense described above. As to the loss of one's federal pension annuity, or the loss of creditable service as a Member for the purposes of the Member's retirement annuity, the nature and the elements of the offense are controlling; and it does not matter if the individual resigns from office prior to or after indictment or conviction, or if the individual is expelled from Congress.
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There are no federal statutes or Rules of the Senate that directly affect the status of a Senator who has been indicted for a crime that constitutes a felony. No rights or privileges are forfeited under the Constitution, statutory law, nor the Rules of the Senate upon an indictment. Under the Rules of the Senate, therefore, an indicted Senator may continue to participate in congressional proceedings and considerations. Under the United States Constitution, a person under indictment is not disqualified from being a Member of or a candidate for reelection to Congress. Internal party rules in the Senate may, however, provide for certain steps to be taken by an indicted Senator. For example, the Senate Republican Conference Rules require an indicted chairman or ranking Member of a Senate committee, or a member of the party leadership, to temporarily step aside from his or her leadership or chairmanship position. Members of Congress do not automatically forfeit their offices upon conviction of a crime that constitutes a felony. No express constitutional disability or "disqualification" from Congress exists for the conviction of a crime, other than under the Fourteenth Amendment for certain treasonous conduct by someone who has taken an oath of office to support the Constitution. Unlike Members of the House, Senators are not instructed by internal Senate Rules to refrain from voting in committee or on the Senate floor once they have been convicted of a crime which carries a particular punishment. Internal party rules in the Senate may affect a Senator's position in committees. Under the Senate Republican Conference Rules, for example, Senators lose their chairmanships of committees or ranking Member status upon conviction of a felony. Conviction of certain crimes may subject—and has subjected in the past—Senators to internal legislative disciplinary proceedings, including resolutions of censure, as well as an expulsion from the Senate upon approval of two-thirds of the Members. Conviction of certain crimes relating to national security offenses would result in the Member's forfeiture of his or her entire federal pension annuity under the provisions of the so-called "Hiss Act" and, under more recent provisions of law, conviction of a number of crimes by Members relating to public corruption, fraud, or campaign finance law will result in the loss of the Member's entire "creditable service" as a Member for purposes of calculating his or her federal retirement annuities if the conduct underlying the conviction related to one's official duties. This report has been updated from an earlier version, and will be updated in the future as changes to law, congressional rules, or judicial and administrative decisions may warrant.
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This report addresses frequently asked questions related to the Common Core State Standards and federal involvement with the standards. For a more detailed discussion of these issues, please see CRS Report R43711, Common Core State Standards and Assessments: Background and Issues , by [author name scrubbed] and [author name scrubbed]. The No Child Left Behind Act (NCLB) required states participating in ESEA Title I-A to: develop and adopt content and performance standards and aligned assessments in the subjects of mathematics and reading in each of grades 3-8 and for at least one grade in grades 10-12 by the end of the 2005-2006 school year, assuming certain minimum levels of annual federal funding were provided for state assessment grants; adopt content and performance standards in science (at three grade levels—grades 3-5, 6-9, and 10-12) by the end of the 2005-2006 school year; and adopt assessments in science (at three grade levels) by the end of the 2007-2008 school year. The academic achievement standards must include at least three levels of performance: partially proficient (basic), proficient, and advanced. The same academic content and achievement standards must apply to all students. The assessments must be aligned with the state's academic content and achievement standards. Each state was permitted to select its own reading, mathematics, and science content standards, performance standards, and assessments. Title VI-A of the ESEA provides grants to states to develop and administer the required assessments. Under the provisions of ESEA, states have had the flexibility to select their own content and performance standards. This flexibility has led to the development of different accountability systems in each state. Concerns related to the diversity of accountability systems, student mobility, consistent expectations for students, preparation of students for global competition, and skills students need for employment spurred a grassroots movement led by the National Governors Association and the Council of Chief State School Officers to develop common standards for English language acquisition (ELA) and mathematics in grades K-12. These standards are known as Common Core State Standards, and the effort to develop these standards is referred to as the Common Core State Standards Initiative (CCSSI). According to the CCSSI, "The purpose of this state-led initiative ... is to create a rigorous set of shared standards that states can voluntarily adopt. The standards are crafted to 'define the knowledge and skills students should have within their K-12 education careers so they graduate from high school able to succeed in entry-level, credit-bearing academic college courses and workforce training programs.'" Adoption of the Common Core State Standards is optional. However, according to CCSSI, a state is considered to have adopted the Common Core State Standards only if (1) a state adopts 100% of the standards in ELA and in mathematics (word for word), "with the option of adding up to 15% of standards on top of the core" standards, and (2) the body authorizing standards in the state has taken formal action to adopt and implement the standards. As of August 2014, 43 states, the District of Columbia, 4 outlying areas, and the Department of Defense Education Activity (DoDEA) had adopted the Common Core State Standards. This total does not include Indiana and Oklahoma who recently became the first states to adopt and subsequently discontinue use of the Common Core State Standards. South Carolina has indicated that the Common Core State Standards will be fully implemented for the 2014-2015 school year but will be replaced by "new, high-level College and Career Ready standards" in the 2015-2016 school year. Minnesota has adopted the ELA Common Core State Standards but not the Common Core State Standards for mathematics. Alaska, Nebraska, Texas, Virginia, and Puerto Rico have not adopted the Common Core State Standards for ELA or mathematics. While the federal government did not have a role in developing the Common Core State Standards, the Obama Administration has taken three major steps to incentivize the adoption and implementation of the standards: (1) Race to the Top (RTT) State Grants, (2) RTT Assessment Grants, and (3) ESEA flexibility package. It is not possible to assess how many states would have adopted the Common Core State Standards in the absence of these incentives. The RTT State Grant program was initially authorized under the State Fiscal Stabilization Fund (SFSF) included in the American Recovery and Reinvestment Act (ARRA; P.L. 111-5 ). Under the program, over $4 billion in competitive grants were awarded to 18 states and the District of Columbia. These grantees agreed to implement reforms in various areas, including enhancing standards and assessments. The Department of Education (ED) specified that participating states had to adopt "internationally-benchmarked standards and assessments that prepare students for success in college and the workplace." States received additional points for their applications if they demonstrated they were participating in a consortium of states that was working toward developing and adopting a "common set of K-12 standards" that met the aforementioned requirements. Points were also awarded for states that were working with a consortium that included "a significant number of states." In addition, states were awarded points for adopting such standards by specified deadlines. For example, states received the highest number of points for adopting "common" K-12 standards by August 2, 2010. As of August 2, 2010, 30 states and the District of Columbia had adopted such standards. With respect to assessments, states were evaluated on the extent to which they demonstrated a commitment to improving the quality of their assessments as evidenced by participation in a consortium of states that "is working toward jointly developing and implementing common, high-quality assessments ... aligned with the consortium's common set of K-12 standards." States were also evaluated based on whether the consortium in which they were participating included a "significant" number of states. States could earn the highest number of points by joining a consortium that included the majority (more than 50%) of all states. ED also used a portion of the funds appropriated under ARRA to award RTT Assessment grants to two consortia of states to "develop and implement common, high-quality assessments aligned with common college- and career-ready K–12 standards." Both winning consortia, Partnership for the Assessment of Readiness for College and Careers (PARCC) and the SMARTER Balanced Assessment Consortium (Smarter Balanced), are using the Common Core State Standards as the common standards to which their assessments will be aligned. This grant competition was run simultaneously with the RTT State Grant competition, so states were able to indicate whether they were going to participate in a consortium to develop assessments aligned with common standards in the RTT State Grant applications, which in turn made them eligible to receive extra points under the RTT State Grants program. As of July 30, 2014, 34 states and the District of Columbia were still involved with one or more of the consortia. While states voluntarily joined a consortium knowing that they would be using the Common Core State Standards as their common standards upon which to align their assessments, the availability of RTT funding to develop the assessments may have further incentivized the adoption and implementation of the Common Core State Standards and aligned assessments. And, while the federal government did not tell the consortia which common standards to use in their work, without federal financial support for the development of assessments associated with the Common Core State Standards, it is unclear where funding to support the development of those assessments would have been provided. However, it is possible that states may have been able to use federal funds provided for State Assessment Grants under Title VI-A of the ESEA to support the joint development of these assessments. On September 23, 2011, President Obama and the Secretary of Education announced the availability of an ESEA flexibility package for states and described the principles that states must meet to obtain the included waivers. The waivers apply to school years 2011-2012, 2012-2013, and 2013-2014. States that were approved to begin implementing ESEA flexibility during the 2012-2013 school year are eligible to apply for a one-year extension of their flexibility packages that would continue to provide ESEA flexibility through the 2014-2015 school year. The waivers exempt states from various NCLB requirements related to academic accountability requirements, teacher qualifications, and funding flexibility. State educational agencies (SEAs) may also apply for optional waivers. However, in order to receive the waivers, SEAs must agree to meet four principles established by ED for "improving student academic achievement and increasing the quality of instruction." The four principles include (1) college- and career-ready expectations for all students, including adopting college- and career-ready standards in reading/language arts and mathematics and aligned assessments; (2) state-developed differentiated recognition, accountability, and support; (3) supporting effective instruction and leadership; and (4) reducing duplication and unnecessary burden. With respect to the adoption of college- and career-ready standards, states have to select from two options when completing the ESEA flexibility package application. A state can either adopt reading/language arts and mathematics standards that are common to a "significant number" of states or adopt college- and career-ready standards in reading/language arts and mathematics that have been approved by a state network of institutions of higher education that certify that any student meeting the standards will not require remedial course work at the postsecondary level. It should be noted that "common to a significant number of states" is not defined. At the time the ESEA flexibility package was announced, over 40 states had already adopted the Common Core State Standards. Based on an examination of the approved state applications for the ESEA flexibility package, nearly every state that has received approval has opted to implement the Common Core State Standards in some form, although some states have opted to have their standards approved by state institutions of higher education. For example, Minnesota implemented the Common Core State Standards for ELA but not for mathematics, which is instead based on the Minnesota College and Work Readiness Expectations for Math. Rather than using the Common Core State Standards, Virginia is using its Standards of Learning, Texas is using the Texas Essential Knowledge and Skills Curriculum Standards, and Alaska is using the Alaska Content and Performance Standards. To receive a waiver for assessments, an SEA must develop and administer, "annual, statewide, aligned, high-quality assessments, and corresponding academic achievement standards, that measure student growth in at least grades 3-8 and once in high school." The ESEA flexibility request lists three options for demonstrating compliance with the "high-quality assessments" requirements: (1) the SEA is participating in a state consortium funded by RTT; (2) the SEA is not participating in a state consortium funded by RTT but plans to develop and administer "high-quality assessments" by school year 2014-2015; and (3) the SEA has developed and begun administering "high-quality assessments" independent of the state consortia funded by RTT. As noted above, neither the RTT program nor the ESEA waiver package explicitly required states to adopt the Common Core State Standards. However, both initiatives provided significant incentives to states that adopted college- and career-ready standards that met specified requirements, and the Common Core State Standards was the most widely available set of standards that met such requirements. As a result, the RTT program and ESEA flexibility waivers could both be characterized as incentivizing the adoption of Common Core. Such incentives, however, are a common feature of federal grant programs, and they do not appear to violate any current education statute. Nevertheless, some critics have alleged that the significant financial and regulatory incentives provided under the RTT program and the flexibility waivers are unconstitutionally coercive because these initiatives made it extremely difficult for a state to reject the Common Core State Standards. Generally, a state's participation in programs that rely on such incentives is viewed as voluntary by the courts. The latter interpretation may be supported by the fact that several states have declined to adopt the Common Core State Standards or to seek flexibility waivers. This view may also be bolstered by Supreme Court doctrine on congressional authority under the spending clause of the Constitution. Under the Court's jurisprudence, a state's participation in a grant program that conditions receipt of federal funds on compliance with federal requirements has traditionally been treated as voluntary, and such conditions have been deemed unconstitutionally "coercive" only in rare instances. As discussed above, states are required to adopt and implement two types of academic standards as a condition of receiving Title I-A funding. These include content standards and performance (or achievement) standards. In general, content standards specify what students are expected to know and be able to do. Performance standards are explicit definitions of what students must know and be able to do to demonstrate proficiency. According to ED, "Achievement standards further define content standards by connecting them to information that describes how well students are acquiring the knowledge and skills contained in academic content standards." In neither case are standards synonymous with curricula, method of instruction, or classroom materials. There is not a single, broadly agreed upon definition of curriculum. It can mean anything from lesson plans to textbooks to frameworks that can be generated at the state or local level or purchased off the shelf. In general, however, the development and use of curriculum is part of the process for operationalizing state standards. According to ED, "A curriculum aligned with the State's standards is necessary for students to achieve and demonstrate proficiency on a State's tests." Thus, according to ED, while standards and curriculum are different concepts, the alignment of standards and curriculum is needed for students to demonstrate proficiency on state assessments, which must be aligned with the standards. Critics of the Common Core State Standards have expressed concern that adoption and implementation of these standards and aligned assessments will result in national standards and national assessments. Despite grassroots efforts to develop the Common Core State Standards and actions by the Obama Administration to support the standards and the development of assessments aligned with these standards, the end result will not yield a single set of national standards in reading and mathematics or a single set of assessments in these subject areas. For example, states that adopt the Common Core State Standards are permitted to add additional standards of their own choosing to the Common Core State Standards. Thus, each state adopting and implementing the Common Core State Standards could continue to have a unique set of state standards that share common elements with other adopting states. As a result of the RTT common assessment competition, there will be at least two different assessments linked to the Common Core State Standards, and based on a recent survey conducted by Education Week , it appears that at least 17 states are planning to use something other than the assessments being developed by PARCC and Smarter Balanced. In addition, even among the states that are still planning to use tests developed by one of the two consortia, some states are planning on using a consortium-developed test only for some but not all grade levels tested. The Common Core State Standards are also not synonymous with a national curriculum. Standards determine what needs to be taught, and curriculum is used to help operationalize the standards. Decisions regarding how standards are taught to students and how students are prepared for assessments remain a state and local decision in states that adopt and implement the Common Core State Standards. However, if enough states that are implementing the Common Core State Standards voluntarily worked together to develop materials for teaching the standards, or textbook publishers and other organizations that create materials for classroom use developed materials that are clearly aligned with the Common Core State Standards and were adopted by multiple states, it is possible that these actions could result in multiple states using similar materials in the classroom. Further complicating the landscape of state standards and assessments are RTT State Grant and ESEA flexibility waiver requirements aimed at increasing the number of states that develop and implement teacher and school leader evaluation systems that are based in part on student achievement. The use of student assessments required under ESEA Title I-A could provide the means by which student achievement and growth are determined for purposes of teacher and school leader evaluation systems. Under RTT State Grants, states earned points on their application for improving teacher and principal effectiveness through the development of teacher and principal evaluation systems that would be based, in part, on student growth. The RTT application defines student growth to mean "the change in student achievement ... for an individual student between two or more points in time." Student achievement is defined as a student's score of the state assessments under ESEA for tested grades and subjects and, as appropriate, other measures of student learning provided they are rigorous and comparable across classrooms. Thus, teacher and principal effectiveness will be determined, in part, on student growth on assessments, which may include newly implemented assessments based on new standards, such as the Common Core State Standards. To receive the ESEA flexibility package, state and local educational agencies must commit to develop, adopt, pilot, and implement teacher and principal evaluation and support systems that, among other things, use multiple valid measures in determining performance levels, including data on student growth, and other measures of professional practice and will be used to inform personnel decisions. However, depending on when a state had its ESEA flexibility package application approved, there may be little time between (1) implementing a new set of state ELA and mathematics standards, (2) implementing new assessments aligned with those standards, and (3) evaluating teachers based on student growth on those assessments. There are concerns among educators that the process of implementing new standards, new assessments, and new evaluation systems is moving too quickly. For example, while both the National Education Association and the American Federation of Teachers have supported the use of the Common Core State Standards, both organizations have been critical of the timeline for implementing curriculum and teacher evaluations associated with the standards. In the last year, ED has made multiple announcements regarding flexibility that will be provided to states with respect to the use of student growth data in the teacher and principal evaluation systems and the use of these data to make personnel decisions. In making these announcements, ED noted that additional flexibility will not be granted to states that have laws that prevent them from implementing teacher and principal evaluation systems that meet the requirements of the ESEA flexibility package. As Congress considers ESEA reauthorization, it is likely that attention will be devoted to the nature and extent of an ongoing federal role in encouraging or requiring the development and implementation of state academic standards and test-based accountability. Congress has several options for addressing current requirements regarding standards, assessments, and related issues. One option would be for Congress to amend the ESEA in such a way as to require states to use the Common Core State Standards and aligned assessments of either their own choosing or developed by one of the two consortia. Requiring adoption and implementation of a specific set of standards, however, would be more prescriptive than current law which allows states to select their own standards and assessments. Another option would be for Congress to amend the ESEA in such a way that states could choose to, but would not be required to, use the Common Core State Standards and aligned assessments to meet the requirements of Title I-A. Similarly, Congress could opt not to make changes to the current ESEA requirements related to standards and assessments, which would allow states to continue to use the Common Core State Standards. Congress could also choose to eliminate incentives used by the Administration to encourage the use of the Common Core State Standards by prohibiting ED from conditioning the receipt of grants, preferences, or waivers on a state's adoption of common standards. Related to these issues is whether Congress would wish to modify the current statutory language that requires the adoption and implementation of "challenging" academic content standards and academic achievement standards to require instead the use of "college- and career-ready standards," that has been a condition of receiving RTT grants and ESEA waivers. A change to "college- and career-ready standards" would not necessarily require the adoption and implementation of the Common Core State Standards, but depending on how Congress defined "college- and career-ready standards," the Common Core State Standards might be one readily available set of standards that states could use to meet the new requirements.
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Over the last two decades, there has been interest in developing federal policies that focus on student outcomes in elementary and secondary education. Perhaps most prominently, the enactment of the No Child Left Behind Act of 2001 (NCLB; P.L. 107-110), which amended and reauthorized the Elementary and Secondary Education Act (ESEA), marked a dramatic expansion of the federal government's role in supporting standards-based instruction and test-based accountability, thereby increasing the federal government's involvement in decisions that directly affect teaching and learning. Under the ESEA, states are required to have standards in reading and mathematics for specified grade levels in order to receive funding under Title I-A of the ESEA. In response to this requirement, all 50 states and the District of Columbia have adopted and implemented standards that meet the requirements of the ESEA. Since the ESEA was last comprehensively reauthorized by NCLB, recent developments have taken place that have possibly played a role in the selection of reading and mathematics standards by states: (1) the development and release of the Common Core State Standards; (2) the Race to the Top (RTT) State Grant competition and RTT Assessment Grants competition; and (3) the ESEA flexibility package provided by the Department of Education (ED) to states with approved applications. As of June 2014, 43 states, the District of Columbia, 4 outlying areas, and the Department of Defense Education Activity (DoDEA) had at some point adopted the Common Core State Standards. Indiana, Oklahoma, and South Carolina recently became the first states to adopt and subsequently discontinue use of the Common Core State Standards. These three changes have substantially changed the elementary and secondary education federal policy landscape. This short report answers common questions related to K-12 accountability provisions under the ESEA, Common Core State Standards, RTT, and the ESEA flexibility package, including: What NCLB requirements apply to academic standards and assessments? What are the Common Core State Standards? How many states have adopted the Common Core State Standards? What role has the federal government played in the development, adoption, and implementation of the Common Core State Standards? Do states have to adopt and implement the Common Core State Standards? What is the difference between standards and curriculum? Will the Common Core State Standards lead to national standards, national assessments, or a national curriculum? How do the Common Core State Standards relate to teacher evaluation? Are there legislative decisions approaching that are potentially relevant to the Common Core State Standards? A more detailed discussion of the Common Core State Standards and their relationship to RTT grants and the ESEA flexibility package is available in CRS Report R43711, Common Core State Standards and Assessments: Background and Issues, by [author name scrubbed] and [author name scrubbed].
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The same group of air pollutant emissions from outer continental shelf (OCS) operations are subject to different regulatory programs, depending on the location of the operation. The Department of the Interior (DOI) has jurisdiction over OCS sources in federal waters in the western Gulf of Mexico and most of the central Gulf. The Consolidated Appropriations Act, 2012 ( P.L. 112-74 ), transferred air emission authority in the OCS off Alaska's north coast from the Environmental Protection Agency (EPA) to DOI. EPA has jurisdiction over sources in all other federal waters. Congress established the programs through different statutes, and the two agencies implement the programs through separate regulations. Pursuant to the underlying statutes, the regulations have different scopes, emission thresholds for eligibility, and compliance obligations. Therefore, two identical operations, located in separate jurisdictions, could face considerably different requirements and procedural time frames. Some may criticize this arrangement for its inconsistent treatment of air emissions. Others may point out that the differences create inconsistent opportunities for oil and gas development. For much of the past 30 years, these differences received little attention, primarily because most of the federal oil and gas resources in EPA's jurisdiction have been subject to moratoria. Moreover, the level of activities in the regions open to development has varied dramatically. According to DOI data from 2010, there were 3,409 production wells in the Gulf of Mexico and 23 in the Pacific. Figure 1 illustrates the divided jurisdiction in the Gulf of Mexico. Although active leases are located in EPA's jurisdiction, none of the Gulf of Mexico platforms are in EPA's jurisdiction. In 2008, moratoria provisions expired, allowing many of the areas in EPA's jurisdiction to potentially open for oil and gas leasing activity. In addition, estimates of oil and gas resources have spurred interest in areas other than the Gulf ( Table 1 ). For example, OCS areas off the Atlantic coast have also received attention in recent years. In 2007, the Minerals Management Service (MMS) proposed a lease sale in an area offshore of Virginia. The lease sale was set to take place in 2011. In the aftermath of the 2010 Deepwater Horizon oil spill, the Obama Administration canceled the sale (May 27, 2010). In addition, in DOI's most recent five-year plan for OCS leasing, DOI decided not to include the Mid- and South Atlantic planning areas. Many Members of the 112 th Congress have sought to expand OCS oil and gas development. The House has passed several bills that would direct DOI to hold lease sales in particular areas, including the formerly proposed Virginia lease sale and areas of Southern California. In addition, areas of the U.S. Arctic region, which were not subject to the moratoria, have generated recent congressional interest as industry has sought to establish a greater presence in the area. A primary driver for the activity in this region is the shrinking Arctic ice cap, or conversely, the growing amount of ice-free ocean in the summertime. As interest in developing OCS resources in EPA's jurisdiction has increased, the EPA OCS air program has received increased scrutiny from some Members. In particular, Members have focused on the permit activity of Shell in the Chukchi Sea, part of the federal waters off Alaska's north coast. This interest led to the enactment of the Consolidated Appropriations Act, 2012 ( P.L. 112-74 ) on December 23, 2011, which transferred air emission authority in the OCS off Alaska's north coast from the Environmental Protection Agency (EPA) to DOI. This report will provide an overview and brief history of the separate regulatory programs, examine and compare the requirements of the programs, and highlight potential implications of the differences. Although OCS sources can involve other industry sectors (e.g., deepwater ports or offshore wind projects), the focus of this report is air emissions from the OCS oil and gas exploration, development, and production operations. OCS sources of air emissions can vary considerably, depending on the specifics of the operation. Offshore oil and gas sector operations, in particular, may include evolving technologies and take place in different settings, making it difficult to generalize air emission potentials. For example, mobile offshore drilling units involved in deepwater drilling in the Gulf of Mexico may emit considerably more emissions than a rig anchored to the sea floor in shallow water. Operations in the Arctic region may involve icebreaker vessels, which may generate considerably more emissions than other support vessels. A Senate Report from the 1990 Clean Air Act (CAA) amendments stated: "The construction and operation of OCS facilities emit a significant amount of air pollution which adversely impacts coastal air quality in the United States. Operational emissions from an OCS platform and associated marine vessels can routinely exceed 500 tons of nitrogen (NO x ) and one hundred tons of reactive hydrocarbons annually." Based on a review of EPA OCS permit documents, the 1990 Senate Report estimate is still valid, particularly for nitrogen oxide (NO x ) emissions. Table 2 identifies emission ranges of selected air pollutants from seven OCS oil/gas operations seeking, or recently receiving, air permits in EPA's jurisdiction. In some cases, the ranges cover a wide spectrum. For each source, NO x emissions account for the majority of the operations' regulated pollutants. Four of the pollutants in Table 2 are considered "criteria" pollutants and have a National Ambient Air Quality Standard (NAAQS). Both NO x and volatile organic carbon (VOC) emissions lead to ozone (O 3 ) formation (sometimes described as smog), which is also a criteria pollutant. According to congressional testimony from EPA Administrator Jackson, "a single exploratory drilling operation could emit approximately as much air pollution on a daily basis as a large state-of-the-art oil refinery." A brief history of federal OCS air emission governance may be instructive to policymakers. First, its history may help explain the rationale for the current framework. Second, some of the arguments made during its development may apply to current issues. Passed as separate statutes in 1953, the Submerged Lands Act and the Outer Continental Shelf Lands Act (OCSLA) established federal jurisdiction and governance, respectively, for oil and gas resources on the OCS. The 1953 OCSLA did not specifically mention air emissions, but provided the Secretary of the Department of the Interior with general authority, stating: "The Secretary may at any time prescribe and amend such rules and regulations as he determines to be necessary and proper in order to provide for the prevention of waste and conservation of the natural resources of the outer Continental Shelf." The Nixon Administration established the Environmental Protection Agency (EPA) in 1970 under an executive branch reorganization plan. Although federal legislation addressing air pollution was first passed in 1955, the CAA Amendments of 1970 established the foundation of the federal air emissions program that exists today. For example, the 1970 law (among other provisions) set national standards for air quality, created a program to require the best available control technology at major new sources of air pollution, and established a program to regulate air toxics. In 1977, Congress made further amendments to the CAA, establishing (among other provisions) the prevention of significant deterioration (PSD) program. Tension arose between the CAA provisions of the 1970s and the 1953 OCSLA. The 1953 OCSLA did not specifically mention which federal agency would have jurisdiction over the air quality effects of OCS development, resulting in uncertainty over what jurisdiction, if any, the newly created Environmental Protection Agency (EPA) had for air quality control in the OCS. The jurisdictional uncertainty led EPA to assert its authority to regulate air emissions from OCS sources in April 1978. In September 1978, Congress passed the Outer Continental Shelf Lands Act of 1978 ( P.L. 95-372 ), providing the Department of the Interior (DOI) with authority to regulate the national offshore oil and gas program including the regulation of air emissions from offshore oil and gas operations. A federal appeals court affirmed DOI's authority (versus EPA authority) in 1979, in a case brought by the State of California against DOI. DOI issued regulations in 1980. Some stakeholders in California continued to voice concerns regarding the level of control for OCS source air emissions. A 1992 report from the National Research Council stated: Offshore air pollution is a problem in California that is not present in other oil-producing regions in the country (with the possible exception of the West Coast of Florida). Atmospheric conditions peculiar to coastal California involve a combination of the amount of sunlight, the mixture of pollutants already present, the direction of prevailing winds, and the presence of coastal mountain ranges—all of which work to trap smog along the coastal strip. A major problem here has been that air quality standards for air above federal waters were not as stringent as those for state waters. Congress made substantial amendments to the CAA in 1990. A newly added Section 328 authorized EPA to implement certain air quality provisions of the act at offshore facilities, except for those west of 87.5 degrees longitude (i.e., Western and Central areas of the Gulf of Mexico). Offshore facilities not under EPA jurisdiction remain under DOI jurisdiction. EPA promulgated regulations for OCS sources in 1992. In addition, Section 328(b) required the Secretary of the Interior to prepare a study assessing impacts of OCS sources in nonattainment areas that fail to meet NAAQS for ozone or nitrogen dioxide. Based on the results, the Secretary shall consult with the EPA Administrator to determine if additional actions are necessary. MMS published this study in 1995, which concluded that "the contribution of [OCS petroleum development] emission sources on onshore ozone concentrations is small." The MMS regulations remained largely unchanged (discussed below). Decades long moratoria of oil and gas development for much of the OCS have influenced the level of interest regarding OCS air emission issues. As a result of public laws and executive orders of the President, OCS moratoria along the Atlantic and Pacific coasts, parts of Alaska, and the Gulf of Mexico have been in place since 1982. On July 14, 2008, President Bush lifted the executive moratoria, which included planning areas along the Atlantic and Pacific coasts. On September 30, 2008, moratoria provisions in annual appropriations laws expired, allowing these areas to potentially open for oil and gas leasing activity. Thus, most of the OCS in EPA's jurisdiction has been off limits to oil and gas development until recently. Moreover, once a moratorium is removed, multiple legal and administrative processes must be satisfied before actual drilling can occur in a particular area. CAA Section 328 provides the underlying authority for EPA's OCS program. Pursuant to this section, EPA established two regulatory regimes: one for OCS sources located within 25 miles of a state's seaward boundary ("inner OCS sources"); another for OCS sources located beyond 25 miles of a state's water boundary and extending to the boundary of the EEZ ("outer OCS sources"). EPA created the separate regimes based on the text of Section 328. This section directs EPA to develop regulations requiring all OCS sources "to attain and maintain Federal and State ambient air quality standards and to comply with the provisions of [the prevention of significant deterioration (PSD) program]." In addition, Section 328 creates a more comprehensive program for inner sources, stating: " Such requirements shall be the same as would be applicable if the source were located in the corresponding onshore area , and shall include, but not be limited to, State and local requirements for emission controls, emission limitations, offsets, permitting, monitoring, testing, and reporting [emphasis added]." EPA promulgated regulations—40 C.F.R. Part 55—in 1992 for OCS source air emissions. Selected elements of these regulations are discussed below. In several instances, Part 55 directs OCS sources to air emission regulations in other CAA regulations, codified in separate parts of the Code of Federal Regulations . In general, these cross-references include the most substantive requirements for OCS sources. Compared to inner OCS source requirements, outer OCS source requirements are fewer and relatively less complex, because sources need only comply with federal regulations. EPA argued in its rulemaking proposal that CAA Section 328 gave the agency "some latitude" to determine the regulations for outer sources. In addition to PSD requirements (which Section 328 specifically identified), EPA chose to apply New Source Performance Standards (NSPS), National Emission Standards for Hazardous Air Pollutants (NESHAPS), and CAA Title V permitting provisions to outer OCS sources. These are discussed below. Pursuant to CAA Section 328 (and 40 C.F.R. Part 55) OCS sources are potentially subject to the CAA's Prevention of Significant Deterioration (PSD) program. Congress added the PSD program to the CAA in 1977 to address new or modified emission sources that would affect areas meeting National Ambient Air Quality Standards (NAAQS). The primary objective of the program is to ensure that the air quality does not degrade in these areas with the addition of a new (or modified) source. An OCS source that qualifies as a "major stationary source" must comply with PSD provisions. The primary determinant is an annual emissions threshold. For any stationary source, the threshold is 250 tons per year (tpy) of a regulated pollutant. Some specific emission sources have a lower threshold of 100 tpy. Oil and gas exploration, development, and production activities are not among these specific sources. Regardless, many OCS sources from the oil/gas industry are likely to approach or breach the 250 tpy threshold ( Table 2 ). In addition to the 250 tpy threshold, as of January 2, 2011, an OCS source must consider its greenhouse gas (GHG) emissions. These emissions are subject to a different threshold. Per a 2010 rulemaking, EPA is phasing in GHG applicability for the PSD program. As of July 1, 2011 (the start of the second of four phases), new emission sources—not already subject to PSD for other pollutants—would be subject to PSD, if GHG emissions equal or exceed 100,000 tpy of carbon dioxide equivalents (CO 2 e). If an OCS source is already subject to PSD for one or more of the 250 tpy-threshold pollutants, the GHG emission threshold is 75,000 tpy of CO 2 e. If an OCS source meets the definition of a "major stationary source," several PSD requirements apply. Selected requirements are discussed below, followed by an exemption for certain OCS sources. A source must apply BACT for each regulated pollutant that would be emitted in significant amounts. This means that a source may qualify as a "major stationary source" based on only one pollutant, but may need BACT for multiple pollutants. The significant amounts for selected pollutants are listed in Table 3 . BACT is determined on a case-by-case basis, taking into account a proposed control measure's energy, environmental, and economic impacts. Most states have the authority to implement the PSD program and set BACT for applicable sources, but as mentioned above, only a handful of locales have Part 55 (OCS regulatory) authority. Therefore, the applicable EPA Region would determine BACT for OCS sources in most locations. Due to the moratoria, EPA has made such determinations in only a few instances. A source must demonstrate that its emissions would not cause or contribute significantly to a violation of the NAAQS or any allowable maximum increase over the baseline concentration. To meet this demonstration, a source must provide an air quality analysis for each pollutant it would emit in a significant amount. In general, the pollutant analysis must include at least one year of continuous air quality monitoring data. A source must provide further analysis regarding impacts to visibility and soils and vegetation. If a source's emissions may impact a Class I area—156 listed national memorials, monuments, parks, and wilderness over certain sizes— EPA must consult with the applicable Federal Land Manager. The Manager has the opportunity to demonstrate that the source would yield adverse impacts, such as reduced visibility. If EPA accepts this demonstration, the source would not receive a permit. If EPA disagrees, the agency must provide a publicly available explanation. Pursuant to PSD regulatory authority, EPA may require a source to continue to monitor ambient air emissions during its operation to determine the effect of the emissions. EPA may exempt a source from this requirement, if a source's emission levels are below pollutant-specific thresholds. Part 55 also contains provisions authorizing EPA to require emissions monitoring. OCS exploratory drilling operations may qualify for an exemption from certain PSD program requirements. The exemption has two conditions. First, regulated emissions from the major stationary source must not impact a Class I area (discussed above). Second, the source's emissions must be "temporary." EPA has not defined "temporary" in the PSD regulations, but in a 1980 Federal Register preamble, EPA stated that it considered sources operating for less than two years in a given location to be temporary sources. Sources meeting the conditions of the exemption are not subject to the air quality demonstration and analyses discussed above. Several of OCS exploratory drilling operations that received EPA air permits qualified as temporary sources. Part 55 requires OCS sources to comply with applicable New Source Performance Standards (NSPS) in 40 C.F.R. Part 60. NSPS are nationally uniform, technology-based standards for specific categories of stationary emission sources. The format of the standard can vary from source to source, and may entail a numerical emission limit, a design standard, an equipment standard, or a work practice standard. Offshore oil development operations may involve equipment that has a NSPS. For example, several OCS draft permits prepared by EPA identify specific internal combustion engines with a NSPS in 40 C.F.R. Part 60, Subpart IIII. OCS sources may be subject to National Emission Standards for Hazardous Air Pollutants (NESHAP). Part 55 requires compliance with any regulations promulgated pursuant to CAA Section 112, if they are "rationally related to the attainment and maintenance of Federal or State ambient air quality standards or the requirements of [the PSD program]." EPA has promulgated multiple regulations pursuant to CAA Section 112 (e.g., 40 C.F.R. Parts 61 and 63). In general, these regulations establish emissions standards for hazardous air pollutants released from specific sources (e.g., industries or equipment). Whether these regulations apply depends on the operating equipment of the specific OCS source. Based on OCS permit documents from EPA Region 4 and Region 10, existing provisions in Part 61 are unlikely to apply to an OCS oil/gas drilling operation. Several of the permits identify equipment that would be potentially subject to provisions in Part 63 (e.g., Subpart ZZZZ, which regulates reciprocating internal combustion engines). However, in many cases the units satisfy Subpart ZZZZ requirements by complying with the NSPS in 40 C.F.R. Part 60, Subpart IIII (mentioned above). A source may require a Title V permit, but not be subject to the provisions of other parts of the CAA, such as BACT under the PSD program. The emissions threshold for a regulated pollutant is lower for Title V than the PSD program. Instead of 250 tpy (as discussed above), the Title V threshold is generally 100 tpy. Part 55 directs outer OCS sources to 40 C.F.R. Part 71, which contains the regulations promulgated to CAA Title V. The primary purpose of the Title V permit program is administrative/enforcement efficiency. Title V permits collect all applicable requirements in a single permit. Title V permits are not intended to change or alter the existing, underlying requirements or add requirements. Although some may describe the Title V permit provisions as non-substantive, others may view them as onerous. Title V permits are issued for five-year periods and must be renewed thereafter. Permits generally require the following: emissions limitations and standards to assure compliance with all applicable requirements; emissions monitoring, recordkeeping, and reporting; fee payments to support administrative expenses; and annual certification by a responsible official of the source. Inner OCS sources are subject to all of the requirements for outer OCS sources (described above) and any applicable state and/or local air emissions requirements. In the event of conflict between federal and state/local regulations, the more stringent provisions would apply. Compared to outer OCS sources, the location of the inner OCS source plays a key role in determining its applicable emission requirements. This is a function of the CAA and the potential variety of regulations among states and locales. A fundamental element of the CAA, which is generally implemented by states (at least for onshore sources), is its approach of setting more stringent standards for areas not meeting certain air quality standards ("nonattainment areas"). For example, in a nonattainment area, an inner OCS source may be subject to the lowest achievable emission rate (LAER), which is by definition more stringent than BACT. In addition, emissions from new or modified sources must also be offset by reductions in emissions from existing sources. For the OCS air permits recently issued by EPA—in the eastern Gulf of Mexico and off the northern Coast of Alaska (Beaufort and Chukchi Seas)—the nearby coastal areas are in attainment. In general, the coastal non-attainment areas for pollutants common to OCS oil/gas operations (e.g., ozone) are located in California and the Mid-Atlantic ( Figure 2 ). If OCS operations expand, nonattainment areas may become more of a factor. An owner/operator of an inner OCS source must submit a Notice of Intent (NOI) to the appropriate EPA regional office and the appropriate state agency (or agencies) of the nearest onshore area and adjacent areas. Among other elements, the NOI must include (1) an estimate of the source's potential emissions (in tons per year) of any air pollutant; and (2) information allowing for an analysis of the source's impact in onshore areas. As discussed below, the NOI must include emission information from vessels associated with the operation. The main purpose of the NOI is to allow the applicable state agency to decide if it wants to submit a request as corresponding onshore area (COA). The CAA requires OCS sources to comply with air emission provisions applicable to onshore sources in the COA. In general, the onshore area closest to the OCS source is considered the COA. The act provides EPA with the authority to designate another area as the COA, if that area has more stringent air emission controls and that area will be impacted by emissions from the OCS source. For this to occur, the state agency from the state seeking a COA redesignation must make a formal request to EPA. EPA must make a COA designation determination—based on state agency documentation and following a public comment period—within 240 days of receiving the NOI from the OCS source. EPA regulations do not allow a COA redesignation for exploratory OCS sources (e.g., exploratory drilling operations). The statute is silent on this issue, but EPA determined it was unreasonable to require an exploratory source, which (according to EPA) may operate for 3-4 months, to undergo an administrative procedure that can last for 8 months. Air emissions from vessels associated with OCS operations have generated some interest and debate. In some offshore oil and gas operations, the emissions from vessels may represent a substantial percentage of the operation's overall air emissions. Section 328(a)(4)(C) states: The terms ''Outer Continental Shelf source'' and ''OCS source'' include any equipment, activity, or facility which— (i) emits or has the potential to emit any air pollutant, (ii) is regulated or authorized under the Outer Continental Shelf Lands Act [43 U.S.C. 1331 et seq.], and (iii) is located on the Outer Continental Shelf or in or on waters above the Outer Continental Shelf. Such activities include, but are not limited to, platform and drill ship exploration, construction, development, production, processing, and transportation . For purposes of this subsection, emissions from any vessel servicing or associated with an OCS source, including emissions while at the OCS source or en route to or from the OCS source within 25 miles of the OCS source, shall be considered direct emissions from the OCS source. While crafting the regulations (40 C.F.R. Part 55) implementing CAA Section 328, EPA interpreted the above provision to include vessels as OCS sources only when (1) they are permanently or temporarily attached to the seabed for the purpose of exploring, producing, or developing natural resource activities; or (2) they are physically attached to an OCS facility. If a vessel qualifies as an OCS source, it may need to comply with other sections of the CAA, namely the PSD program and BACT. Emissions from support vessels (i.e., non-OCS source vessels) play a role in how the OCS source the vessels support is regulated. All air emissions, including transit-related emissions within 25 miles of the OCS source, from support vessels must be accounted for in an OCS source's "potential to emit." In some situations, the support vessel emissions may cause the OCS source's emissions to cross regulatory thresholds (i.e., 250 tpy of regulated pollutants in the case of PSD). Coastal states may seek authority to implement and enforce air emission requirements for OCS sources in federal waters adjacent to state waters. This authority can include sources within the 25 mile seaward boundary and/or sources beyond this boundary. To obtain this authority, a governor must submit his/her state regulations to the EPA Administrator, who determines if the state provisions are adequate, based on specific criteria. If a state does not seek delegation, EPA implements the program in waters adjacent to that state. In addition, if a neighboring state has sought and received a COA redesignation (as discussed above), EPA may implement the more stringent standards of this neighboring state. According to a 2008 EPA Federal Register notice, only four local air pollution control agencies in California have received authority to implement Part 55. This relatively small number is likely related to the moratoria. EPA implements and enforces the regulations for all other sources within EPA's jurisdiction, including the state/local air emission regulations for inner OCS sources. If policymakers open more OCS areas to oil/gas activities, this dynamic may change. Although Part 55 does not include specific administrative procedures and public participation requirements, statutory provisions and requirements referenced in Part 55 would apply. Table 4 identifies procedural time frames for PSD and Title V permits that would apply to outer OCS sources. Inner OCS sources would be subject to the same standards as onshore sources. These standards vary by state and may be more stringent than the time frames identified below. In general, when EPA prepares a draft permit, the agency must provide 30 days for public comment. Parties may request a public hearing, which EPA must hold if the Administrator "finds, on the basis of requests, a significant degree of public interest in a draft permit." In addition, the agency has the discretion to extend the comment period beyond 30 days, and it may reopen the comment period to expedite the decision process. PSD and Title V permits are subject to an administrative appeals process. Any person who submitted comments concerning the draft permit (or participated in a public hearing) may petition—within 30 days of the final permit decision—EPA's Environmental Appeals Board (EAB) to review any condition of the permit. In addition, the EAB may decide on its own initiative to review conditions in a permit. The EAB must issue its decision "within a reasonable time" after receiving a petition. In addition, parties may contest EPA's permit decision in the court system. Judicial review of permit decisions is typically governed by the particular environmental statute that is the subject of the litigation. CAA Section 307 provides for judicial review of EPA actions. In addition, CAA Section 502 includes judicial review provisions for Title V permit activity, providing an opportunity for judicial review in state court of final permit actions by the applicant, persons who participated in the public comment process, and any other person who could obtain judicial review of such actions under state laws. However, parties must go through the EAB process before seeking judicial review of agency action. The DOI authority to address OCS air emissions comes from the 1978 OCSLA, which directs the DOI Secretary to promulgate regulations "for compliance with the national ambient air quality standards pursuant to the Clean Air Act (42 U.S.C. 7401 et seq.), to the extent that activities authorized under this subchapter significantly affect the air quality of any State." To satisfy this directive, DOI (acting through the U.S. Geological Survey) promulgated regulations in 1980. The regulations were redesignated (i.e., renumbered) in 1998, but the 1980 provisions generally remain the same in 2011. The recent administrative changes (described in the earlier "Reader's Note") have led to a further restructuring of the regulations. An October 2011 direct final rule separated BOEM and BSEE regulations, creating 30 C.F.R. Part 550 for BOEM provisions (BSEE regulations were retained in their original location). The rule did not add or remove OCS requirements, but makes organizational changes needed to accommodate the DOI administrative changes. In addition, DOI or its agencies (e.g., MMS, BOEM) have periodically issued Notices to Lessees and Operators (NTLs), which "clarify, supplement, or provide more detail about certain requirements." Before conducting operations on the OCS, leaseholders must (among other requirements) submit and receive approval for activity-specific plans. For example, the OCSLA requires lessees to have an approved Exploration Plan (EP) for exploration activities and a Development and Production Plan (DPP) for development and production activities or a Development Operations Coordination Document (DOCC) in areas, such as portions of the Western Gulf of Mexico, where significant activities have already taken place. (Hereinafter in this report, references to DPPs include DOCCs.) BOEM is charged with reviewing and approving these plans. These plans must include, among other provisions, a facility's projected emissions (in tpy and other measurements) of SO 2 , particulate matter (measured in PM 2.5 and PM 10 when applicable), NO x , CO, and volatile organic compounds (VOC). The lessee will apply these projections, and other related information (e.g., distance from shore), to determine whether certain requirements apply (e.g., BACT). A 2009 NTL stated that these requirements apply "regardless of whether the proposed activities are in an area under [DOI] jurisdiction or EPA air quality jurisdiction." A primary determination is whether the OCS source is exempt from further air emission requirements. The DOI regulations contain an exemption formula, based on projected emissions and distance from shore. For all of the pollutants listed above except CO emissions, the exemption formula is: E = 33.3D Where: E equals the exemption threshold (in tpy), and D equals distance from shore (in miles). For example, if an OCS source would be located 30 miles from shore, it would be exempt from further air emission requirements as long as the projected emissions for each pollutant (SO 2 , PM, NO x , and VOC) were below its exemption threshold of 990 tpy. Note the primary threshold for EPA's substantive requirements (e.g., PSD program) is 250 tpy, and states may have even lower thresholds that would apply to inner OCS sources. For a non-exempt OCS source, the next determination is whether projected air emissions from any pollutants would "significantly" affect onshore air quality (VOC emissions from non-exempt sources are automatically deemed to significantly affect onshore air quality). These sources must make the significance determination by using an approved air quality model. If the model indicates that air pollutant concentrations—specified in 40 C.F.R. §550.303(e)—would be exceeded, the facility's emissions would significantly affect onshore air quality. The DOI significance levels are the same required by EPA when determining whether a new major source would significantly impact the air quality of a neighboring nonattainment area. If air emissions from a non-exempt OCS source would significantly affect the air quality of an onshore area (based on the modeling described above), further requirements apply. The requirements depend on whether the impacted onshore location is an attainment (or unclassifiable) or nonattainment area. If more than one area would be impacted, the more stringent requirements would apply. According to the DOI regulations, lessees must monitor air emissions ("in a manner approved or prescribed by the Regional Supervisor") regardless of the source's exempt status or whether the OCS source's emissions would significantly impact air quality. In addition, the regulations require lessees to submit emission information to DOI on a monthly basis. However, it is uncertain whether OCS sources are complying with this provision as written. For nonattainment areas (e.g., Figure 2 ), the source must "fully reduce" emissions of any pollutant that would significantly affect air quality. To achieve this objective, the lessee must apply BACT, which, like EPA's definition, allows for the consideration of energy, environmental, and economic impacts. The lessee determines BACT, but a regional BOEM official verifies BACT on a case-by-case basis. By comparison, EPA imposes LAER for new (inner OCS) sources in nonattainment areas, a potentially more stringent control. However, if BACT alone would not address the applicable emissions at an OCS source in DOI's jurisdiction, the source must make additional reductions or acquire emission offsets from another source. If attainment areas would be affected, an OCS source must apply BACT to emissions of any air pollutant that would significantly affect air quality in the attainment area. In addition, the lessee must determine whether—after applying BACT—emissions of total suspended particulates (TSP) or SO 2 would increase emission concentrations over specified thresholds ("maximum allowable increases") in the applicable area. The specified maximum allowable increases are similar to those in EPA's PSD regulations. However, the EPA regulations address PM 10 instead of TSP emissions, and also include NO 2 emissions. The likely explanation for this difference is that the DOI regulations reflect the EPA standards in place in 1980. Since that time, EPA has revised standards and added new pollutants. OCS sources that are considered "temporary facilities" must apply BACT to address emissions of any pollutant that would significantly affect the air quality of an onshore area. Temporary facilities are defined as offshore operations in one location lasting less than three years. Note that EPA's time frame for temporary is two years. OCS vessel emissions in DOI's jurisdiction are counted the same as emissions in EPA's jurisdiction. CAA Section 328(a)(4) contains the definition for OCS source. This definition applies to sources in both EPA and DOI jurisdictions. As discussed above, support vessel emissions "servicing or associated with an OCS source, including emissions while at the OCS source or en route to or from the OCS source within 25 miles of the OCS source, shall be considered direct emissions from the OCS source." The DOI regulatory text addressing vessel emissions does not precisely match up with the CAA text. Although the activity-specific plan regulations require lessees to document support vessel emissions, the exemption formula provision (discussed above) specifically points to air emissions documented under a different subsection, which does not include vessel emissions. However, DOI guidance on emission calculations for plan submittals mirrors the statutory text. The DOI regulations set specific time frames for agency review of Exploration Plans (EPs) and Development and Production Plans (DPPs). In general, these time frames are considerably shorter than those for EPA. These time frames are identified in Table 5 . The maximum time frame for EP review is much shorter than for DPP review. Section 307(c)(3) of the Coastal Zone Management Act (CZMA) requires lessees to certify the "consistency" of an EP or DPP with an approved coastal zone management program of an affected state (or states). Section 307(f) specifically requires coordination with CAA requirements. When a state determines that a lessee's plan is inconsistent with its coastal zone management program, the lessee must either reform its plan to accommodate those objections and resubmit it for BOEM and state approval, or succeed in appealing the state's determination to the Secretary of Commerce. Some have questioned the impact of the CZMA consistency provision. Historically, states have concurred with about 95% of the federal actions they have been asked to certify. As of 2009, 43 consistency decisions have been subjects of Commerce Secretary determinations. The subject of 18 of these appeals has been offshore energy activities. However, the most recent of these decisions was rendered in 1999. It is widely believed that the existence of the consistency requirement and the uncertainty of the outcome of an appeal have led applicants to negotiate with states and to modify proposed actions early on, thereby reducing the number of appeals. However, there are no data on the number of proposed actions that have been altered because of the consistency process. In addition, the CZMA regulations—implemented by the National Oceanic and Atmospheric Administration (NOAA)—indicate that some OCS activities may not require a review. As activities occur farther offshore, a state's CZMA review authority becomes less clear. According to NOAA, a coastal state's ability to review activity-specific plans stops at the point where coastal effects are not "reasonably foreseeable." Whether this threshold is met would be determined on a case-by-case basis with the state, the lessee, and DOI. The DPP regulations require a 60-day comment period, in which any party may submit comments or recommendations to the BOEM Regional Supervisor. The EP process does not include an opportunity for public participation ( Table 5 ). The OCSLA provides opportunity for judicial review of agency action alleged to be in violation of federal law, including the OCSLA, its implementing regulations, and the terms of any permit or lease. Table 6 compares selected elements of the EPA and DOI air emission programs. The table examines the requirements applicable to outer OCS sources in EPA's jurisdiction. Inner OCS sources must follow the requirements that would apply to an onshore source in the corresponding onshore area. As discussed above, these provisions vary by state and whether the area is an attainment or nonattainment area. Regardless, inner OCS source requirements would be at least as stringent as outer source requirements in all situations, and potentially more stringent in some locations (e.g., California). The primary difference between the EPA and DOI programs is rooted in the different statutory authorities: the 1990 CAA and the 1978 OCSLA. The primary objectives of these statutes are different—air quality versus offshore energy development. The two regulatory programs reflect these underlying differences. OCS sources in EPA's jurisdiction must comply with the PSD program (e.g., BACT), among other requirements. Sources subject to DOI's regime must comply with similar standards (e.g., BACT), only if their emissions would "significantly affect" a state's air quality. This key difference translates into a considerably different scope of applicability between the two programs. For example, DOI's two-step significance determination is a potentially much less stringent threshold than EPA's 250 tpy threshold for its PSD program. Moreover, the federal threshold for Title V permits is 100 tpy. For sources within 25 miles of a state's shores, the PSD and Title V thresholds may be even lower. Another substantial difference is the time frame allotted to the agencies for reviewing a potential source's permit (EPA) or activity-specific plan (DOI). In addition, the EPA permit process allows greater opportunity for input from the public. In particular, EPA's EAB offers parties a powerful tool to compel agency review. Some stakeholders would likely argue that the additional opportunities for public involvement in EPA's permit process help create a balance between resource development and environmental concerns. Others would likely contend these steps present unnecessary burdens and timing uncertainty in the process. If more OCS areas in EPA's jurisdiction are open for oil and gas leasing, policymakers interest in these differences will likely increase.
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Air emissions from outer continental shelf (OCS) operations are subject to different regulatory programs, depending on the location of the operation. The Department of the Interior (DOI) has jurisdiction over OCS sources in federal waters in the western Gulf of Mexico and most of the central Gulf. In addition, the Consolidated Appropriations Act, 2012 (P.L. 112-74), transferred air emission authority in the OCS off Alaska's north coast from the Environmental Protection Agency (EPA) to DOI. EPA has jurisdiction over sources in all other federal waters. The primary difference between the EPA and DOI programs is rooted in the different statutory authorities: the 1990 Clean Air Act (CAA) and the 1978 Outer Continental Shelf Lands Act (OCSLA). The primary objectives of these statutes are different—air quality versus offshore energy development. The two regulatory programs reflect these underlying differences. For much of the past 30 years, these differences received little attention, primarily because most of the federal oil and gas resources in EPA's jurisdiction have been subject to moratoria. In 2008, moratoria provisions expired, potentially opening many of the areas in EPA's jurisdiction to oil and gas leasing activity. If more OCS areas in EPA's jurisdiction are open for oil and gas leasing, policymakers' interest in these differences will likely increase. For OCS sources in EPA's jurisdiction, requirements depend on whether the source is located within 25 miles of a state's seaward boundary ("inner OCS sources") or beyond ("outer OCS sources"). Inner OCS sources are subject to the same requirements as comparable onshore emission sources, which vary by state and depend on the area's air quality status; outer sources are subject to various CAA provisions, including the Prevention of Significant Deterioration (PSD) program. In contrast, OCS sources in DOI's jurisdiction are subject to air emission requirements only if emissions would "significantly affect" onshore air quality. A key difference between the EPA and DOI programs is the federal emission threshold that would subject a source to substantive requirements. For sources in EPA's jurisdiction, this is the PSD threshold of 250 tons per year (tpy) of regulated emissions. Sources that exceed this level would likely be subject to Best Achievable Control Technology (BACT) and other provisions. States' analogous thresholds that apply to inner OCS sources may be more stringent. By comparison, a DOI OCS source applies an exemption formula, based on distance from shore (e.g., a source 30 miles from shore would have an emission threshold of 990 tpy). If a source remains subject after this step, it must conduct air modeling to assess whether its emissions would have a significant effect on onshore air quality. In effect, this two-step process constitutes a much less stringent threshold than EPA's 250 tpy threshold. Another substantial difference is the time frame allotted to the agencies for reviewing a potential source's permit (EPA) or activity-specific plan (DOI). In addition, the EPA permit process allows greater opportunity for input from the public. In particular, EPA's Environmental Appeals Board offers parties a powerful tool to compel agency review. Therefore, two identical operations, located in separate jurisdictions, could face considerably different requirements and procedural time frames. Some stakeholders would likely argue that the additional opportunities for public involvement in EPA's permit process help create a balance between resource development and environmental concerns. Others would likely contend these steps present unnecessary burdens and timing uncertainty in the process.
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Tajikistan is a significant country in Central Asia by virtue of its geographic location bordering China and Afghanistan and its ample water resources, but it faces ethnic and clan schisms, deep poverty, poor governance, and other severe challenges. Tajikistan was one of the poorest of the new states that gained independence at the end of 1991 after the break-up of the former Soviet Union. The new country was soon plunged into a devastating civil conflict between competing regional and other interests. In September 1992, a loose coalition of nationalist, Islamic, and democratic parties and groups tried to take over. Kulyabi and Khojenti regional elites, assisted by Uzbekistan and Russia, launched a successful counteroffensive that by the end of 1992 had resulted in 20,000-40,000 casualties and up to 800,000 refugees or displaced persons. In 1993, the Commonwealth of Independent States (a Russian-led grouping of Soviet successor states) authorized "peacekeeping" in Tajikistan, consisting of Russian and token Kazakh, Kyrgyz, and Uzbek troops. After the two sides agreed to a cease-fire, the U.N. Security Council established a small U.N. Mission of Observers in Tajikistan (UNMOT) in December 1994. In June 1997, Tajik President Emomali Rahmon and then-rebel leader Sayed Abdullo Nuri signed a comprehensive peace agreement . Benchmarks of the peace process were largely met, and UNMOT pulled out in May 2000, but Russian troops have remained. The civil war further set back economic development in the country. The economy recovered to its Soviet-era level by the early 2000s, and GDP expanded several times by the late 2000s, despite setbacks associated with the global economic downturn. Poverty remains widespread, however, and the infrastructure for healthcare, education, transportation, and energy faces steep developmental needs, according to some observers (see also below, " Economic Issues "). The country continues to face problems of political integration, perhaps evidenced in part by violence in central and eastern Tajikstan (see below, " The 2010 Attacks " and " The 2012 Instability in Mountainous Badakhshan "). Tajikistan also faces substantial threats from terrorism and narcotics trafficking from Afghanistan. Since the end of the civil war in 1997, President Emomali Rahmon has steadily increased his authoritarian rule and marginalized the opposition. He has slowly moved to increase his territorial control by arresting and eliminating local warlords. A legislative electoral law was approved in late 1999 calling for a lower chamber, the Assembly of Representatives (Majlisi Oli), to consist of 63 members (22 elected by party list and 41 in single-member districts), and an upper legislative chamber, the National Assembly (Majlisi Milli), to consist of 34 members representing regional interests (25 selected by indirect voting by local council assemblies, 8 appointed by Rahmon, and 1 reserved for the former president). Another referendum on changes to the constitution was held in June 2003. Opposition critics correctly predicted that one of the changes—limiting a president to two seven-year terms—would permit Rahmon to claim two more terms in office under the "new" amendment. There are eight registered parties. The People's Democratic Party is the ruling party, led by President Rahmon. Pro-government parties include the Agrarian Party, Democratic Party, Economic Reform Party, and Socialist Party. The three registered opposition parties are the Islamic Renaissance Party, the Social Democratic Party, and the Communist Party. The latter sometimes allies itself with the People's Democratic Party. In May 2012, the Justice Ministry turned down the registration of the reformist National Movement of Tajikistan as a new political party. The group had called for more balance between the legislative and executive branches and for reducing the presidential term from seven to five years. In April 2013, businessman and former Industry Minister Zaid Saidov and several other businessmen and academics announced that they planned to form a new opposition party, the New Tajikistan Party. In May 2013, Saidov was arrested on a shifting series of corruption and other charges, and a closed trial began in September 2013. After his arrest, opposition groups and supporters established the Coalition for Democracy and Civil Society to advocate for political reforms, including more balance between the legislative and executive branches, and formed a committee to advocate for Saidov's release. Many human rights observers have considered the charges to be politically motivated. After a problematic 2005 legislative election, which the OSCE judged as not free and fair, the OSCE and opposition parties proposed changes to the law on legislative elections. A few were implemented through administrative means, such as a ban on a member of a family voting for other family members. Other proposed changes included placing opposition representatives on electoral commissions, banning officials from serving on electoral commissions, permitting non-partisan monitors to observe elections, lowering the threshold of party list votes necessary for a party to gain legislative seats, eliminating a requirement that candidates possess higher education, and reducing or eliminating a sizeable election deposit, which some parties claimed deterred prospective candidates from running. Many of these reforms were introduced in the legislature but were blocked by the ruling People's Democratic Party. Some opposition parties also have complained that it is difficult to campaign during the winter, when legislative elections are held. Five candidates ran in the presidential election in Tajikistan held on November 6, 2006, including incumbent President Rahmon. All four "challengers" praised Rahmon and campaigned little. Rahmon officially received 79.3% of 2.88 million votes with a nearly 91% turnout. According to OSCE observers, the race was slightly improved over the 1999 presidential election but still lacked "genuine choice and meaningful pluralism," including because of the dearth of meaningful debate by the candidates, improbable turnout figures in some precincts, use of administrative resources, and non-transparent vote-counting. Elections to the Assembly of Representatives were held on February 28, 2010. Only the People's Democratic Party could afford to register 22 candidates for the 22 party list seats, so the total number of party list candidates was 73. For the constituency races, 153 candidates registered, including 83 sponsored by parties and 70 who nominated themselves. Turnout on election day was reportedly 3.29 million (90.3%), and the People's Democratic Party won 54 seats (up from 52 in 2005), the Agrarian Party won 2 seats, the Economic Reform Party won 2 seats, the Communist Party won 2 seats, the Islamic Renaissance Party won 2 seats, and an independent candidate won 1 seat. An OSCE monitoring mission viewed the campaign and voting as "fail[ing] to meet many key OSCE commitments." The monitors raised concerns about the prevalence of officials and members of the People's Democratic Party of Tajikistan on electoral commissions, the high electoral deposit (relative to average incomes), electoral commissions organizing and presiding over "meetings with the voters," and the requirement that candidates possess a higher education. The monitors praised the sizeable field of parties and candidates providing voters with different political programs, but stated that this positive feature of the election was vitiated by credible and verified reports of local authorities and police violating campaign regulations to the disadvantage of opposition parties and by the lack of diverse viewpoints in broadcast media. There were "serious irregularities" in many polling stations observed "which undermined the integrity of the elections," including a high incidence of proxy voting (voting for someone else) in about one-half of the polling stations. Other irregularities involved voting without identification documents, multiple voting, casting pre-marked ballots, and some cases of ballot-box stuffing. Vote-counting also was assessed negatively in many of the polling stations visited. Observers from the U.S. Embassy were in agreement with the OSCE monitors, stating that "the vote was beset by procedural irregularities and fraud." President Rahmon increasingly has used rhetoric associated with Hanafi Sunni Islam and Tajik nationalism to define his rule. This rhetoric has alienated ethnic and religious minorities, including ethnic Uzbeks and Kyrgyz and about 200,000 ethnic Pamiris in Mountainous Badakhshan who practice Ismaili Shiism. Since late 2012, the Islamic Renaissance Party's deputies in the legislature have called for amending the election law to reduce or eliminate the requirement for parties to gather signatures to register presidential candidates and to provide for equal representation of registered parties on precinct and district electoral committees. The legislature has rejected these proposals. A presidential election is scheduled for November 6, 2013. The election law permits only registered parties, two unions, and local legislative councils to nominate candidates. No self-nominations are permitted. The OSCE plans to observe the election. The nomination of candidates will take place between September 17 and October 7, 2013. Several parties have nominated candidates so far to run in the election and are gathering the required 210,000 signatures for registration. The Central Electoral Commission has ruled that those working outside the country—over one-quarter of the electorate—are ineligible to sign candidate petitions. The Union of Reformist Forces of Tajikistan opposition group, formed in July 2013 and which includes the Social Democratic Party and the Islamic Renaissance Party, agreed to support civil rights activist Oynihol Bobonazarova in the presidential race, and the latter party formally nominated her on September 18, 2013. On September 24, 2013, the Independent Trade Unions Federation endorsed President Rahmon for reelection, following an endorsement by the Youth Union a few days earlier. The People's Democratic Party of Tajikistan is scheduled to hold a meeting in early October and is expected to nominate its head, President Rahmon, for reelection. In late August 2010, over two dozen individuals sentenced as terrorists escaped from prison in Dushanbe and launched attacks as they travelled to various regions of the country. Many of these individuals had been opposition fighters during the Tajik civil war and had been arrested in eastern Tajikistan during a government sweep in 2009. In early September 2010, a suicide car bombing resulted in over two dozen deaths or injuries among police in the northern city of Khujand. An obscure terrorist group, Jamaat Ansarullah, supposedly related to the IMU, claimed responsibility. Some escapees and their allies, allegedly including IMU terrorists, attacked a military convoy in the Rasht Valley (formerly known as Karotegin) in central Tajikistan on September 19, 2010, reportedly resulting in dozens of deaths and injuries to government forces. The government alleged that Abdullo Rakhimov, alias Mullo Abdullo, was among the attackers. Abdullo had been a former Tajik opposition paramilitary leader who spurned the peace settlement and spent time in Afghanistan and Pakistan, where he allegedly maintained links with al Qaeda and the Taliban, and who may have returned surreptitiously to Tajikistan in 2009. The attack contributed to concerns among some observers that Tajikistan was becoming more unstable. However, the government claimed in early 2011 that it had stabilized the situation in the valley. In early January 2011, the Tajik Interior (police) Ministry reported that its forces had killed former Tajik opposition fighter Alovuddin Davlatov, alias Ali Bedak, the alleged leader of one major insurgent group. In April 2011, the Interior Ministry reported that it had killed Abdullo. In December 2011, several dozen alleged IMU members said to be involved in the suicide car bombing in Khujand received prison sentences ranging from eight years to life. Several defendants had reported that they had been tortured to agree to false changes. According to some observers, underlying causes of the violence may be related to the failure of the Rahmon government to share power and economic benefits with minority groups and clans, and more immediate causes may be related to the increasing repressiveness and exclusiveness of the government and the ability of disaffected populations to obtain countervailing armed support from relatives and others abroad. The terrorist incidents in mid-2010 appeared to heighten views of the Tajik government that the Islamic Renaissance Party harbored extremists. The party was ordered in August 2010 to cease holding Friday prayers at its large headquarters compound (a 2009 religion law banned prayers in unregistered sites), the headquarters was raided by the police in mid-October 2010, and a mysterious fire destroyed part of the compound in late October 2010 that had been used by women for Friday prayers. The government also requested that parents recall children studying at Islamic religious institutions abroad, detained or harassed many bearded men, banned the wearing of the hijab by shopkeepers, ordered imams to only use approved sermons, and reportedly closed several mosques that it claimed had not been legally registered. In early March 2012, a Russian website and magazine alleged that President Rahmon had held a secret meeting with his security services to direct them to move against former UTO fighters and others who opposed him, including the Islamic Renaissance Party. In January 2013, he again ordered security services to make sure that no Tajiks were studying abroad at Islamic religious schools. In April 2013, the government did not issue visas for many foreign guests who had been invited by the Islamic Renaissance Party to attend a party anniversary. In May 2013, a court sentenced Islamic Renaissance Party official Sherik Karamkhudoyev to 14 years in prison on charges that he assisted in organizing violence in 2012 in Mountainous Badakhshan (see below). Party officials denounced the charges and sentence as politically motivated. On July 21, 2012, a national security official, General Abdullo Nazarov, was killed near the city of Khorog, the capital of the Mountainous Badakhshan Autonomous Region in eastern Tajikistan. According to some reports, the region is a major transit point for drugs and other goods trafficked from Afghanistan and for weapons and money smuggled to terrorist groups in Afghanistan. The government responded by launching security operations to force the local "criminal group" to surrender. The government asserted that the "criminals" were led by Tolib Ayembekov, a former UTO fighter who was the head of an Interior Ministry border guard troops unit in the Ishkohim District (Khorog is in this district), bordering Afghanistan. The government also alleged that the "criminals" had ties with organized crime groups throughout the world, and were linked to members of the IMU, who were infiltrating from Afghanistan to support the "criminals." Ayembekov denied that he was responsible for Nazarov's death. Over 3,000 security personnel entered Khorog on July 24, 2012, and subsequent fighting resulted in 17 casualties among the security personnel and 30 among the alleged "criminals," according to the government. Forty-one surviving "criminals" were arrested. Although the government officially acknowledged only one civilian casualty, some observers reported that dozens of civilians had been killed or injured. Among the forces deployed to the region were extra border guards who sealed the Tajik-Afghan border to prevent the Tajik "criminals" from escaping across the border or receiving assistance from groups in Afghanistan. Some information about the fighting leaked out of the region despite the "accidental" severing of Internet and cell phone connections to the region. The government declared a unilateral ceasefire the next day. On July 26, 2012, the U.S. Embassy raised concerns about reports of civilian casualties and urged the government not to suppress media reporting in the region. In early August 2012, Ayembekov pledged fealty to the Rahmon government and readiness to prove his innocence in a court of law. The ceasefire was broken by the government early on August 22, 2012, when security forces attacked the home of a popular former UTO fighter, the invalid Imomnazar Imomnazarov, and killed him. His death led some protesters to attack the administration building in Khorog a few hours later, and police allegedly fired at them, injuring three. A large memorial service for Imomnazarov was held the next day in Khorog. A ceasefire agreement was reached between the government and local officials and prominent citizens later that evening. In accordance with the agreement, some security personnel subsequently were withdrawn from the city. Some observers have questioned the Tajik government's official explanations of events in Khorog. One local commentator has argued that General Nazarov was acting at the behest of a group in the Tajik security service to seize control over lucrative smuggling operations or otherwise was involved in extorting money. A think tank in Dushanbe asserted that the Tajik government deployed security forces in the region after Ayembekov threatened to enlist up to 1,000 terrorists massed across the border in Afghanistan to help him if the government moved to arrest him. Several accounts have suggested many residents of Khorog had taken up arms on July 24 in opposition against the deployment of security forces. Accusations that Ayembekov was a "criminal" must be squared with the fact that Khorog is the location of the regional Border Guard Training Center, where the International Organization for Migration has used State Department funding to carry out training for Tajik and Afghan border guards, including on-site at regional border posts. Seeming to refer to this situation, Assistant Secretary Blake in August 2012 stated that the United States supports Tajik government efforts in the region "to address some of the corrupt activities of their own border guards and others who are helping to facilitate some of this [narcotics] trade." Other observers have speculated that at least part of the reason for the government actions in Mountainous Badakhshan may have been to secure the loyalty of regional officials in the run-up to presidential elections planned for November 2013. During the deployment of security forces to the region, the regional Islamic Renaissance Party head was detained and later found dead, a party office was sacked, and another party official (Sherik Karamkhudoyev) was arrested. Perhaps indicating an evolving terrorism environment in the country, Tajik authorities reported that criminal cases had been launched against 72 suspected IMU members in Sughd Region in 2012. Interior Minister Ramazon Rahimov reported in mid-July 2013 that police had detained 27 members of the IMU, Jamaat Ansarullah, Jundallah (Warriors of Allah; a Pakistan-based Islamic extremist group), and Hezb-i Tahrir (an Islamic group considered extremist by the Tajik government) during the first six months of 2013. Of these, 16 members of Jamaat Ansarullah and 3 members of Jundallah reportedly had been detained in Sughd Region. Regional officials in Sughd stated that the Jamaat Ansarullah members had previously belonged to the IMU. In July 2013, a court in Sughd Region sentenced two Tajiks to prison sentences on allegations that they were members of Jundallah, one of whom had undergone terrorist training in Pakistan. The prosecutor stated that they had once belonged to the IMU but had switched to Jundallah. On September 22, 2013, Tajik sources indicated that 10 terrorists had been apprehended in Dushanbe. According to a Tajik state television broadcast two days later, the group was the Tajik branch of the IMU and consisted of two Tajiks, other Central Asians, and two citizens of Turkey. The leader of the group and some members had been trained in an al Qaeda camp in Pakistan. Members of the group were shown confessing to being ordered by IMU leaders to conduct a bombing campaign before the November presidential election in Tajikistan against targets that included the Interior Ministry and the State Committee for National Security. Assessing Tajikistan's human rights record in 2012, Human Rights Watch, a non-governmental organization, stated that the human rights situation in Tajikistan remained poor. The government persisted with enforcing a repressive law on religion, and introduced new legislation further restricting religious expression. Authorities continued to restrict freedom of the media, including by harassing and arresting journalists. Domestic violence against women and children and torture remain widespread human rights concerns. According to the State Department's Country Reports on Human Rights Practices , the most significant human rights problems in Tajikistan in 2012 included torture and abuse by security forces, restrictions on freedoms of expression and the free flow of information, and the erosion of religious freedom. Other human rights problems included arbitrary arrest, denial of the right to a fair trial, and trafficking in persons. A governmental Ombudsman's Office for Human Rights seldom responded to complaints about human rights violations and rarely intervened. A presidential Office for Constitutional Guarantees of Citizens' Rights continued to examine citizens' complaints, but its effectiveness was low. In April 2012, the government amended the Criminal Code to define torture in line with international law, but security officials reportedly continued to use beatings or other coercion to extract confessions, and were seldom held accountable. NGOs reported that arbitrary detention for indefinite periods of time was routine. Criminal gangs maintained high-level connections with government officials and security agencies, which weakened investigations and prosecutions. Authorities regularly ordered narcotics agencies, for instance, to drop investigations of possible ties between officials and drug traffickers. Nearly all defendants were found guilty. There was no system of trial by jury. Some trials were held behind closed doors, such as that in 2012 involving 15 alleged members of the illegal extremist group Jamoat Ansarruloh. Opposition parties and local observers claimed that the government selectively prosecuted political opponents, and maintained that there were some political prisoners. The authorities continued to curb freedom of speech through detentions, prosecutions, and the threat of heavy fines. Several independent television and radio stations were available in a small portion of the country, but the government controlled most broadcasting transmission facilities. The government also controlled all major printing presses and the supply of newsprint. Despite these problems, some independent newspapers published political commentary and investigatory material critical of the government. Authorities allowed some international media to operate freely. In July 2013, libel and defamation were downgraded from criminal to civil offenses, but provisions remained in place that insulting the president was punishable by a fine or up to five years in jail. Libel lawsuits were frequently filed against newspapers that were critical of the government. There were new and continuing government restrictions on access to the Internet. Independent news and social media Web sites, such as YouTube and Facebook, were blocked during the year. Individuals considering staging peaceful protests reportedly chose not to do so due to fear of government reprisal. Human rights and civil society NGOs faced increasing pressure from the government for alleged registration irregularities and other reasons. In October 2012, a regional court approved a government request for the closure of the Association of Young Lawyers ("Amparo"), an NGO involved in investigating torture and military hazing allegations. Human rights organizations deemed the closure as politically motivated. In its 2013 report, the U.S. Commission on International Religious Freedom (USCIRF), an advisory body, stated that systematic, ongoing, and egregious violations of freedom of religion or belief continued in Tajikistan. The government suppressed and punished all religious activity independent of state control, and imprisoned individuals on unproven criminal allegations linked to religious activity or affiliation. USCIRF again recommended that the country be designated a Country of Particular Concern (CPC), which could lead to U.S. sanctions. USCIRF had first recommended that Tajikistan be so designated in 2012, and the country had been on a watch list since 2009. USCIRF called for the U.S. government to step up engagement with Tajikistan on religious freedom issues. The State Department did not designate Tajikistan as a CPC in 2012 or in 2013 to date. In its latest International Religious Freedom Report , the State Department reported that the Tajik government's respect for religious freedom declined during 2012. The government used restrictive laws to approve and control all religious activities. Such controls included prohibiting people under the age of 18 from participating in public religious activities and effectively barring most women from attending Muslim religious services. Under the 2009 religion law, all religious groups are required to register with the government to operate legally, and those groups that are not registered can be forced to cease operation, although the authorities permitted some unregistered minority groups to worship unimpeded. The government required that all religious literature be approved for publication, importation, and distribution, and seized unapproved texts. Amendments to the Code of Administrative Offences expanded punishments for individuals and religious groups that engaged in activities not specifically set out in their statutes, preached and taught unapproved religious doctrines, established ties with religious groups abroad, and sent Tajiks abroad for religious education. In July 2012, the Dushanbe mayor instructed police to set up video cameras at each mosque, to prevent underage people from attending mosques, and in August 2012, local authorities in the Khatlon region set up video cameras in all mosques to monitor prayers, follow sermon topics, and check whether underage people were entering the mosques. Also in Khatlon region, authorities in mid-2012 seized more than 100 mosques, allegedly because they lacked proper construction permits, with the aim of converting them to schools, medical centers, and other public facilities. On human trafficking, the State Department downgraded Tajikistan from "Tier 2" to the "Tier 2 Watch List" in 2007 through 2009, a ranking that reflected growing concern that the country was faltering in its efforts to combat trafficking. In 2010, it was returned to "Tier 2," a status it retained in 2011 and 2012, because the country reportedly was making significant efforts to comply with the minimum standards for the elimination of trafficking. In 2012, the State Department reported that the Tajik government continued to make progress in implementing a 2011-2013 action plan to combat human trafficking, including by further reducing the use of forced child and adult labor in the cotton harvest. However, the government continued to lack procedures to identify trafficking victims among vulnerable populations and refer them to existing protective services. The State Department also reported that there were no reported convictions of trafficking offenders in 2012 under Article 130 of the criminal code, which prohibits forced sexual exploitation and forced labor. Fines were levied against some farms and schools involved in the use of forced child labor, but no government employees reportedly were prosecuted. The government permitted NGOs and the International Organization for Migration to continue to monitor the annual cotton harvest. The State Department called for Tajikistan to vigorously investigate and prosecute suspected traffickers, including local officials who force individuals to participate in the cotton harvest; provide victim identification and victim sensitivity training to border guard and law enforcement authorities; and provide financial aid and boost in-kind support for shelters and other protection services for trafficking victims. On July 20, 2010, cotton from Tajikistan and Uzbekistan was added to a U.S. Department of Labor list that requires U.S. government contractors to certify that they have made a good faith effort to determine whether forced or indentured child labor was used to produce the cotton. Tajikistan is the poorest country in Central Asia in terms of per capita income and its economic growth is challenged by obsolescent infrastructure, corruption, weak governance, power shortages, and external debt. Tajikistan's post-Soviet economic decline reversed in 1997 as the peace accords that ended the civil war took hold. The Tajik government's National Development Strategy for 2006-2015 focuses on ending the country's transport and communications isolation and enhancing energy and food security. The global economic downturn in 2008-2009 depressed prices for Tajik commodity exports (mainly aluminum and cotton) and reduced worker remittances from Russia and Kazakhstan, which host most of Tajikistan's migrant workers. The Tajik currency, the somoni, lost much of its value relative to stronger currencies, which increased the costs of imported food and other goods. The Tajik government reported that its worker remittances plunged by almost 30% in 2009. The Tajik economy began to improve in 2010 as world commodity prices increased and improving economies in Russia and Kazakhstan resulted in an uptick in worker remittances by Tajik migrant workers. GDP grew about 8% in 2012 and consumer price inflation was 5.8%, according to estimates by the Economist Intelligence Unit (EIU), a private organization. Growth in 2012 was boosted by increased agricultural production, construction, and remittances. The EIU estimates that an economic slowdown among Tajikistan's major trade partners—Russia, China, and Turkey, (and in the case of Russia, also a major source of worker remittances)—may contribute to a decline in GDP growth to 5.5% for 2013. Some observers assert that a sizeable part of Tajikistan's economy (to some degree reflected in official GDP) is reliant on drug trafficking. U.S.-Tajik trade is miniscule. In 2012, the United States exported $54.2 million in goods to Tajikistan, including medicine and food, and imported $26.8 million. The United States provided advice on negotiations and legal reforms that supported Tajikistan in gaining admission to the World Trade Organization (WTO) in March 2013. The United States has not yet passed legislation to terminate the application of Title IV of the Trade Act of 1974 and grant non-discriminatory treatment (normal trade relations) to imports from Tajikistan. The International Monetary Fund (IMF) has raised concerns about Tajikistan's low stock of international reserves, high external debt service, weak banking system, unprofitable state-owned enterprises, and challenging business climate, "which serves to dampen investment and job creation." The IMF urged enhancing property rights over agricultural land, building agricultural infrastructure, improving electric power transmission and distribution, conducting energy audits at major enterprises, reducing the cost of doing business, strengthening the regulation and governance of banks, setting up bank deposit insurance, reforming tax administration, and developing a securities market. Some analysts have warned that moves by the Rahmon government in recent months—including the arrest of entrepreneur Zaid Saidov (see below) and the closure of the Coordination Council of Business and Public Associations—have further impaired private business and the investment climate. Tajikistan has depended heavily on foreign loans and aid to cover its budget and trade deficits. Tajikistan's foreign debt was $3.4 billion at the end of 2012, with the largest share owed to China's Exim Bank, according to the Tajik Finance Ministry. Most small enterprises had been privatized by 2000, but land and major enterprises remain state-owned. Tajikistan's aluminum smelter in Tursunzade, one of the world's largest, accounts for almost two-thirds of Tajikistan's exports. Cotton is the other major export. Major trade partners include Turkey, China, Iran, and Afghanistan. The agricultural sector employs about one-half of the labor force. However, only 7% of the land area is arable, and much is still devoted to cotton production, so Tajikistan relies heavily on food imports. In 2011, food prices greatly increased, fueled in part by increased tariffs imposed by Uzbekistan on rail transit for food imports. One million or more Tajiks—about one-half of the labor force—are labor migrants, and about 40% or more of the remaining population lives in poverty. Remittances reportedly were $3.6 billion in 2012, accounting for nearly one-half of Tajikistan's GDP, making the country first in the world in terms of such dependency. The U.N. Development Program (UNDP) has reported that poverty and frequent electricity and gas cutoffs have contributed to the elimination of 70%-80% of the forest cover in Tajikistan since it gained independence. In mid-2012, Tethys Petroleum Ltd., a small Canadian oil and gas exploration firm, announced that it had found substantial oil reserves in Tajikistan's Khatlon region, and in June 2013, an agreement was signed by Tethys, Total (France), and a subsidiary of the China National Petroleum Corporation (CNPC) for the development of the oilfield. Gazprom also has announced finding added gas reserves in Tajikistan. Meeting with President Rahmon in Dushanbe in September 2013, Gazprom CEO Aleksey Miller reportedly stated that Tajikistan would soon be able to supply its own domestic needs for gas. The construction of the Roghun dam on the Vakhsh River—which would nearly double Tajikistan's electricity production—is a centerpiece of the country's economic development strategy. The government envisages that the hydroelectric power generation will provide for domestic needs—ending wintertime shortages—as well as serve as a source of export earnings. Uzbekistan has opposed the building of the dam, with its planned large reservoir, on the grounds that the project may endanger its agricultural production and otherwise alter the environment. At Tajikistan's request, the World Bank in early 2010 launched an analysis of the economic and environmental impact of the dam. In September 2013, the World Bank stated that it would release the "first phase" of technical reports on the dam project. During the World Bank analysis, Tajikistan agreed to defer constructing the dam (although Uzbek and other observers allege that construction has continued). Some observers have stated that by deferring construction, President Rahmon has condemned the country to a longer period without adequate electricity in the winter and has increased discontent with his rule. The goal of the international community is for Tajikistan and Uzbekistan to negotiate a mutually acceptable solution, possibly involving a water-for-gas trade, similar to the Soviet-era regional water-sharing arrangement. Perhaps considering that negotiations were not possible or desirable, Uzbekistan began in February 2010 to restrict railway and road transport to and from Tajikistan, apparently to pressure Tajikistan not to build the dam. Reportedly, thousands of railcars and trucks faced delays, including those carrying construction materials bound for Afghanistan to support ISAF, materials for building the Roghun dam, materials from Iran for completing the Sangtuda-2 hydro-electric power plant on the Vakhsh River (the plant is scheduled to become fully operational in late 2013), fuel and seeds for Tajik farmers, flour, and materials for road construction in Tajikistan. Uzbekistan also boosted tariffs on railcars and trucks crossing into Tajikistan, restricted gas supplies to Tajikistan, and restricted Turkmen electricity supplies to Tajikistan. In May 2011, media reported that Iran had shipped equipment through China and Afghanistan for Sangtuda-2 to get around transit delays imposed by Uzbekistan. Uzbekistan rejected Tajik assertions that shipping delays were political and claimed that they were caused by increased ISAF rail traffic to Afghanistan, a backup of railcars headed to Turkmenistan, and track repairs. A bridge support on a railway spur from Termez, Uzbekistan, to southern Tajikistan—one of three such rail lines connecting the two countries—allegedly was damaged by a bomb in November 2011, backing up food and fuel shipments. This rail line has remained inoperable. In early 2012, Uzbekistan boosted the tariffs on remaining rail transport to Tajikistan. These transit problems and an Uzbek cutoff of gas supplies for a time in April 2012 led Tajik Foreign Ministry officials to declare a humanitarian crisis in the country. Tajikistan has repeatedly appealed to the OSCE, the U.N. Secretary-General, USCENTCOM, and others that Uzbekistan continues to delay rail transit to and from Tajikistan. Talks between the two countries on the resumption of Uzbek gas deliveries that were suspended in December 2012 have not been successful. To compensate for this energy cut-off, Tajikistan negotiated for duty-free oil from Russia as part of a basing extension accord (see below), according to some observers. During January 2013, Uzbekistan temporarily halted the land transit of goods from Turkey and Iran across its territory to Tajikistan. In a major foreign policy address in March 2013, President Rahmon warned that since Tajikistan had become independent, the country and the world have experienced increased dangers from "arms races, international terrorism, political extremism, fundamentalism, separatism, drug trafficking, transnational organized crime, [and] the proliferation of weapons of mass destruction." To deal with these threats to a country at the crossroads of the world, he averred, Tajikistan would continue to follow an "open door" policy of developing "relations of friendship, disinterested and mutually beneficial cooperation with all countries of the world." He stated that close ties with neighboring and regional states were a priority, to be based on "friendship, good-neighborliness, [and] non-interference in each other's internal affairs," and to involve the peaceful settlement of disputes, such as over border, water, and energy issues. He particularly called for "equal" and "unbiased" relations with Uzbekistan. He pledged to assist Afghanistan to develop peacefully and stated that "language, literature, and cultural" ties with Iran would be continued and expanded. He highlighted Tajikistan's over two centuries of ties with Russia, and called for strengthening such relations "on the basis of equality, mutual benefit, and strategic partnership," in the political, military, economic, labor migration, and other spheres. He stressed that expanded trade, economic, and investment ties with China were important to Tajikistan. He stated that Tajikistan was grateful for U.S. economic assistance, and that Tajikistan would make efforts to maintain the "partnership" between the two countries. He averred that Tajikistan viewed increased investment and other economic ties with the EU as key, and reported that expanded ties with the Islamic world were being pursued, although he warned that Islam should not be abused for "selfish political ends." Some analysts have argued that this open door foreign policy has been constrained in recent months by a concerted shift in Russian policy to consolidate influence over Kazakhstan, Kyrgyzstan, and Tajikistan (see also below). Russia has used positive and negative means of inducement, the latter including some periodic deportations of Tajik migrant workers and threats to introduce an entry visa regime for Tajik citizens. Tajikistan is interested in the political and human rights of approximately 7 million ethnic Tajiks residing in Afghanistan (25% of the population) and over 1 million in Uzbekistan (4%). Tajikistan has hosted several thousand refugees from Afghanistan, mainly ethnic Tajiks, but reportedly is somewhat concerned that a greater influx could exacerbate Islamic fundamentalism in the country. Tajikistan's relations with Uzbekistan have been problematic, including disagreements about water-sharing, Uzbek gas supplies, and environmental pollution (see above). President Rahmon has proclaimed that Russia is Tajikistan's most significant "strategic partner." Tajikistan is heavily dependent on remittances from guest workers in Russia (see above). Bilateral relations have been strained during drawn-out negotiations over the extension of a basing agreement (see below). Ties further were roiled in late 2011, after Tajikistan sentenced a Russian pilot to 8.5 years in prison for violating Tajik airspace. In response, Russia imposed "sanitary" restrictions on Tajik food imports, cancelled the work permits of several dozen Tajik guest workers and deported them, and threatened to stop granting work permits. Tajikistan quickly capitulated and freed the Russian pilot. Relations were further strained in April 2013, after Russia temporarily banned some operations by trains travelling to and from Tajikistan on the grounds of sanitary violations and suspected drug smuggling and terrorist infiltration. Most significantly, the restrictions threatened the travel of Tajik migrant workers to and from Russia. In May 2013, Tajikistan agreed to enhance inspections of the trains for drugs. Some in Tajikistan viewed the controversy as pressure on Tajikistan to move forward with the extension of the basing agreement. Economic ties with China and Iran have grown. Tajikistan has established some trade links with Afghanistan. Ties with China include Tajikistan's role as a transit state for the Central Asia-China gas pipeline. China is the largest foreign investor in Tajikistan and trade turnover was $670 million in 2012, according to the Tajik Statistics Agency. During a visit to China in May 2013, President Rahmon and Chairman Xi Jinping signed energy, banking, agriculture, tourism, and other cooperation agreements, and China pledged $300 million for development projects in Tajikistan. The Tajik armed forces consist of about 8,800 ground, air force-air defense, and mobile (rapid reaction) troops, according to The Military Balance . There also are about 3,800 troops in the Interior Ministry, 1,200 in the National Guard, and 2,500 in the Emergencies Ministry, and an unreported number of border guards. The term of military service is two years. All officers reportedly receive extensive military training in Russia. The ground forces possess 37 tanks, 46 armored vehicles, and several dozen artillery and air defense weapons. The air force possesses 15 attack or transport helicopters and a few transport aircraft (these forces are dwarfed by Russian forces based in the country; see below). The armed forces are underfunded and fractured by regional clan loyalties that compromise their effectiveness. According to Defense Minister Sherali Khayrulloyev, a mobile (rapid reaction) force recently was created as a third branch of the armed forces from subunits of the other branches as "a quality enhancement of combat readiness and [to ensure] a swift reaction to a change in the situation in the country and region." Tajikistan is a member of the Collective Security Treaty Organization (CSTO; other members include Russia, Armenia, Belarus, Kazakhstan, and Kyrgyzstan). Tajikistan also belongs to the Shanghai Cooperation Organization (SCO; an economic and security organization led by China and Russia that also includes Kazakhstan, Kyrgyzstan, and Uzbekistan). Tajikistan joined NATO's Partnership for Peace in February 2002. A 10-year Tajik-Russian basing agreement (with a renewal option) was signed in October 2004 that provides for Russia's former 201 st Motorized Rifle Division to be based at three garrisons and to have access to three training grounds. Tajikistan also transferred ownership of the Okno space tracking base (near the town of Nurek) to Russia. In exchange, Russia cancelled a $242 million debt. Russia's approximately 5,000 contract troops in Tajikistan (many or most of whom are ethnic Tajik noncommissioned officers and soldiers) constitute its second-largest military presence abroad, after the Black Sea Fleet in Ukraine. Besides these troops, Russia has positioned 54 tanks, 300 infantry fighting vehicles and armored personnel carriers, 100 self-propelled howitzers and missile launchers, and 9 aircraft and helicopters in the country. Tajikistan assumed control from Russia over guarding its borders in June 2005, although several hundred Russian border guard advisors remained (see below). In November 2006, Tajikistan and Russia signed an agreement to hold joint military training operations. In October 2009, visiting President Rahmon reportedly unsuccessfully urged President Medvedev to pay rent on Russia's base facilities in Tajikistan. At a meeting in Dushanbe in September 2011, then-President Medvedev announced that he and Rahmon had made progress in reaching agreement on extending the basing agreement for another 49 years. However, some media reported that Tajikistan was calling for up to $300 million in annual rent payments, while Russia continued to reject making any significant rent payments. Also at the meeting, the two presidents agreed that the number of Russian border advisors reportedly would be reduced from 350 to 200 (but see below), although Russia would continue to provide officer training, air transportation, and equipment for Tajik border guards. President Rahmon met with newly inaugurated President Putin in Moscow on the sidelines of a CIS summit in mid-May 2012, and the two leaders agreed to continue the apparently contentious discussions on extending the basing agreement. In talks in Dushanbe in mid-August 2012, the Tajik side allegedly had reduced its request for rent payments to $25 million but also had demanded that the basing agreement only be extended to 2016. At a press conference, the Russian defense emissary denied that rent issues had ever been a part of the negotiations. During President Putin's October 2012 visit to Tajikistan, he and President Rahmon reached agreement on extending the basing lease until 2042. Russia pledged that it would provide oil to Tajikistan duty free and $200 million in military assistance over the next few years, as well as support for hydropower development and better treatment for Tajik migrant workers. Agreements to finalize or amend some of these pledges have been the subject of further negotiations between the two sides. The basing extension accord was ratified by the Russian legislature in April 2013 and President Rahmon submitted it to the Tajik legislature for ratification on September 18, 2013. Besides the Russian military base, some media report that India has a small forward operations airbase at Farkhar and also provides some military training and equipment to Tajikistan. In May 2013, CSTO Secretary General Nikolai Bordyuzha stated that Tajikistan's border guards were capable of securing the border with Afghanistan, countering other reports that Russia was considering buttressing the borders with Russian border guards. Supporting these reports, however, in July 2013, the Director of the Russian Federal Drug Control Service, Viktor Ivanov, stated that Russian border guards would return to the Tajik-Afghan border if they were invited by Tajikistan. In August 2013, Bordyuzha visited Tajikistan and assessed that Tajik-Afghan border security allegedly was deteriorating, and stated that he would report this situation to President Putin at the upcoming September 23, 2013, CSTO summit in Sochi, Russia. At the CSTO summit, President Rahmon called for the CSTO to provide equipment to bolster Tajikistan's border defense capabilities. President Putin pledged to develop a special program of "preventative" assistance to enhance border security against terrorism and drug trafficking. Bordyuzha asserted that the CSTO would devote far more resources than anticipated from the United States to assist Tajikistan in building up its armed forces and border troops to deal with the drawdown of NATO forces in Afghanistan in 2014. He reiterated, however, that Russia did not plan to send its own border guards to Tajikistan. State Department officials served as observers at the U.N.-sponsored intra-Tajikistan peace talks and pledged rebuilding aid, an example of U.S. diplomatic efforts to head off or ease ethnic and civil tensions in the Eurasian states. The United States also supported the presence of U.N. military observers in Tajikistan during the 1992-1997 civil war. According to the Obama Administration, "stability and economic growth in Tajikistan are critical to achieving regional stability," but the country faces many challenges, including its long and porous border with Afghanistan, difficult relations with Uzbekistan, "widespread corruption, and inadequate health and education systems." U.S. aid aims to boost Tajikistan's ability to counter regional threats such as extremism, terrorism, and drug trafficking, while boosting trade. Tajikistan also is described as a "key U.S. partner" in operations in Afghanistan. In February 2010, the United States and Tajikistan launched annual bilateral consultations (ABCs) to enhance cooperation on economic, security, and other issues. The third round of ABCs was held in Washington, DC, on May 17-18, 2012. According to the Tajik Foreign Ministry, the first day focused on security and strengthening of borders as well as economic cooperation and attraction of investments. The United States reportedly pledged further support for Tajikistan's accession to the World Trade Organization (WTO). On the second day, the sides reportedly discussed cooperation in education, cultural exchange, and human rights, and water resources and environmental protection. What was termed a mid-year review of relations occurred during a visit by Assistant Secretary Blake to Tajikistan in February 2013. During her October 22, 2011, visit to Tajikistan, Secretary Clinton stated that she "thanked the president [Rahmon] for the critical role Tajikistan has played in the international community's efforts to bring security and peace to Afghanistan," terming Tajikistan a "strong partner" in such efforts. She also praised some progress by Tajikistan in responding to human trafficking. She reported that discussions with the president and foreign minister included Tajik security concerns, particularly along the Tajik-Afghan border, and cooperation in combating drug trafficking. The two sides discussed the U.S. "New Silk Road Vision" to turn Afghanistan into a regional transportation, trade, and energy hub linked to Central Asia. She warned the president that restrictions on religious freedom could contribute to rising religious discontent, and called for freedom of the press to be respected. In congressional testimony in late July 2012, Assistant Secretary Blake stated that "Tajikistan remains a strong supporter of efforts to help Afghanistan." He highlighted that U.S.-Tajik relations focus on U.S. support for the country's accession to the WTO, assistance to improve agriculture and the climate for foreign investment, and encouragement to respect human rights and the rule of law. The United States also urges Tajikistan to cooperate with the World Bank's assessment of the technical, economic, environmental, and social impact of the Roghun Dam project, and not to move forward with construction until the assessment is complete. During his February 2013 visit to Tajikistan, Assistant Secretary Blake stated that he thanked President Rahmon for his support for U.S. operations in Afghanistan and discussed measures to strengthen cooperation in counter-terrorism, counter-narcotics, and border security. He also averred that he urged the Tajik government to ensure a free and fair 2013 presidential election and permit NGOs and journalists to operate freely. The United States has been the major humanitarian and developmental aid donor to facilitate implementation of the Tajik peace accord and for resettlement of displaced persons. Over the period FY1992-FY2010, the United States budgeted $988.57 million of aid for Tajikistan (FREEDOM Support Act and agency budgets), mainly for food and other humanitarian needs. The United States also facilitated the delivery of privately donated commodities. See Table 1 and Table 2 . Budgeted assistance for FY2011 was $44.48 million and for FY2012 was $45.1 million, and the Administration requested $36.4 million in foreign assistance for Tajikistan in FY2014. FY2011-FY2014 figures cover aid now included in the Economic Support Fund, as well as through such programs as Food for Peace, Foreign Military Financing (FMF), Global Health and Child Survival, International Military Education and Training (IMET), International Narcotics Control and Law Enforcement (INCLE), and Nonproliferation, Antiterrorism, Demining and Related Programs (NADR). Country data for FY2013 are not yet available. The priorities of the Administration's FY2014 request for assistance for Tajikistan include "peace and security" assistance programs (FMF, IMET, INCLE, and NADR) ($10.53 million); bolstering food security and U.S.-Tajik business ties ($10.2 million); combating tuberculosis and improving maternal and child health and nutrition ($6.75 million); improving teacher-training, promoting reading, and increasing scholarships to the American University of Central Asia ($4 million); and strengthening NGOs, independent media, and citizen participation, and supporting trafficking victims ($3.7 million). After the September 11, 2001, terrorist attacks in the United States, Tajikistan seemed to be willing to cooperate with the United States, but hesitated to do so without permission from Moscow. However, Tajikistan had long supported the Afghan Northern Alliance's combat against the Taliban, so it was predisposed to welcome U.S.-led backing for the Northern Alliance. Perhaps after gauging Russia's views, the Tajik Defense Ministry on September 25, 2001, offered use of Tajik airspace to U.S. forces, and some coalition forces began to transit through Tajik airspace and airfields, including U.S. troops entering and leaving Afghanistan via the Manas Transit Center in Kyrgyzstan. U.S., French, and British personnel have used the Dushanbe airport for refueling (most of the French troops and aircraft based at the Dushanbe airport since late 2001 reportedly left by mid-2013 as part of the drawdown of ISAF). During a January 2009 visit, the then-Commander of the U.S. Central Command (USCENTCOM), General David Petraeus, reached agreement with President Rahmon on the land transit of goods such as construction materials to support military operations of the International Security Assistance Force (ISAF) in Afghanistan. While most land transport along this Northern Distribution Network (NDN) traverses Uzbekistan to final destinations in Afghanistan, Tajikistan serves as an alternative route for a small percentage of supplies. Tajikistan has agreed to accept the transit of equipment and materials from Afghanistan, and in March 2012, the first such U.S. military cargoes were trucked across the "Friendship Bridge" to Tajikistan. The trucks reportedly traveled to Kyrgyzstan, where the cargoes were loaded on rail cars that transited Kazakhstan and Russia to the port of Riga and hence were shipped to the United States. However, transit costs via the NDN reportedly have proven higher than anticipated, so that only a few containers are existing Afghanistan via the NDN, including through the alternative route through Tajikistan. In March 2012, the then-USCENTCOM Commander, General James Mattis, visited Dushanbe, where he reportedly thanked the president for supporting the NDN and for providing economic support for Afghanistan. He reportedly stressed that Tajikistan was a buffer state preventing the spread of terrorism and drug trafficking into the rest of Central Asia, and pledged continued technical assistance to the border guards and other security forces. In February and May 2012, the U.S. Transportation Command (USTRANSCOM) Commander, General William Fraser, traveled to Tajikistan, and on the May trip visited the Nizhniy Panj Border Crossing Point on the Tajikistan border with Afghanistan in order to assess the status of NDN transit. In late February 2013, Deputy Assistant Secretary of Defense David Sedney led a military delegation to Tajikistan reportedly to discuss Tajikistan's security needs and its role in the NDN. In July 2013, USCENTCOM Commander Lloyd Austin visited Dushanbe, and reportedly he and President Rahmon discussed possible U.S. security support to assist Tajikistan after the planned drawdown of U.S. forces in Afghanistan in 2014. The United States has provided $179.9 million in "peace and security" assistance to Tajikistan in FY1992-FY2010, about 18% of U.S. assistance to the country. This aid has been administered by the Defense, State, and Energy Departments, and has included Comprehensive Threat Reduction aid, Foreign Military Financing (FMF), International Military Education and Training (IMET), Non-proliferation, Anti-Terrorism, De-mining, and Related Programs (NADR), Partnership for Peace aid, counter-narcotics aid, and transnational crime aid. The State Department has warned that terrorists and others are able to exploit Tajikistan's 749-mile border with Afghanistan to enter the country in part because Tajik border guards and police are stretched thin and lack the capabilities needed to police the border, despite receiving bilateral and multilateral assistance. Corruption also hampers counter-terrorism efforts. The State Department raises concerns that while Tajikistan improved its capabilities to combat terrorism in 2012, authorities in some cases targeted non-extremist Islamic groups and misused counter-terrorism laws to suppress legitimate political opposition. Possible banking links between Tajikistan and Iran involving violations of U.S. and U.N. sanctions have raised U.S. concerns, with U.S. authorities calling on Tajikistan to strengthen and fully implement its money laundering laws. U.S. Special Forces reportedly have an agreement that they may pursue terrorists crossing the border from Afghanistan into Tajikistan. In September 2010, U.S. Special Forces also reportedly provided tactical support to Tajik security forces that were combating militants in the Rasht valley (see above, " The 2010 Attacks "). The State Department has reported estimates that most of the heroin smuggled through Central Asia to Russia, China, and Europe transits Tajikistan, some 75-80 metric tons, and that the illicit drug trade constitutes as much as one-fifth of Tajikistan's GDP. Drug trafficking contributed to corruption throughout all levels of the Tajik government and was a revenue source for militants and terrorists in Afghanistan, according to the State Department. In 2010, the Tajik government adopted a National Border Management Strategy (NBMS), drafted with the assistance of the Organization for Security and Cooperation in Europe, and in 2011 the government established an Inter-Agency Secretariat to oversee implementation. However, this secretariat has remained moribund. Tajikistan's Drug Control Agency (DCA) reported that law enforcement agencies seized nearly six metric tons of narcotics in 2012, 41% more than in 2011, although cannabis seizures accounted for most of the increase. Drug-related criminal cases were sometimes dismissed for connected individuals, or used by corrupt officials to go after internal opponents. Several law enforcement officials were arrested and prosecuted for drug trafficking and corruption. The United States has provided $11.3 million since 2003 to assist in the operation of the DCA, and continues to provide salary supplements for DCA personnel. The United States and the DCA support a Drug Liaison Office in Taloqan, Afghanistan, where DCA officers work with Afghan officials to prevent drug smuggling from Afghanistan to Tajikistan. In July 2012, the U.S. Embassy's Office of Military Cooperation organized training for Customs officials operating U.S.-provided vehicle scanners at the Nizhny-Panj border crossing on the Tajik-Afghan border. However, the scanners remain underused and have resulted in negligible drug seizures. The continued lack of commitment to implement the NBMS, negligible seizures at the U.S.-built Nizhny-Panj border crossing, and high-level corruption continued to hinder the success of counter-narcotics programs, according to the State Department. It suggests that since the Tajik government has proven willing to combat militants and extremists crossing into Tajikistan, the United States may use this shared goal to encourage more cooperation on border security and counter-narcotics. Perhaps indicative of continuing challenges, U.S. media reported in early 2013 that USCENTCOM temporarily banned dealing with a private airline firm based in Afghanistan that it suspected was smuggling drugs "in bulk" to Tajikistan, an allegation denied by the Tajik Foreign Ministry. Tajikistan has occasionally hosted annual Regional Cooperation "tabletop" exercises, sponsored by USCENTCOM, to focus on strengthening security cooperation among Central and South Asian countries. The most recent exercise hosted by Tajikistan took place in mid-2012; in July 2013 the exercise was held in Germany.
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Tajikistan is a significant country in Central Asia by virtue of its geographic location bordering China and Afghanistan and its ample water and other resources, but it faces ethnic and clan schisms, deep poverty, poor governance, and other severe challenges. Tajikistan was one of the poorest of the new states that gained independence at the end of 1991 after the break-up of the former Soviet Union. The new country was soon plunged into a devastating civil conflict between competing regional and other interests that lasted until a peace settlement in 1997. Former state farm chairman Imomaliy Rahmon rose to power during this period and was reelected president after the peace settlement as part of a power-sharing arrangement. He was reelected in 2006. His rule has been increasingly authoritarian and has been marked by ongoing human rights abuses, according to many observers. The civil war had further set back economic development in the country. The economy recovered to its Soviet-era level by the early 2000s, and GDP had expanded several times by the late 2000s, despite setbacks associated with the global economic downturn. Poverty remains widespread, however, and the infrastructure for healthcare, education, transportation, and energy faces steep developmental needs, according to many observers. The country continues to face problems of political integration, perhaps evidenced in part by recent violence in eastern Tajikistan. The country also faces substantial threats from terrorism and narcotics trafficking from Afghanistan. The United States has been Tajikistan's largest bilateral donor, budgeting $988.57 million of aid for Tajikistan (FREEDOM Support Act and agency budgets) over the period from FY1992 through FY2010, mainly for food and other humanitarian needs. Budgeted foreign assistance for FY2012 was $45.1 million, and the Administration requested $36.4 million for FY2014 (these FY2012 and FY2014 figures exclude most Defense and Energy Department programs; data for FY2013 are not yet available). After the September 11, 2001, terrorist attacks in the United States, Tajikistan seemed to be willing to cooperate with the United States, but hesitated to do so without permission from Moscow. However, Tajikistan had long supported the Afghan Northern Alliance's combat against the Taliban. Perhaps after gauging Russia's views, Tajikistan soon offered use of Tajik airspace to U.S. forces, and some coalition forces began to transit through Tajik airspace and airfields. During a January 2009 visit, the then-Commander of the U.S. Central Command reached agreement with President Rahmon on the land transit of goods such as construction materials to support military operations of the International Security Assistance Force (ISAF) in Afghanistan. While most land transport along this Northern Distribution Network traverses Uzbekistan to final destinations in Afghanistan, Tajikistan serves as an alternative route for a small percentage of supplies. In March 2012, the land transit of some ISAF material out of Afghanistan through Tajikistan began.
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T he Export-Import Bank of the United States (Ex-Im Bank or the Bank) operates under a renewable general statutory charter (Export-Import Bank Act of 1945, as amended), extended through September 30, 2019, by the Export-Import Bank Reform and Reauthorization Act of 2015 (Division E of P.L. 114-94 , a surface transportation authorization measure). Enacted on December 4, 2015, this act generally lowered Ex-Im Bank's statutory lending authority ("exposure cap" for outstanding portfolio) to $135 billion for each of FY2015-FY2019, and made reforms in a number of areas, including to Ex-Im Bank's policies or operations in risk management, fraud controls, and ethics, as well as to the U.S. approach to international negotiations on export credit financing. This report addresses frequently asked questions about Ex-Im Bank, grouped in the following categories: (1) congressional interest; (2) organizational structure and management; (3) market context and programs; (4) statutory requirements and policies; (5) international context; (6) activity; (7) risk management, fraud control, and ethics; (8) budget and appropriations; (9) sunset in authority; and (10) historical and current approaches to reauthorization. See Appendix A for a summary of selected key CRS resources related to Ex-Im Bank. Ex-Im Bank, a wholly owned U.S. government corporation, is the official export credit agency (ECA) of the United States. Its mission is to assist in financing and facilitating U.S. exports of goods and services and, in doing so, to contribute to U.S. employment. On a demand-driven basis, it seeks to finance exports that the private sector is unwilling or unable to undertake alone at terms commercially viable for exporters; and/or to counter government-backed financing offered by foreign countries through their ECAs. Ex-Im Bank's main financial products are direct loans, loan guarantees, working capital finance, and export credit insurance. Its activities are backed by the full faith and credit of the U.S. government. Congress sets statutory requirements for Ex-Im Bank's activities. Ex-Im Bank also abides by international disciplines for government-backed ECA activity under the Organization for Economic Cooperation and Development (OECD) Arrangement on Officially Supported Export Credits (the "Arrangement"). Ex-Im Bank, established by the Export-Import Bank Act of 1945, as amended (P.L. 79-173; 12 U.S.C. Section 635 et seq.), has its origins in two predecessor banks, created as part of the Roosevelt Administration's New Deal response to the Great Depression. The first Export-Import Bank was established on February 2, 1934 (Executive Order No. 6581), to assist in financing U.S. trade with the Soviet Union. The Second Export-Import Bank was created on March 9, 1934 (Executive Order No. 6638), originally to assist in financing U.S. trade with Cuba. Its operations were subsequently expanded to include trade financing to all other countries except the Soviet Union. Both the first and second Bank had limited two-year charters. At the end of the two-year period, the Second Export-Import Bank's charter was allowed to lapse, with its functions transferred to the first Bank. The charter for the first Bank was extended and, in 1945, it was superseded by the present Ex-Im Bank. In the immediate post-war period, Ex-Im Bank participated in reconstruction efforts and was viewed as part of the growing U.S. aid efforts. In the 1950s, it responded to requests from U.S. exporters by shifting away from aid-related activities to offering export credit financing for exports of goods and by confronting the competition U.S. exporters faced in the form of officially financed, government-supported export credits. In the early 1960s, it further attempted to meet the needs of U.S. exporters by offering export credit guarantees to insure against political and exchange rate risk. In the 1970s, Ex-Im Bank funded large scale infrastructure projects in numerous developing countries. By the early 1980s, small projects and capital goods and services constituted an increasingly larger share of Ex-Im Bank's business. Presently, Ex-Im Bank provides direct loans, loan guarantees, and export credit insurance as a part of U.S. export promotion efforts to contribute to U.S. employment, though its activities also may have foreign policy implications (see " Market Context and Ex-Im Bank Programs " section). Congress has a number of statutory responsibilities with respect to Ex-Im Bank. Congress provides authority for Ex-Im Bank's functions through its statutory charter, the Export-Import Bank Act of 1945, as amended (P.L. 79-173; 12 U.S.C. Section 635 et seq.), for a period of time that it chooses. While Congress does not approve individual Ex-Im Bank transactions, it sets general statutory parameters for the agency's activities. Congress also provides an annual appropriation for the Bank, and conducts oversight of its activities. In addition, the Senate approves nominations by the President of the United States to the positions of Ex-Im Bank's President, First Vice President, and Board of Directors. The committees to which legislation that would amend Ex-Im Bank's statutory charter has been referred previously are the House Committee on Financial Services and Senate Committee on Banking, Housing, and Urban Affairs. In general, the Bank has been funded each fiscal year through provisions in the State, Foreign Operations, and Related Programs Appropriations Act. Debate over Ex-Im Bank is rooted in underlying differences in views over the appropriate role of the U.S. government in export promotion. Those in favor of Ex-Im Bank assert that it supports U.S. exports and jobs by addressing shortfalls in private sector financing and helping U.S. exporters compete against foreign companies backed by their governments' ECAs. Critics assert that it crowds out private sector activity, picks winners and losers through its support, operates as a form of "corporate welfare," and poses a risk to taxpayers. While debate over Ex-Im Bank has been long-standing, Congress has renewed Ex-Im Bank's authority many times, including on a bipartisan basis and under both Republican and Democratic administrations (see text box for recent history and Appendix C for more detailed history). The reauthorization debates in the 114 th Congress focused on the role of the U.S. government in supporting exports; the changing export finance landscape, including the growth of ECA activity by emerging market ECAs; and Ex-Im Bank's financial soundness and risk management, among other policy issues. Ex-Im Bank is headquartered in Washington, DC. It also maintains regional export finance centers in 12 U.S. cities, which conduct outreach and provide assistance focused exclusively on U.S. small businesses. Ex-Im Bank is led by a Board of Directors, which consists of the President of the Bank (who is also the chairman of the Board), First Vice President (who is also the Vice Chairman), and three additional directors. The Board authorizes the Bank's transactions either directly or through delegated authority. All Board members are appointed by the President of the United States with the advice and consent of the Senate. Under Ex-Im Bank's charter, not more than three members of the five-person Board can be of any one political party. Ex-Im Bank also has an Advisory Committee, which is required by its charter to consist of 17 members appointed by the Board of Directors on the recommendation of the President of the Bank. Under its charter, the Advisory Committee's members are required to be "broadly representative of environment, production, commerce, finance, agriculture, labor, services, State government, and the textile industry," subject to certain limits. In addition, Ex-Im Bank has a Sub-Saharan Africa Advisory Committee, which is directed to promote the expansion of the Bank's financial commitments in that region. The Export-Import Bank Reform and Reauthorization Act of 2015 extended the Sub-Saharan Africa Advisory Committee's termination date to September 30, 2019 (Sec. 54001(c) of P.L. 114-94 ). A quorum of the Board of Directors consists of at least three members. With currently two members, the Board lacks a quorum (at least three members) to transact business. Without a quorum, it cannot approve transactions above $10 million. Nominations of members to the Board would be subject to Senate approval. In FY2015, Ex-Im Bank had 420 full-time equivalents (FTEs) for its programs and 25 FTEs for its Office of Inspector General (OIG). Export finance, which is used to cover the time between an export order being placed and payment being made, is a means of facilitating international trade. Financing can play a role, for instance, when exporters may need to protect against the higher risk of payment default by an unknown buyer situated in a foreign legal system; because export orders often require more working capital, relative to sales, than domestic orders and exporters may wait an average of three to five months between shipment and payment; or buyers require funds from a financial institution to purchase goods and services. According to the Bank of International Settlements (BIS), no comprehensive source exists for measuring the size and composition of trade finance markets. The World Trade Organization (WTO), based on its assumption that the largest share of global trade transactions are not paid in cash and involve some form of finance, estimates that the market for trade finance (in its broadest definition) exceeds $10 trillion annually. Export finance is available through both the public and private sector, including through: Export credit agencies (ECAs) , which are government-backed entities. Most developed countries and many developing countries have ECAs. Commercial banks and insurance companies , through which private insurers and lenders finance exports on a commercial basis. Capital markets , which provide financing through bond issuance, on a secured or unsecured basis. Manufacturer self-financing , through which companies, especially larger ones, may self-finance certain exports to foreign buyers. Commercial banks have been estimated to account for 80% of the trade finance market. Private lenders and insurers conduct the majority of short-term export financing, though ECAs may play a role in supporting certain sectors, such as taking on risks of financing small business exports. With respect to longer-term financing, the market can play an active role, but in certain cases, ECA support can help make transactions more commercially attractive by mitigating risks of financing or by providing an additional source of funding to diversify risks of financing, for example, for complex, multi-billion dollar sales such as aircraft and infrastructure projects. Ex-Im Bank groups its financial products into the following four main categories: direct loans with fixed interest rates made by Ex-Im Bank to foreign buyers of U.S. goods and services; medium- and long-term loan guarantees of loans made by lenders (usually commercial banks) to foreign buyers of U.S. goods and services, with Ex-Im Bank promising to repay the lender, if the buyer defaults, the outstanding principal and accrued interest on the loan; working c apital finance , through loans and guarantees by Ex-Im Bank, to facilitate finance for businesses, primarily small businesses, who have exporting potential but need working capital funds (e.g., to buy raw materials or supplies) to produce or market their goods and services for export; and export credit insurance by Ex-Im Bank to exporters and lenders to protect against losses of nonrepayment for commercial and political reasons. Ex-Im Bank also provides specialized finance products, such as project and structured finance, which usually take the form of direct loans or loan guarantees. For examples of structures of selected Ex-Im Bank financial products, see Appendix B . Ex-Im Bank is one of several federal government agencies involved in promoting U.S. exports of goods and services. It focuses on financing U.S. exports of manufactured goods and services for companies of all sizes. Other U.S. government agencies also offer financing for exports, among other activities, including the U.S. Department of Agriculture (USDA), which finances U.S. agricultural exports, and the Small Business Administration (SBA), which provides export promotion-focused guarantee programs for small businesses. While Ex-Im Bank focuses on supporting exports in support of U.S. commercial interests, the Overseas Private Investment Corporation (OPIC) uses similar tools, but to support U.S. investment in developing and emerging economies to support U.S. foreign policy objectives. At the same time, Ex-Im's activities can have U.S. foreign policy implications (see " Do Ex-Im Bank's activities have a U.S. foreign policy focus? "). The existence of a range of federal government agencies that focus on export promotion has prompted debate about whether any overlap in services provided by federal government agencies constitutes duplication or the use of the same or similar tools to meet different goals. Ex-Im Bank's name includes the word "import" and its formal statutory mission provides for facilitating both exports and imports. However, according to Ex-Im Bank, it does not provide support for imports. Historically speaking, Ex-Im Bank's role in financing imports appears to have been negligible. Ex-Im Bank direct loans and loan guarantees can be: short-term (up to one year); medium-term (more than one year and up to seven years, and less than $10 million); and long-term (more than seven years, and more than $10 million). Long-term financing includes structured finance transactions (repayment terms of 10 years, but some up to 12 years); project finance transactions (repayment terms up to 14 years); and renewable energy transactions (repayment terms up to 18 years). Ex-Im Bank insurance can be: short-term (generally up to 180 days, but can be up to 360 days in exceptional circumstances); and medium-term (generally up to five years, but can be up to seven years in exceptional circumstances, and more than $10 million). The main source of Ex-Im Bank's current outstanding debt is borrowings from the U.S. Treasury. Borrowings from the U.S. Treasury are used to finance medium-term and long-term loans, and carry a fixed interest rate. U.S. Treasury borrowings are repaid primarily with the repayments of medium-term and long-term loans. For further discussion, see " How does Ex-Im Bank fund its activities? " in the " Budget and Appropriations " section. Ex-Im Bank's fees for medium- and long-term financing (which account for the bulk of its exposure) generally are guided by the OECD Arrangement. They include the following: Ex-Im Bank's direct loans carry fixed interest rates. They generally are made at terms that are the most attractive allowed under the OECD Arrangement, which specifies a minimum interest charge of 1 percentage point above the U.S. Treasury rate for a security of comparable length. The interest rate charged by Ex-Im Bank for direct loans is the interest fixed at the Commercial Interest Reference Rates (CIRR). In contrast, its loan guarantees usually carry a floating interest rate that is negotiated between the lender (e.g., the commercial bank) and borrower, or set by the lender. Risk premia, also known as "exposure fees," are intended to cover the risk of nonpayment for a transaction. Ex-Im Bank states that it charges risk premia for sovereign and nonsovereign buyers in accordance with rules under the OECD Arrangement. In doing so, Ex-Im Bank seeks to ensure that the premia collected meet the U.S. government's minimum budgetary requirements. Thus, in certain cases (e.g., medium-term transactions), Ex-Im Bank says that it must charge fees higher than the minimum fees required under the OECD premia system. Ex-Im Bank charges commitment fees, which do not appear to be guided by the OECD Arrangement. The OECD Arrangement does not cover fee structures for short-term financing products. The Bank uses a combination of factors to determine the pricing structure for these products. Ex-Im Bank processing of transactions is a multi-step process (see Figure 1 ). Applications can be submitted by U.S. exporters, foreign buyers, or commercial lenders depending on the situation and transaction. The approval time for an application can vary, depending on the nature of the transaction. Ex-Im Bank, based on statutory requirements, considers applications across multiple criteria. Transactions require the approval of the Board of Directors directly or through delegated authority. Ex-Im Bank monitors the performance of all medium-term direct loans, loan guarantees, and insurance transactions and all long-term direct loans and loan guarantees above $1 million to help contain risk. Monitoring can vary for short-term transactions. It is difficult to compare the rates, terms, and conditions of Ex-Im Bank financing and private sector financing for exports. The actual terms of an export contract are transaction-specific and commercial bank loans are private transactions often with business confidential terms. Demand for Ex-Im Bank financing relative to the private sector can be highly variable. At a macro level, it may vary depending on market forces and regulatory policies. In recent years, the role of ECAs may have become more prominent, in part due to tighter credit market conditions associated with the international financial crisis and the regulatory impact of Basel III on commercial banks, which requires U.S. banks to hold more capital to back trade finance. Changes in disciplines for ECA activity, such as in the OECD Arrangement, also can affect ECA demand. At a micro level, a commercial bank's willingness to participate in a transaction may vary depending, for instance, on available liquidity, perception of risk, international rates of return, and client relationships. Under its charter, Ex-Im Bank's financing must have a reasonable assurance of repayment; supplement, and not compete with, private capital; and be provided at terms competitive with foreign ECAs. The Bank considers a proposed transaction's potential U.S. economic impact and potential environmental impact, among other policy issues. Based on its mandate to support U.S. employment, Ex-Im Bank currently requires a certain amount of U.S. content (85% for medium- and long-term transactions) for an export contract to receive full financing from the Bank. It also requires products to be shipped on U.S. flag vessels, with certain exceptions. Congress directs Ex-Im Bank to support certain types of exports. For example, congressional requirements for Ex-Im Bank include to make available not less than 25% of its total authority to finance small business exports, promote the export of goods and services related to renewable energy sources, and promote financing to sub-Saharan Africa. While the Bank seeks to support these export goals, it is demand-driven and its activity depends on alignment with commercial opportunities. Additionally, Congress prohibits Ex-Im Bank from supporting certain types of transactions subject to exceptions (detailed below). Ex-Im Bank must submit proposed transactions of $100 million or more or transactions related to nuclear power and heavy water production facilities through a congressional notification process. Ex-Im Bank also is subject to various reporting requirements, including related to its operations; small business support, default rate monitoring, categorization of loans and long-term guarantee transactions by their stated purpose, and its competitiveness vis-à-vis foreign ECAs. The charter also includes other statutory requirements. Ex-Im Bank abides by the Organization for Economic Cooperation and Development (OECD) Arrangement on Officially Supported Export Credits ("the Arrangement"), a "Gentlemen's Agreement" negotiated by OECD members. Initially entering into effect in April 1978, the Arrangement has been revised periodically. Its purpose is to provide a framework for the orderly use of government-backed export financing, with the goal of encouraging competition among exporters based on quality and price of goods and services rather than on the most favorable government-backed financing terms and conditions. Among other things, it establishes: limitations on the terms and conditions on government-backed export financing (e.g., minimum interest rates, risk fees, and maximum repayment terms); rules governing ECA activity in specific sectors through "sector understandings" (ships, nuclear power plants, civil aircraft, renewable energy/climate change mitigation adaption/ water projects, rail infrastructure, and coal-fired electricity generation projects); and reporting requirements. Ex-Im Bank has many foreign counterparts. The countries of some of these foreign ECAs, such as those of European countries, are members of the OECD; others, such as China, Brazil, and India, are not. An increasing share of ECA activity globally falls outside of the scope of the OECD Arrangement. For more information, see the " International Context " section below. The Bank is open to support buyers of U.S. exports in almost 200 countries around the world. The Bank generally is prohibited from extending credit and insurance to certain countries, including but not limited to those that are in armed conflict with the United States, those subject to U.S. sanctions, those with balance of payment problems, those under the charter's current Marxist-Leninist prohibition, or those for which a presidential determination has been issued. Ex-Im Bank's economic impact analysis provisions were first incorporated in its charter in 1968, and have been modified multiple times since then. Ex-Im Bank is required to have "regulations and procedures to insure that full consideration is given to the extent that any loan or guarantee is likely to have an adverse effect" on U.S. industries and U.S. employment. These regulations and procedures are in support of the congressional policy that, "in authorizing any loan or guarantee the Board of Directors shall take into account any serious adverse effect of such loan or guarantee" on the competitive position of U.S. industry, the availability of materials in short supply, and employment in the United States. Furthermore, the Bank is prohibited from extending any loan or guarantee that would establish or expand the production of any commodity for export by any other country if "the commodity is likely to be in surplus on world markets at the time the resulting commodity will first be sold" or "the resulting production capacity is expected to compete with [U.S.] production of the same, similar, or competing commodity" and will cause "substantial injury" to U.S. producers of a "same, similar, or competing commodity." The same prohibition applies to loans or guarantees subject to U.S. trade remedy measures, such as countervailing duties or anti-dumping orders. However, these prohibitions do not apply if the Board of Directors determines that the proposed transaction's "short- and long-term benefits to [U.S.] industry and employment ... are likely to outweigh the short- and long-term injury to [U.S.] producers and employment ... of the same, similar, or competing commodities." Stakeholders hold different views on Ex-Im Bank's economic impact policy. Supporters of the policy argue that it meets the Bank's statutory requirements while balancing the range of stakeholder interests. Some users consider the economic impact policy to have a negative effect on Ex-Im Bank's competitiveness relative to foreign ECAs because no other ECA has a comparable policy. They argue that the policy may contribute to "data requirements, processing time, and complexity" and "increased uncertainty" for those that use Ex-Im Bank financing. Import-sensitive industries periodically have raised concerns about the economic impact of Ex-Im Bank's activities, which have led to certain changes in its charter. For instance, the Export-Import Bank Reauthorization Act of 2002 ( P.L. 107-189 ) added the prohibition for Bank support related to countervailing duties and anti-dumping orders (see above). Certain U.S. airline industry groups argue that Ex-Im Bank's financing for U.S. aircraft exports to foreign airlines adversely affects U.S. airlines and their employees, and that the Bank's economic impact analysis procedures are inconsistent with its charter, among other concerns. The Bank's support for foreign airlines' purchases of wide-body aircraft has been a focal point. According to Ex-Im Bank, its economic impact analysis adequately takes into account U.S. economic effects of transactions. Following its 2012 reauthorization and based on the above concerns, Ex-Im Bank stated that it revised its economic impact review of aircraft transactions to "assure a more cautious review" of them. Aspects of this policy debate have been subject to litigation. In 1992, Congress amended Ex-Im Bank's charter to mandate the establishment of environmental procedures taking into account the environmental impacts associated with Ex-Im Bank-supported projects ( P.L. 102-429 ). Since then, Ex-Im Bank's environmental policy has evolved. Presently, the charter authorizes the Bank to grant or withhold financing support after taking into account the potential beneficial and adverse environmental effects of goods and services for which Ex-Im Bank direct lending and guarantee support is requested. The Bank must conduct an environmental review of all long-term transactions for which Ex-Im Bank support is requested at or above a certain threshold amount. Previously, the threshold was $10 million. The Export-Import Bank Reform and Reauthorization Act of 2015 (Sec. 54002(d) of P.L. 114-94 ) modified the amount to $25 million or, alternatively, if less than $25 million, then to a threshold established in accordance with international agreements, including under the OECD. Ex-Im Bank has sought to take environmental considerations into account through: Reducing the carbon dioxide emissions associated with Ex-Im Bank-supported projects through the promotion of renewable energy exports; Environmental and Social Due Diligence Procedures and Guidelines, which provide a framework to screen, classify, and review transactions based on the likely environmental impact of the underlying project; and a Carbon Policy and Supplemental Guidelines for High-Carbon Projects, which includes a focus on transparency and reporting of carbon dioxide emissions and efforts. Supporters of Ex-Im Bank's environmental policy argue that the Bank must balance U.S. exporting interests with environmental policy considerations, per its mandate. However, some U.S. exporters are concerned that Ex-Im Bank's environmental impact policies may be overly burdensome and detract from its core mission to support U.S. exports and jobs. (See next question.) In recent years, Ex-Im Bank's environmental policies related to high-carbon projects (e.g., support for exports for coal-fired power plants) have been a focal point for congressional interest. After the announcement of President Obama's Climate Action Plan in June 2013, Ex-Im Bank's Board of Directors approved revisions to the Bank's Supplemental Guidelines for High-Carbon Projects in December 2013. As revised, the Supplemental Guidelines state that "the Bank will not provide support for exports of high carbon intensity plants, except for high carbon intensity plants that (a) are located in the world's poorest countries, utilize the most efficient coal technology available and where no other economically feasible alternative exists; or (b) deploy carbon capture and sequestration, in each case, in accordance with the requirements set forth in these Supplemental Guidelines." Subsequently, FY2014-FY2016 appropriations legislation prohibited, in those fiscal years, the use of Ex-Im Bank funds, under certain conditions, to enforce any rule, regulation, policy, or guideline implemented pursuant to the Supplemental Guidelines. The prohibition varied based on countries' classification by the World Bank (see text box ). According to Ex-Im Bank, the impact of the appropriations language on the enforcement of rules under its Supplemental Guidelines was as follows: For IDA-only countries , the requirement is suspended through September 30, 2015, for the transaction to involve the use of best appropriate technology available and the requirement for alternatives analysis demonstrating no economically feasible alternative exists. For IDA-blend countries , the requirement is suspended through September 30, 2015, for the transaction to include carbon capture and sequestration to reduce its carbon intensity to 500 grams of carbon dioxide/kilowatt hours or less. For all other countries , the requirement remains for the transaction to include carbon capture and sequestration to reduce its carbon intensity to 500 grams of carbon dioxide/kilowatt hours or less. For all countries (IDA-only, IDA-blend, other), all other Ex-Im Bank environmental reviews, guidelines, and requirements remain in place. The Export-Import Bank Reform and Reauthorization Act of 2015 (Sec. 55001 of P.L. 114-94 ) prohibits Ex-Im Bank from discriminating solely on the basis of industry for energy-related projects (regardless of the energy source involved) in terms of denying applications or passing or applying policies; the act applies this prohibition only to financing by the Bank for projects "concerning the exploration, development, or export of energy sources and the generation or transmission of electrical power, or combined heat and power, regardless of the energy source." Such changes present possible issues about Ex-Im Bank's ability to fulfill its overall mission to support U.S. exports and jobs and also its interest in addressing environmental concerns. While Ex-Im Bank provides financing to companies of all sizes, its charter contains specific mandates related to U.S. small business exports. The Export-Import Bank Reform and Reauthorization Act of 2015 (Sec. 52001 of P.L. 114-94 ) directs the Bank to make available not less than 25% of its aggregate loan, guarantees, and insurance authority to directly finance exports by small businesses for FY2016 and each subsequent fiscal year. Congress has increased the percentage associated with the small business target over time (see text box ). With respect to the quantitative target, the Export-Import Bank Reauthorization Act of 2006 ( P.L. 109-438 ) directed Ex-Im Bank to have a goal to increase the amount made available to finance exports by "socially and economically disadvantaged small business concerns" and "small business concerns owned by women." Ex-Im Bank generally refers to these as minority- and women-owned businesses. The 2006 act also established a Small Business Division within the Bank, as well as an office in the new division that focuses on socially and economically disadvantaged small businesses and women-owned small businesses. In addition, the 2006 act directed the Bank to have small business specialists throughout the agency and established a Small Business Committee within its management structure. Ex-Im Bank has a statutory requirement to "promote the export of goods and services related to renewable energy resources," which was added to its charter by the Export-Import Bank Reauthorization Act of 2002 ( P.L. 107-189 ). Additionally, appropriations acts for certain years have included directives setting quantitative targets for Ex-Im Bank's renewable energy support. For instance, the FY1990 foreign operations appropriations act ( P.L. 101-167 ) directed Ex-Im Bank to seek to provide not less than 5% of the financing it utilizes for supporting energy sector exports for renewable energy projects. Appropriations acts for FY2008-FY2015 directed Ex-Im Bank to make available not less than 10% of its aggregate credit and insurance authority for financing "renewable energy" exports. The FY2016 appropriations act does not include any such quantitative target for the Bank. The Export-Import Bank Reauthorization Act of 1997 ( P.L. 105-121 ) amended Ex-Im Bank's charter to include mandates related to sub-Saharan Africa. It required its Board of Directors to take "prompt measures, consistent with the credit standards otherwise required by law, to promote the expansion of the Bank's financial commitments in sub-Saharan Africa" under the Bank's loan, guarantee, and insurance programs. Among other things, the 1997 reauthorization act also is the basis for the Bank's Sub-Saharan Africa Advisory Committee. The act required the Board of Directors to establish an advisory committee to advise it on the development and implementation of policies and programs to support this expansion of the Bank's commitments in the region. The act included a termination date for the advisory committee of four years after the enactment of the act. Subsequent reauthorization acts have extended the Sub-Saharan Africa Advisory Committee's termination date, most recently to September 30, 2019 (Sec. 54001(c) of P.L. 114-94 ). "Content" is the amount of domestic and foreign costs from labor, materials, overhead, and other inputs associated with the production of an export. Ex-Im Bank bases its content policy on its statutory mandate to support U.S. jobs. Under its content policy, for all medium- and long-term transactions, Ex-Im Bank limits its support to the lesser of (1) 85% of the value of all goods and services contained within a U.S. supply contract; or (2) 100% of the U.S. content of an export contract. In effect, it requires a minimum of 85% U.S. content and a maximum of 15% foreign content for an export contract to receive the full extent of financing that it offers. If the foreign content exceeds 15%, the Bank's support is lowered proportionally. For short-term export contracts, the minimum U.S. content for full Ex-Im Bank financing is generally 50%. Content policies vary across ECAs globally, as the OECD Arrangement allows member countries to develop their content policies based on their own domestic interests. Unlike Ex-Im Bank, a number of other ECAs, such as those of Canada, France, Germany, Italy, Japan, and the United Kingdom, do not automatically reduce their cover if the foreign content exceeds 15%. Further, some foreign ECAs reportedly have allowed anywhere from 50% to 80% foreign content without decreasing support. Stakeholder views on Ex-Im Bank's content policy vary. With the proliferation of global supply chains, the issue of content has become more actively debated. U.S. exporters and lenders reportedly consider Ex-Im Bank's overall content policy to be less competitive than foreign ECAs, considering its "lack of flexibility" as a constraint to seeking Ex-Im Bank support. Some U.S. businesses have called for greater flexibility in Ex-Im Bank's content policy, such as lowering the minimum amount of domestic content required to receive full Ex-Im Bank financing or expanding the definition of domestic content to include, for instance, research and development in the United States. However, labor groups tend to be concerned about the impact that lowering domestic content requirements may have on employment in the home country. From their point of view, reducing these requirements may result in an outsourcing of labor to other countries. Others counter that the current requirements may induce firms to use other ECAs for alternative sources of financing, which may cause them to shift production overseas. Ex-Im Bank is prohibited from financing defense articles and defense services with certain limited exceptions, such as a national interest determination by the President. According to Ex-Im Bank, its European ECA counterparts do not have the same restrictions on military finance. Other exceptions for Ex-Im Bank include its authority to finance certain "dual-use" exports that have both civilian and military applications. This authority, established in 1994 (Section 1(c) of P.L. 103-428 ), has been renewed periodically. The Export-Import Bank Reform and Reauthorization Act of 2015 extended this authority through September 30, 2019 (Sec. 54001(b) of P.L. 114-94 ). According to GAO, as of May 30, 2015, Ex-Im Bank financed a total of $1.67 billion in exports under its dual-use authority. Recent transactions include financing in FY2012, totaling $1.03 billion, for U.S. exports of satellites to a French company and to the government of Mexico, and of construction equipment to the government of Cameroon. Ex-Im Bank maintains policies for monitoring the end-use of defense articles and defense services that it finances. GAO reports annually on the end-uses of dual-use exports financing by Ex-Im Bank. An August 2014 GAO report identified some weaknesses in Ex-Im Bank's documentation of required procedures for dual-use monitoring and provided a recommendation for improving documentation. GAO reported that Ex-Im Bank has addressed these weaknesses by revising and implementing its guidance for monitoring dual-use items. Under Ex-Im Bank's shipping policy, certain products supported by the Ex-Im Bank must be transported exclusively on U.S. vessels (e.g., generally direct loans of any amount, guarantees above $20 million, and products with repayment periods of more than seven years). Under limited conditions, a waiver of this requirement may be granted on a case-by-case basis by the U.S. Maritime Administration (MARAD). This policy is based on Public Resolution 17 (PR-17, approved March 26, 1934, by the 73 rd Congress), which is intended to "ensure a well-trained merchant marine able to maintain the flow of waterborne domestic and foreign commerce during wartime or national emergency." Supporters of the U.S. flag shipping requirement may argue that maintaining U.S. flag vessels is important to U.S. national security and note its role in contributing to jobs in the U.S. shipping industry. Critics may counter that, because of changes in U.S. strategic requirements and in the global shipping market, the requirement can make U.S. goods less competitive relative to foreign goods, noting higher rates and delays associated with shipping with U.S.-flagged vessels. Unlike Ex-Im Bank, no other ECAs require use of the shipping vessels of their home countries. According to Ex-Im Bank, the number of export credit agencies globally reached as many as 85 in 2014. Some ECA activity is regulated by the Organization for Economic Cooperation and Development Arrangement on Officially Supported Export Credits (OECD Arrangement), but an increasingly larger amount appears to be unregulated. Ex-Im Bank states that over half of ECAs globally are operating programs that are not regulated by the OECD Arrangement. It can be difficult to verify the full extent of unregulated activity, as it is not subject to the same transparency standards that OECD regulated finance is. Ex-Im Bank provides information and data on selected ECAs' official medium- and long-term "trade-related support." "Trade-related support" includes ECA activities beyond export credit activity directly tied to exports. Ex-Im Bank groups ECAs' activities into three categories: Support by OECD members that is regulated by the OECD Arrangement . "Traditional" ECA activity is activity directly tied to exports (e.g., direct loans, guarantees, and insurance products). It is regulated by the OECD Arrangement. According to Ex-Im Bank, all of its medium- and long-term activity falls within this sphere. Historically, ECA activity regulated by the OECD has accounted for the majority of government-backed export financing. That share has decreased over time. Support by OECD members that is outside of the OECD Arrangement 's scope . Certain OECD member countries provide financing through their ECAs that is ungoverned by the OECD Arrangement. One form of unregulated financing is "market windows," which are government-owned entities or programs that offer export credits on market terms. Market windows generally do not operate on purely commercial terms, as they tend to receive benefits from their government status that commercial lenders cannot access. For example, Canada's ECA—Export Development Canada (EDC)—operates market window programs. Ex-Im Bank does not have a market window. A second form of unregulated financing is untied lending support, which is credit support extended by a government entity to a recipient for the purpose of providing credit for strategic interests of the donor country. Because the untied loan is not tied to exports, it is not subject to the OECD export credit guidelines. A third form of unregulated financing is investment support. Support by non-OECD members. Emerging markets, such as China, Brazil, India, and Russia, which are not members of the OECD, are increasingly active providers of government-backed export financing. This financing may not comply with the OECD Arrangement, for example, by including below-market terms, with which it is difficult for ECAs of OECD members to compete. ECA comparisons are available from Ex-Im Bank in the area of government-backed new medium- and long-term export financing (see Figure 2 ). Based on data reported by Ex-Im Bank, in 2014, the 34 members of the OECD (as a whole) provided an estimated $96.7 billion in such financing, comparable to their volume in 2013 ($97.8 billion), but less than their volume in 2012 ($126 billion). U.S. support through Ex-Im Bank accounted for 12.5% ($12.1 billion) of the total volume by OECD countries in 2014. In contrast, also based on Ex-Im Bank data, in 2014, the combined new medium- and long-term support provided by China, Brazil, India, and Russia was estimated to be $63.9 billion, up from 2013 ($50.5 billion) and 2012 ($43.4 billion). Notably, China alone accounted for at least $58 billion of such financing in 2014—a total that exceeds that of the G-7 countries combined. According to Ex-Im Bank, China was the single largest provider of export finance in 2014. Ex-Im Bank and other ECAs vary in their mandates, organizational structure, policies, focus areas, and terms and conditions. This can complicate efforts to make comparisons across ECAs. Among stakeholders, one view is that Ex-Im Bank's policies—such as in its economic and environmental impact, domestic content requirement, and U.S. flag shipping requirements—tend to be more stringent than those of foreign ECAs. From a business perspective, some argue that such policies can make Ex-Im Bank less competitive than foreign ECAs in supporting exporters. Another view is that Ex-Im Bank, through its policies, must balance a range of stakeholder interests, including those of businesses that benefit directly from Ex-Im Bank, other businesses that may be affected by Ex-Im Bank support, labor concerns, and environmental concerns. As required by Congress, Ex-Im Bank annually assesses how its policies, practices, and programs compare with those of major foreign ECAs in its Annual Competitiveness Report to Congress . To access the current year's report, as well as prior years' reports dating to 2001, see http://www.exim.gov/news/reports/competitiveness-reports . Stakeholders have debated whether the OECD Arrangement is effective in "leveling the playing field" for exporters in the current trading environment. By some estimates, the OECD Arrangement reportedly has saved U.S. taxpayers about $800 million annually. According to the Office of the U.S. Trade Representative, the minimum interest rate rules set by the OECD Arrangement limit subsidized export financing and reduce competition based on below-cost interest rates and long repayment terms by ECAs, and the minimum exposure fees for country risks also reduce costs. The further leveling of the playing field created by the OECD tied aid disciplines is estimated by USTR to have boosted U.S. exports by $1 billion a year. At the same time, there are questions about the effectiveness of the OECD Arrangement, particularly in light of ECA activity by non-OECD members, who are not obligated to comply with the OECD limitations on the terms and conditions of export credit activity. To the extent that the ECAs of non-OECD countries provide financing for non-U.S. exporters on terms that are more advantageous than those allowed within the OECD Arrangement, U.S. exporters may find it difficult to compete with such export credit programs, including with Ex-Im Bank. Concerns about the effectiveness of the OECD Arrangement are further heightened due to financing by OECD members that is outside the Arrangement's scope. See earlier question in this section, " What is the global ECA marketplace? ". The United States historically has led efforts to impose international disciplines on government-backed export credit activity. Building on the OECD Arrangement on Officially Supported Export Credits, OECD members continue to negotiate further rules on ECA activity, for example, on sector-specific disciplines. Based on 2012 Ex-Im Bank reauthorization act, and as modified by the 2015 reauthorization act, the President is directed to initiate and pursue negotiations with other major exporting countries, including OECD members and non-OECD members, to substantially reduce, with the possible goal of eliminating, government-backed ECA financing within ten years after December 4, 2015; non-OECD countries to bring those countries into a multilateral agreement establishing rules and limitations on ECA financing; and all countries that finance air carrier aircraft through funds from a state-sponsored entity to reduce and eliminate aircraft export credit financing for all aircraft covered by the 2007 OECD Aircraft Sector Understanding (ASU). Separately, an International Working Group on Export Credits (IWG) was established in 2012, following a bilateral commitment between U.S. and Chinese leadership to work towards a new set of international export credit guidelines. Discussions have evolved from comparing existing export credit systems to a "text-based" discussion on the ship-building and medical equipment sectors. This has set the stage for discussions on horizontal, broadly applicable guidelines to reportedly begin at the October 2015 meeting of the IWG. The Department of the Treasury states that it has engaged in efforts to bring China and other large emerging markets into a new rules-based international export credit framework, as well as worked to reform the ASU to minimize distortions in the aircraft export credit market. It also notes that it has engaged in efforts to improve the current OECD Arrangement to make it more market-oriented, such as for interest rates. Some have criticized U.S. government efforts as insufficient in terms of the statutory requirements on international export credit negotiations. For example, a major U.S. airline contends that "there has been essentially no progress" with respect to the mandate to negotiate with countries to substantially reduce, with the ultimate goal of eliminating, aircraft export credit financing. Others note that while exports play an important role in the U.S. economy, the economies of other countries are far more reliant on exports, constituting a larger share of their respective gross domestic product. Moreover, other OECD countries presumably would be reluctant to terminate their export credit programs while countries outside of the OECD, such as China, Brazil, and India, continue their financing programs. Ex-Im Bank's exposure level is the aggregate amount of loans, guarantees, and insurance that Ex-Im Bank has outstanding at any one time ("overall portfolio"). Statutory limits on its exposure level are established in Ex-Im Bank's charter. In FY2015, Ex-Im Bank reported that its exposure totaled $112.0 billion—below the $140 billion statutory cap for that year. This represents a decrease following recent years of record highs in Ex-Im Bank's exposure level (see Figure 3 ). According to Ex-Im Bank, prior years' growing levels of exposure were associated largely with increased demand for Ex-Im Bank's services during the financial crisis as commercial lending declined, among other things. Ex-Im Bank's portfolio is distributed across its financial products, as well as geographical regions and economic sectors (see Figure 4 ). The Export-Import Bank Reform and Reauthorization Act of 2015 (Sec. 51001 of P.L. 114-94 ) decreases Ex-Im Bank's exposure cap to $135 billion for each of FY2015 through FY2019. In the context of Ex-Im Bank's activities, its authorizations are the new commitments for credit and insurance that the agency approves each year. Ex-Im Bank authorized 2,630 transactions in the amount of $12.4 billion in FY2015, down from 3,746 transactions in the amount of $20.5 billion in FY2014 (see Figure 5 ). Following several years of record highs in authorizations since the 2008 financial crisis, Ex-Im Bank's authorizations have declined over the past couple of years with improvements in the private sector lending environment. Ex-Im Bank provides annual reports that discuss its program activity levels and focus areas, as well as its financial performance. The current year's reports, as well as certain earlier years' reports, are accessible at http://www.exim.gov/news/reports/annual-reports . The "Financial Report" section of the annual report includes a summary of Ex-Im Bank's overall authorizations by financial product type; its overall authorizations by market; and its long-term loans and guarantee authorizations by market. The requirement that Ex-Im Bank transactions should "supplement and encourage, and not compete with private capital" has been a longtime statutory requirement. The 2012 Ex-Im Bank reauthorization act (Sec. 10 of P.L. 112-122 ) amended the Bank's charter to require, in its annual report to Congress, a categorization of each loan and long-term guarantee made by the Bank in the fiscal year covered by the report according to the following purposes: 1. To assume commercial or political risk that the exporter or private financial institutions are unwilling or unable to undertake. 2. To overcome maturity or other limitations in private sector export financing. 3. To meet competition from a foreign, officially sponsored, export credit competition. 4. Not identified, and the reason why the purpose is not identified. Ex-Im Bank applicants reportedly generally indicate the purpose for seeking Ex-Im Bank support. For example, a section in Ex-Im Bank's application for long-term loans and guarantees (for amounts greater than $10 million) requires the applicant to list the reason for requesting Ex-Im Bank support in terms of which factor is the most important. Additionally, a certification section of the application requires the applicant to certify, under the penalty of perjury, "The representations made and the facts stated in this application and its attachments are true and Applicant has not misrepresented or omitted any material facts...." Ex-Im Bank states that it verifies the certifications when warranted. Additionally, other aspects of its policies, such as its underwriting, policy research, and Board approval process may support its efforts to ensure that its financing does not compete with the private sector. The agency's annual competitiveness report provides an aggregation of the primary purpose of Ex-Im Bank transactions by calendar year, by both dollar amount and number of transactions (see Table 2 ). In the 114 th Congress, debate centered on the circumstances in which Ex-Im Bank provides support, the frequency of the Bank's support to fill in gaps in private sector financing versus offsetting foreign ECA competition, the Bank's current practices for ensuring that it does not compete with the private sector and fulfills its mandate, and appropriate reforms that may be undertaken—with congressional and stakeholder views varying across these issues. Ex-Im Bank estimates the amount of U.S. exports and number of U.S. jobs supported by its activity. For FY2015, Ex-Im Bank estimates that its authorizations of $12.8 billion are in support of $17.1 billion in U.S. export value and 109,000 U.S. jobs. The Bank also maintains data through an interactive map of the United States with its estimated export and jobs impact at the state and congressional district levels. It is accessible at http://www.exim.gov/who-we-serve/congressional . It is important to note that various factors affect U.S. export and employment levels. As such, while the role of Ex-Im Bank support at the individual firm level may be apparent, it may be difficult to determine the precise impact of the presence or absence of Ex-Im Bank financing on the U.S. economy in the long run. A limitation in demonstrating export and employment relationships is in trying to determine the opportunity cost of Ex-Im Bank financing. Ex-Im Bank's credit and insurance programs, in supporting exports and employment, draw from the capital and labor resources within the economy that would be available for other uses, such as alternative exports and employment. Challenges arise in determining what impact the presence of Ex-Im Bank has on the allocation of resources in the market, as well as whether, in the absence of Ex-Im Bank, the sales of exports and resulting employment attributed to Ex-Im Bank would have occurred. For example, if Ex-Im Bank financing was not available, would firms have used services and financing from the private sector, perhaps at a higher cost, to export? Or would the private sector costs be too prohibitive due to market failures, such as imperfect information, and discourage U.S. firms from exporting? In that case, economic theory would predict that fewer jobs would be created in the export industry, but more jobs would be created elsewhere in the economy, for no net loss in total employment in the long run. Ex-Im Bank uses an "input-output" approach based on data from the Bureau of Labor Statistics (BLS) to estimate the number of U.S. jobs it supports through its export financing. BLS develops a domestic employment requirements table (ERT) to calculate the number of direct and indirect production-related jobs associated with $1 million of final demand for nearly 200 industries. Ex-Im Bank's methodology is to (1) determine and apply the specific industry code to each transaction that it finances; (2) determine the value of all exports it supports for each industry; (3) multiply the export value by the jobs ratio from the ERT needed to support $1 million in exports in each industry; and (4) add together the estimate of jobs supported across all industries to get a total number of jobs supported. Under this methodology, Ex-Im Bank's FY2015 authorizations support 6,199 jobs per $1 billion of U.S. exports. This represents a weighted average based on each industry's relative jobs per $1 billion average at time of calculation. Although the input-output approach is based on a commonly used methodology, it has certain limitations and is sensitive to certain assumptions. Some of the limitations are specific to the ERT. For instance, the ERT does not distinguish between jobs that were "newly created" and "maintained"; because of this lack of detailed information and limitations, Ex-Im Bank reports that jobs are "associated with" or "supported by its financing." The ERT also treats full-time, part-time, and seasonal jobs equally in its count of jobs. It further assumes average industry relationships, though, in actuality, firms differ within an industry. In addition, it excludes any "multiplier effects" of spending from income generated by jobs supported by Ex-Im Bank. Other limitations are specific to Ex-Im Bank's process for determining industry and export value. Alternative methodologies may address some limitations but have other drawbacks. As part of a May 2013 study on Ex-Im Bank's jobs calculation methodology, the Government Accountability Office (GAO) recommended that Ex-Im Bank improve the transparency of its methodology in terms of its limitations and assumptions. According to GAO, Ex-Im Bank included greater detail on its job calculation methodology in its FY2013 annual report. Ex-Im Bank is a demand-driven agency. As such, Ex-Im Bank efforts to meet targets related to small business, renewable energy, and Sub-Saharan Africa depend on alignment with commercial interests, among other factors. Ex-Im Bank met its prior 20% small business target in FY2014 and FY2015 (see Table 3 ), but fell short of it in some other years, based on authorization amount. At the same time, small business transactions supported by the Bank constitute the majority of Ex-Im Bank's transactions by number. During FY2008-FY2015, the Bank's support for renewable energy exports was below the 10% directive each year, possibly due, in part, to market limitations. Although Ex-Im Bank's support for sub-Saharan Africa (for which no quantitative statutory target exists) has increased in recent years, it dipped in FY2015; Ex-Im Bank attributes this to an economic slowdown in the region and a lapse in the Bank's authority. Ex-Im Bank's 25% (and prior 20%) directive for small business support focuses on direct support. Some stakeholders say that this approach leads to an impression that Ex-Im Bank supports fewer small businesses than it actually does. For example, a 2011 study of the supply chains of five large companies (Bechtel, Boeing, Case New Holland, General Electric, and Siemens Power Corporation) that are "exporters of record" for Ex-Im Bank, identified over 33,000 small- and medium-sized enterprises (SMEs) that serve as primary suppliers of parts and services incorporated into these large companies' exports; according to the study, these SMEs also benefit from Ex-Im Bank financing. Other SMEs also operate at sub-levels of the supply chain, serving as "suppliers to the suppliers." For FY2015, Ex-Im Bank estimates that it authorized $384.2 million in indirect small business support. Other stakeholders assert that focusing on Ex-Im Bank's indirect support for small businesses is not the original intention of Ex-Im Bank's mandate. They express concern that allowing indirect support for small business to count toward the small business target may adversely affect U.S. small business exporters by making it easier for Ex-Im Bank to reach the goal and, thus, reducing incentives to seek small business customers. At the same time, critics of Ex-Im Bank express disapproval over the amount of Ex-Im Bank financing, by dollar value, that has been directed to a few large U.S. corporations that they believe are capable of shouldering the risks of exporting to developing countries. Ex-Im Bank's activities focus on supporting U.S. commercial interests. However, Ex-Im Bank activities also may support Administration goals and policy initiatives. For example, under the Obama Administration, Ex-Im Bank has been involved in efforts to boost U.S. exports worldwide under the National Export Initiative (NEI) and its successor NEI/NEXT, as well as regional policy initiatives, such as the "rebalancing" towards the Asia-Pacific, the U.S. Strategy Towards Africa, and the "Look South" initiative focused on Central & South America. Additionally, statutory mandates for Ex-Im Bank, such as its directive to expand its support in sub-Saharan Africa, may implicate U.S. foreign policy interests (see " What is Ex-Im Bank's sub-Saharan Africa statutory mandate? "). Ex-Im Bank's activities may have national security implications in a number of ways. Policies and requirements. According to Ex-Im Bank, its authority to support dual-use exports and its U.S.-flag shipping requirements have direct national security implications. Additionally, Ex-Im Bank contends that its financing of commercial sales of U.S. manufacturers contributes indirectly to a skilled defense workforce and supports the defense supply chain—based on the rationale that industries involved in commercial and defense fields often utilize the same set of employees and overlap in the suppliers and subcontractors that they use. Role in U.S. trade policy. The U.S. 2015 National Security Strategy highlights U.S. trade policy as part of national security interests. U.S. trade policy goals include supporting economic growth and prosperity and helping to shape the global economic order. The 2015 Strategy characterizes the proposed Trans-Pacific Partnership (TPP) free trade agreement (FTA), signed in February 2016, and the potential Transatlantic Trade and Investment Partnership (T-TIP) FTA, negotiations for which are ongoing, as a tool that "brings jobs to [U.S.] shores, increases standards of living, strengthens [U.S.] partners and allies, and promotes stability in critical regions." Services provided by Ex-Im Bank could enhance U.S. companies' abilities to utilize U.S. FTAs by promoting U.S. exports to FTA partner countries. Geopolitical role. The growing role of China, Brazil, India, and other emerging economies has transformed the global economy, presenting both opportunities and challenges for the United States as it seeks to achieve its trade and economic goals. Questions are raised about the extent to which emerging economies' governments and institutions are involved in shaping "rules of the road" that may be different from or detrimental to U.S. interests. Given that Ex-Im Bank has many foreign counterparts, U.S. and emerging economies' trade promotion activities may enter into these power dynamics. Ex-Im Bank may play a role in supporting U.S. interests as a form of commercial diplomacy. Of congressional interest is the potential impact of Ex-Im Bank on U.S. national security interests, though analysts and observers disagree on the impact. For example, during the latest reauthorization debate, some former national security officials sent a letter to congressional leaders calling for Ex-Im Bank's reauthorization, observing "how commercial and economic diplomacy have become critical elements of [U.S.] national security" and stating that the "involvement of U.S. companies in emerging markets is fundamentally beneficial to the American economy while helping to drive growth, prosperity, and political stability abroad." Critics counter that Ex-Im Bank may adversely affect U.S. interests because of its support for the purchase of U.S. exports in countries "that either have no place doing business with America or actively undermine U.S. national security interests." However, any national security impacts may be debatable in terms of magnitude. On one hand, some may argue that Ex-Im Bank has slight or negligible effects on U.S. economic activity and, in turn, foreign policy interests. For example, U.S. exports estimated to be supported by Ex-Im Bank have represented a small share of total U.S. exports of goods and services. Some also may note the smaller percentage of Ex-Im Bank transactions whose primary purpose was to offset foreign competition, relative to purposes to address private sector gaps (see Table 2 in " How does Ex-Im Bank work to ensure that its financing does not compete with the private sector? "). On the other hand, Ex-Im Bank financing may be in higher-impact sectors that benefit the most from government-backed financing and insurance, such as infrastructure-related goods and services, and also that represent a significant share of the foreign country's economic activity. Ex-Im Bank faces a number of risks in financing and insuring U.S. exports, including: r epayment risk , which is the risk that a borrower will not pay according to the original agreement and the Bank may eventually have to write off some or all of the obligation because of credit or political reasons; concentration risk , which is the risk stemming from the composition of the credit portfolio (e.g., concentration of portfolio by geographic region, industry, and obligor), as opposed to the risks related to specific obligors; foreign currency risk , which is the risk stemming from an appreciation or depreciation in the value of a foreign currency in relation to the U.S. dollar in Ex-Im Bank transactions denominated in that foreign currency; operational risk , which is the risk of material losses resulting from human error, system deficiencies, and control weaknesses; and interest rate risk , which stems from Ex-Im Bank making fixed-rate loan commitments prior to borrowing to fund loans and there is a risk that it will have to borrow funds at an interest rate greater than the rate charged on the credit. The basis for Ex-Im Bank's risk management function is its charter, which requires that all transactions that it supports have a reasonable assurance of repayment and that the Bank maintains reasonable provisions for losses. The Bank has a system in place to mitigate risks through credit underwriting and due diligence of potential transactions, as well as monitoring risks of current transactions. If a transaction has credit weaknesses, the Bank will try to restructure it to help prevent defaults and increase the likelihood of higher recoveries if the transaction does default. Ex-Im Bank also has a claims and recovery process. Because loan repayment prospects may change over time due to economic or other factors, Ex-Im Bank's credit losses on the outstanding balance of transactions are re-estimated annually. This re-estimate indicates the appropriate level of funds necessary to cover projected future claims. On an annual basis, the difference between the Bank's financing accounts and the amount needed to cover future estimated claims is reconciled through one of two processes. First, if the balance in Ex-Im Bank's financing accounts is greater than the re-estimates of credit losses, the surplus funds are transferred to a Treasury General Fund receipt account. It is not available to cover future estimated claims. Second, if the balance in the financing accounts is less than the re-estimated level of credit losses, a mandatory appropriation is made available in order for the Bank to issue commitments for new loans and guarantees in excess of those receipts. These transfers and appropriations, when they occur, do not affect the calculation of the budget deficit. Ex-Im Bank maintains reserves to protect against potential future losses from its activities. According to Ex-Im Bank data, its reserves for loan losses totaled $4.0 billion in FY2015, which represented 3.9% of its total exposure (disbursed and outstanding loans, guarantees, and insurance) and 4.7% of its outstanding balance. The Export-Import Bank Reform and Reauthorization Act of 2015 requires Ex-Im Bank to build and hold in its reserve to protect against future losses an amount not less than 5% of the "aggregate amount of [its] disbursed and outstanding loans, guarantees, and insurance," effective one year after December 4, 2015 (Sec. 51002 of P.L. 114-94 ). Ex-Im Bank calculates its default rate as a "total amount of required payments that are overdue (claims paid on guarantees and insurance transactions plus loans past due) divided by a total amount of financing involved (disbursements)." The 2012 reauthorization act required Ex-Im Bank to monitor its default rate, report it on a quarterly basis to Congress, and to develop a plan to reduce the default rate if it exceeded 2% (sometimes called "the 2% rule"). Ex-Im Bank reported its default rate as 0.235% as of September 2015. According to Ex-Im Bank, its historical default rate has been less than 1% since its inception. However, there is some debate about how the default rate should be interpreted. According to a GAO study, the ultimate impact of Ex-Im Bank's recent business on default rates is not yet known as it contains a large volume of transactions that have not reached their peak default periods. GAO also has stated that trends in Ex-Im Bank's default rate should be viewed with caution because of limitations in the agency's analysis of its financial performance. GAO reported that Ex-Im Bank has implemented its recommendation in this area by retaining data starting in 2013 to compare newer and older business and enhance loss modeling. Ex-Im Bank pays a claim when a loan that it has guaranteed or an insurance policy that it has issued defaults. In the case of a loan guarantee, Ex-Im Bank will take the loan over from the bank and pay the lending bank the full amount of the principal of the loan that it guaranteed, plus any accrued interest. In addition, when Ex-Im Bank pays a claim for a loan guarantee that is denominated in a foreign currency, it seeks to manage its foreign currency risk by purchasing the foreign currency to pay the claim to the lender and then attempts recovery on the U.S. dollar equivalent, which represents the obligor's debt obligation—shifting the foreign currency risk to the obligor after the claim has been paid. After Ex-Im Bank takes possession of a loan in default, it engages in recovery efforts to minimize its losses (see next question). Ex-Im Bank reports that, since 1992, it has been able to recover 50 cents on the dollar on average for transactions in default. Backed by the U.S. government, Ex-Im Bank can take legal action against obligors for transactions in default. Ex-Im Bank's financial risk management practices present debates about addressing goals such as allowing Ex-Im Bank to prudentially manage risk and minimize potential taxpayer losses, while also enabling it to take on appropriate risks to meet its U.S. exports and jobs mandate. The Export-Import Bank Act of 2012, among other things, required Ex-Im Bank to monitor its default rate, report it on a quarterly basis to Congress, and to develop a plan to reduce the default rate if it equals or exceeds 2% (sometimes called "the 2% rule"). Pursuant to the 2012 reauthorization act, GAO published reports in March 2013 and May 2013 that reviewed Ex-Im Bank's risk management and reporting practices. GAO found that Ex-Im Bank had made certain improvements in its risk management framework, including enhancing credit loss modeling with qualitative factors. GAO also provided recommendations to Ex-Im Bank to address remaining weaknesses in the areas of collecting data for estimating losses of transactions, managing financial risks through stress testing and monitoring default rates of sub-portfolios, forecasting exposure levels; and analyzing staff resources and associated operational risks—all of which GAO states that Ex-Im Bank has implemented. The Bank also notes other changes it has made in recent years, including appointing a Chief Risk Officer in 2013 to ensure prudential risk management, as well as establishing an Enterprise Risk Committee, modernizing its credit monitoring, creating a Special Assets unit to address emerging credit issues, expanding pro-active monitoring efforts, and improving underwriting criteria. Supporters contend that it has adequate systems and staffing in place to manage its risk, and poses low risk to U.S. taxpayers. They argue that the Bank has a strong mandate to manage risk under its charter and has a strong record of risk management, noting the low default rate and high recovery rate reported by Ex-Im Bank. Critics hold that there are weaknesses in the Bank's risk governance, and question its methodology to calculate expected losses and contributions to the Treasury. Supporters may counter that GAO determined that Ex-Im Bank's figures for amounts sent to the Treasury were reasonable based on GAO's analysis of Ex-Im Bank appropriations acts, budget appendixes, and financial statements for the 1992-2012 period. Critics also express concern that the Bank's exposure growth and concentrations, such as in aircraft, pose a risk to U.S. taxpayers and the federal budget, pointing to certain findings in studies by GAO and the Bank's Office of Inspector General. Critics further question Ex-Im Bank's capacity for underwriting and due diligence. Other stakeholders caution that the Bank may be becoming too risk-averse, raising concerns about the appropriate balance in Ex-Im Bank's risk management with its overall mandate to support U.S. exports. Ex-Im Bank reauthorization proposals in the 114 th Congress included a focus on Ex-Im Bank's reserve requirements, organizational structure for risk management, auditing, and risk-sharing agreements. Ex-Im Bank's Office of Inspector General (OIG), statutorily created in 2002 and in operation since 2007, is an independent office within the agency. Its mission is to "to conduct and supervise audits, investigations, inspections, and evaluations related to agency programs and operations; provide leadership and coordination as well as recommend policies that will promote economy, efficiency, and effectiveness in such programs and operations; and prevent and detect fraud, waste, abuse, and mismanagement." OIG audits, inspections, and investigations of the agency are available at http://www.exim.gov/about/oig . To mitigate corruption and fraud, Ex-Im Bank staff conduct "risk-based due diligence" to underwrite transactions; they screen and evaluate transactions for eligibility requirements and conformity with the Bank's credit risk policies, as well as determine the appropriate credit structure for a proposed transaction. They conduct further due diligence after transactions are authorized using a "risk-based sampling of authorized transactions" to identify possible corruption and fraud, referring evidence of concern to the OIG. Pursuant to the 2012 reauthorization act, Ex-Im Bank implemented new standards and requirements to improve and clarify its due diligence standards for lender partners. Specifically, on May 30, 2014, Ex-Im Bank updated its "Know Your Customer" requirements and transaction due diligence standards for its guaranteed and insured lender partners and participants (e.g., a commercial bank that loans to a foreign buyer that Ex-Im Bank guarantees). Ex-Im Bank also has an ethics program for its employees, which includes mandatory ethics training and responsibilities. It states that it works to "foster an environment where employees are encouraged to ask questions and report suspected unethical behavior." The Export-Import Bank Reform and Reauthorization Act of 2015 requires the U.S. Comptroller General to conduct periodic reviews and reports of Ex-Im Bank's fraud controls. It statutorily established an Office of Ethics, a Chief Risk Officer, and a Risk Management Committee (while terminating the existing Audit Committee). Additionally, among other things, it requires Ex-Im Bank's Inspector General to conduct an audit of Ex-Im Bank's portfolio risk management procedures, with associated reporting requirements. (Sections 51003-51007 of P.L. 114-94 .) Ex-Im Bank's reauthorization in 2015 was preceded by debate in Congress over the adequacy of Ex-Im Bank's existing fraud control and ethics practices. Focus on Ex-Im Bank's ethics practices became more prominent due to certain OIG investigations, as well the fact that a former Ex-Im Bank loan officer pleaded guilty to a bribery charge in federal court in April 2015. The OIG states, "the most common fraud schemes we have encountered involve outside parties obtaining loans or guarantees through false representations and submission of false documents," prompting OIG training for Ex-Im Bank employees and delegated lending institutions on fraud indicators. Ex-Im Bank asserts its ethics program is "fully compliant with all laws, regulations, and policies...," and notes that the OIG investigations send a signal of its "zero tolerance for waste, fraud, and abuse." For others, fraud allegations bolster the argument against reauthorization or for focusing on reforms to Ex-Im Bank's charter. Ex-Im Bank's program revenues include the fees and premia charged for services, interest generated from loans, and repayment of loan principals. For a given year, the Bank's program revenues that are in excess of the forecasted loss on those transactions (credit losses) are retained as offsetting collections. These offsetting collections are used to fund new obligations during the year, which include administrative costs, claim payments, loan disbursements, and prudent reserves to cover future losses. Ex-Im Bank borrows from the Treasury to finance medium- and long-term loans. According to Ex-Im Bank, there is no limit on the total amount of offsetting collections that the Bank can have. However, there are limits on how much and for how long the Bank can keep the offsetting collections. Through the annual appropriations process, Ex-Im Bank receives authority to spend its offsetting collections. See " How does Ex-Im Bank determine the level of funds necessary to cover future projected claims? " in the " Risk Management, Fraud Control, and Ethics " section. As a federal credit program, the activities of the Bank are subject to federal credit accounting rules and the calculation of a credit subsidy. Ex-Im Bank's credit subsidy was negative in FY2015 and is estimated to be negative in FY2016. Therefore, no appropriation is required to cover the cost of the subsidy for budgetary purposes. However, if the credit subsidy calculation resulted in a positive subsidy rate or if the methodology for calculating subsidies for federal credit programs should change (i.e., to fair-value accounting) resulting in a positive subsidy rate, then an appropriation would be required to cover the credit subsidy amount for the fiscal year in which a positive subsidy was calculated. Separately, an appropriation is provided for the activities of the Ex-Im Bank's Office of Inspector General (OIG) and sets an upper limit on its administrative expenses as part of the Department of State, Foreign Operations, and Related Programs appropriations act. These expenses are not included in the credit subsidy calculation, unlike the majority of the Bank's activities, but are recorded on a cash basis. Because Ex-Im Bank collects revenues from its customers, classified in the federal budget as offsetting collections, it is able to reimburse the Treasury for the costs of those expenses resulting in a net appropriation of zero. For FY2016, appropriations legislation provided $6 million for Ex-Im Bank's OIG, set an upper limit of $106.3 million for the Bank's administrative expenses, and allowed carryover funds of up to $10 million to remain available until September 30, 2019. Beginning with FY1992, the Federal Credit Reform Act (FCRA, P.L. 101-508 ) required that the reported budgetary cost of a credit program equal the estimated subsidy costs at the time the credit is provided. FCRA defines the subsidy cost as "the estimated long-term cost to the government of a direct loan or a loan guarantee, calculated on a net present value basis, excluding administrative costs." Before FY1992, the budgetary cost of a new loan or new loan guarantee was reported as its net cash flow for that fiscal year. The change to FCRA places the cost of federal credit programs on a budgetary basis that more closely matches other federal outlays. The FCRA methodology described above resulted in an estimated budgetary impact for Ex-Im Bank's credit activities of FY2015 of -$456 million, or reduction in the budget deficit of $456 million. A negative subsidy indicates that the discounted present value of cash inflows exceeds the discounted value of cash outflows over the life of the loans, resulting in a reduction in the budget deficit for the fiscal year in which the subsidy estimate is made. This negative credit subsidy is calculated based on the negative credit subsidy rate multiplied by the total dollar value of loans and loan guarantees in that year. The estimated subsidy is -$473 million for FY2016 and -$433 million for FY2017. Subsidy rates from federal credit programs are subject to re-estimates in future years, resulting in new subsidy estimates that may be higher or lower compared to the original estimate. For example, in FY2014, the original subsidy rate for Ex-Im Bank's direct loans was -3.36%. Currently, it has been re-estimated at -3.81%. The original credit subsidy rate for loan guarantees in the same year was -2.13%, and it is re-estimated at -0.58% currently. Beginning with FY1992, the FCRA required that the reported budgetary cost of a credit program equal the estimated subsidy costs at the time the credit is provided. This methodology resulted in an estimated budgetary impact of Ex-Im Bank's activities of -$456 million in FY2015 and an estimated -$473 million for FY2016. In other words, Ex-Im Bank's activities in FY2015 were estimated to reduce the budget deficit by $456 million in FY2015, and are estimated to reduce the budget deficit by $473 million in FY2016. The budgetary impact (the credit subsidy) of the Ex-Im Bank's activities is different from its impact on the federal debt. When the Bank issues a new direct loan or has to pay an obligation on a loan guarantee, it borrows money from the U.S. Treasury, which is raised by the Treasury by selling Treasury securities to the extent that the Bank does not have enough incoming revenue to cover the obligation. That borrowing from the Treasury increases the size of the U.S. federal debt in the amount borrowed on a dollar-for-dollar basis. Therefore, while the loan or loan guarantee remains outstanding, the activities of the Bank increase the size of the U.S. debt. As these obligations are repaid, the amount of debt outstanding to the U.S. Treasury declines, thereby decreasing the size of the Ex-Im Bank's contribution to the federal debt. The size of the credit subsidy calculated for budgetary purposes should reflect the size of the long-term cost (or debt burden) on the U.S. Treasury, though the estimates are inherently inexact. Outstanding borrowing owed to the U.S. Treasury totaled $22.7 billion at the end of FY2015. (Any repayments to the Treasury for outstanding debt do not directly affect Ex-Im Bank's credit subsidy for budgetary purposes.) Ex-Im Bank collects revenues from customers, from fees and premia and loan principal and interest payments in the form of offsetting collections. Offsetting collections are defined as funds collected by government agencies from other government agencies or from the public in businesslike or market-oriented transactions that are credited to an expenditure account. Offsetting collections in FY2015 were $548.7 million after setting funds aside for credit loss reserves. Ex-Im Bank reported providing $431.6 million to the Treasury in FY2015 after covering operating expenses. That amount is calculated on a cash basis and based on $548.7 million in offsetting collections less $107.1 million in administrative expenses. The amount of excess revenue calculated on a cash basis, discussed above, is different than the amount calculated on a budgetary basis. For budgetary purposes, the credit subsidy calculation incorporates the expected costs as well as profits (i.e., excess cash). When a credit account generates a negative subsidy rate, as is the case with the Ex-Im Bank, a negative credit subsidy is recorded in the federal budget in the form of offsetting receipts and can be used to offset other costs incurred by the Bank. The negative credit subsidy indicates that over the lifetime of the obligations outstanding, Ex-Im Bank is projected to generate more in offsetting collections than what was initially borrowed to provide the direct loan in present value terms. For FY2015, the amount of the negative subsidy or budgetary impact was -$456 million. There have been some proposals introduced and considered in the past few Congresses to change the methodology for scoring federal credit programs from an FCRA approach, based on Treasury interest rates, to a fair value approach, based on market rates (i.e., higher interest rates to account for market risk). In the 113 th Congress, the Budget and Transparency Act of 2014 ( H.R. 1872 ), which passed the House but was not acted on in the Senate, would have made such a change. CBO estimated that if this accounting change were to be made for federal credit programs, the 10-year cost of the Ex-Im Bank (FY2015-FY2024) would have increased from -$14 billion to +$2 billion. This would mean that Ex-Im Bank's budgetary impact would shift from reducing the deficit to increasing it over the 10-year period. In this scenario, funds would have to be appropriated to cover the projected positive subsidy for the fiscal year that it was calculated. In the 114 th Congress, separate bills have been introduced in the House ( H.R. 119 ) and Senate ( S. 399 ) that would also provide for fair value accounting of credit programs. Ex-Im Bank's general statutory authority expired for about five months in 2015 (July 31-December 3, 2015) when Congress did not take action to renew its charter. Generally when an executive agency's statutory charter expires, that agency "ceases to exist" and is no longer legally authorized to perform any functions. However, Ex-Im Bank's charter provides some exceptions to that general rule of law by expressly authorizing the Bank to engage in certain activities, even after its general statutory termination date. Pursuant to 12 U.S.C. Section 635f, Congress has expressly authorized Ex-Im Bank to perform certain functions before the statutory termination date that would create obligations that are binding after the termination date. Specifically, Section 635f permits the Bank to 1. take on loans or similar obligations prior to its termination date that mature subsequent to the termination date; 2. assume prior to the termination date liability as an insurer, guarantor, etc. of obligations that mature subsequent to the termination date; and 3. issue prior to the termination date debt (in the form of "notes, debentures, bonds, or other obligations which mature subsequent to the [termination] date") generally to be purchased by the U.S. Treasury. These provisions permit the Bank to perform its customary functions prior to the termination date without structuring every loan, guarantee, or other financial or contractual instrument to address the possibility that the Bank will terminate. Because of these three provisions, Ex-Im Bank has debts, assets, and contractual duties that were entered into prior to the termination date that remain valid and enforceable by and against the United States, if not the Bank itself, after the termination date. Other provisions of Section 635f expressly authorize the Bank to continue to perform certain functions after its termination. Most notably, Ex-Im Bank may "continu[e] as a corporate agency of the United States" and exercise any of its functions "for purposes of an orderly liquidation," including (but apparently not limited to) administering its assets and collecting any obligations it holds. Additionally, Section 147 of P.L. 113-164 , the Continuing Appropriations Resolution, 2015, authorizes Ex-Im Bank to continue funding its permissible operations through FY2015. Section 635f of the Bank's charter offers little guidance as to what an "orderly liquidation" entails in this context. For example, it does not address how long the Bank might continue to engage in the specified permissible functions after its termination—a potentially significant omission given that some of the Bank's obligations have repayment periods of more than seven years. "Orderly liquidation" is not a term of art with a discrete meaning under federal law. There does not appear to be any case law interpreting this term as it applies specifically to Section 635f. Furthermore, CRS is unaware of any formal Ex-Im Bank issued regulations, guidance, etc. interpreting this provision or otherwise explaining how the Bank would administer its affairs for an "orderly liquidation." One of the standard principles of statutory interpretation is that, in the absence of a statutory definition, courts may "construe a statutory term in accordance with its ordinary or natural meaning." The everyday meanings of the terms orderly and liquidation , however, would suggest that the Bank could undertake activities that it considers to be implicated in the methodical settlement of its affairs. This likely would include the authority to, for the purposes of orderly liquidation, continue to accept payments on, and otherwise administer loans, guarantees, and other obligations and liabilities entered into prior to the termination date that had not fully matured by the termination date. The Bank also likely would be legally permitted to continue to pay employees needed to perform permissible functions. It is unclear, however, how a prolonged lapse in its general statutory charter would affect Ex-Im Bank's employees. Notably, because the acquisition of obligations and the assumption of liabilities are not among the functions that the Bank is expressly authorized to perform after the termination date, it would appear that the Bank could not enter into new loans or offer new loan guarantees after this date, except insofar as any new obligations or liabilities might be implicated in the "orderly liquidation" of its functions. However, given the dearth of statutory, administrative, and judicial guidance on the meaning of "orderly liquidation" pursuant to Section 635f, the Bank would appear to have considerable discretion in structuring its "orderly liquidation" in the absence of any relevant statutory changes to Section 635f (subject to the Bank generating sufficient revenue and receiving adequate appropriations to fund the liquidation). In July 2015, six Senators wrote a letter to Ex-Im Bank's Chairman and President requesting "clarity on [Ex-Im Bank's] plan for an orderly liquidation," including a timeline for its completion. In his response, Ex-Im Bank's Chairman and President reportedly said that Ex-Im Bank has "broad discretion" to wind down its operations and did not specify a timeline. Since the renewal of its authority, Ex-Im Bank reported that it was resuming its operations. In general, Ex-Im Bank states that, under a lapse in its authority, no new loan, guarantee, or insurance commitments can be approved by its Board or under delegated authority, but Ex-Im Bank may continue administering and servicing existing obligations (including disbursements on already-approved final commitments). Stakeholders and observers disagree on the economic implications of a lapse in Ex-Im Bank's authority. Some argue that Ex-Im Bank's inability to extend new commitments could adversely affect particular U.S. firms or their employees relying on its support when facing difficulty accessing private sector financing at commercially viable terms. The impact also may extend to businesses in Ex-Im Bank users' supply chains, as well as "suppliers to the suppliers." Others contend that the sunset could boost export financing by the private sector. They argue that Ex-Im Bank's activities have opportunity costs, drawing capital and labor resources within the economy otherwise available for alternative uses. Nevertheless, doubts remained over whether a sunset would affect the overall level of U.S. exports and employment. A range of macroeconomic factors affects the overall level of trade, and it may be difficult to determine the precise long-term economic impact of Ex-Im Bank's presence or absence. In terms of competitiveness, supporters argue that, without Ex-Im Bank, certain U.S. companies may face difficulty competing for export contracts on a "level playing field" with foreign competitors receiving support from their official ECAs or may choose to source from overseas markets. They argue that Ex-Im Bank's expiration would amount to "unilateral disarmament," given continued operations by foreign ECAs. Critics argue that its expiration would allow the United States to lead by example in efforts to eliminate government-backed ECA programs internationally, and to focus on ways they view as more effective to boost U.S. exports, such as tax reform or the negotiation and enforcement of international trade agreements. Debate emerged over the actual impact on U.S. businesses of Ex-Im Bank's lapse in authority in 2015. Some U.S. companies claimed that the expiration of Ex-Im Bank's authority prevented them from securing export contracts. For example, Boeing Co. reportedly lost two potential foreign satellite contracts due to the sunset in Ex-Im Bank's authority. Boeing also announced several hundred possible layoffs in its satellite business, reportedly due in part to uncertainty over the future availability of Ex-Im Bank financing. According to press reports, some larger U.S. companies planned to move their operations overseas in response to uncertainty over the Bank's authorization status. General Electric (GE), for instance, reportedly was taking steps to move some of its U.S. manufacturing overseas; it said that it was bidding on projects that require government-backed export financing and seeking financing from foreign ECAs, with much of the production in turn possibly going to GE plants located in those countries (e.g., Canada, China, and European countries). According to GE, a renewal of Ex-Im Bank would not reverse a decision to relocate a factory because of the possibility of a future lapse in Ex-Im Bank's authority. In contrast, smaller companies, with generally less geographic flexibility, reported varying experiences pursuing private sector alternatives. Some small businesses said that they were able to return to the private sector, while others faced difficulty accessing financing from the private sector and lost export contracts. Some also noted that they already obtain loans through the private sector, but relied on Ex-Im Bank's support, such as through guarantees, to mitigate risks of nonpayment. Businesses in the supply chains of companies with Ex-Im Bank-supported exports also said that the lapse hurt them. Critics countered that business losses from Ex-Im Bank's sunset are not to the extent that they are claimed to be. Some argued that while Ex-Im Bank's expiration may hurt companies dependent on its support, its operations result in more costs than benefits overall. According to critics, those adversely affected by the Ex-Im Bank include U.S. companies that did not use Ex-Im Bank financing and were disadvantaged competitively against U.S. companies that did receive its support. Under this view, Ex-Im Bank financing has opportunity costs—resources within the economy that would otherwise be available for other exports and jobs. Critics also contend that U.S. companies reportedly faced an unfair disadvantage competing against foreign companies that received Ex-Im Bank support. Delta Air Lines, for example, has claimed that Ex-Im Bank adversely affected its competitiveness by financing Boeing aircraft export purchases by Emirates Airline and Air India, its competitors. Other examples include Cliffs Natural Resources Inc., a U.S. iron ore producer, which claimed that Ex-Im Bank's direct loan to the Roy Hill iron ore project in Australia exacerbated the current oversupply situation. Critics argued that, because Ex-Im Bank supports such a small share of U.S. exports, any impact of its expiration is negligible and, at best, difficult to measure. The primary method of continuing the Bank's authority has been through the enactment of provisions that extend the sunset date in 12 U.S.C. 635f, most typically in authorizing laws. These laws are listed in Appendix C of this report, in Table C-1 . Such extensions of the Bank's authority during the first two decades of its existence tended to be for between about five and seven years. Since that time, the length of these extensions has varied, from periods of days or weeks, to about six years. The most recent such extension, in 2015, was for a period of about three years and ten months ( P.L. 114-94 ). Provisions in other laws, most typically appropriations acts, have also been used to provide for the continuation of Bank functions during periods when the sunset date had lapsed and not yet been extended. These laws and their relevant provisions are listed in Appendix C of this report, in Table C-2 . While such provisions have varied in form, they have generally indicated congressional intent that the Bank's operations should continue during a specified time period. For example, the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 2002, which was enacted on January 10, 2002, carried the following provision: SEC. 588. [ ... ] Provided, That notwithstanding the dates specified in section 7 of the Export-Import Bank Act of 1945 (12 U.S.C. 635f) and section 1(c) of P.L. 103-428 , the Export-Import Bank of the United States shall continue to exercise its functions in connection with and in furtherance of its objects and purposes through March 31, 2002. The most recent extension of Ex-Im Bank authority, through a provision in an appropriations act, allowed the Bank to exercise its functions through June 30, 2015 ( P.L. 113-164 ). Shorter extensions in the past arguably have given Congress the opportunity to weigh in on Ex-Im Bank operations on a more frequent basis through the lawmaking process. On the other hand, Ex-Im Bank and certain stakeholders have asserted that longer-term extensions can enhance the Bank's long-term planning ability and provide more assurance to clients of the Bank's viability. Continuing resolutions (CRs) are appropriations laws that provide temporary or full year appropriations in the absence of regular appropriations being enacted. After the first CR is enacted for a fiscal year, usually by the beginning of the fiscal year, one or more additional CRs may be enacted until the annual appropriations process has concluded. Over the past several decades, CRs have often been used to temporarily extend authorizing provisions that are scheduled to expire at the beginning of a fiscal year, or to provide authority to continue functions notwithstanding applicable sunset provisions. In the case of Ex-Im Bank, such provisions have been enacted on a number of occasions to authorize the Bank to continue its functions, either during the duration of the CR or some other specified period (see Appendix C of this report, Table C-2 ). This occurred, for example, at the beginning of FY2012, when the Bank's authority sunsetted and an extension of that sunset date was not enacted until May 30, 2012 ( P.L. 112-122 ). Provisions in the first CR for the fiscal year ( P.L. 112-33 ) provided authority for the Bank to continue its functions through the duration of the CR: Sec. 137. The Export-Import Bank Act of 1945 (12 U.S.C. 635 et seq.) shall be applied by substituting the date specified in section 106(3) of this Act for "September 30, 2011" in section 7 of such Act. Further e xtensions of this authority were enacted in subsequent CRs for FY2012. Most recently, the FY2015 CR ( P.L. 113-164 ), which was enacted on September 19, 2014, extended Ex-Im Bank's authority through the following provision: Sec. 147. The Export-Import Bank Act of 1945 (12 U.S.C. 635 et seq.) shall be applied through June 30, 2015, by substituting such date for "September 30, 2014" in section 7 of such Act. The Export-Import Bank Reform and Reauthorization Act of 2015 ( P.L. 114-94 ), enacted December 4, 2015, extended Ex-Im Bank's general statutory authority to the close of business on September 30, 2019. This act also generally lowered Ex-Im Bank's statutory lending authority to $135 billion for each of FY2015-FY2019, and made reforms to, among other things, Ex-Im Bank's policies or operations in risk management, fraud controls, and ethics, as well as the U.S. approach to international negotiations on export credit financing (see Table 4 ). Congress could take a range of approaches related to Ex-Im Bank's authorization status. At one end of the spectrum is the option of a "clean renewal" of Ex-Im Bank's charter, with an extension of its termination date. At the other end of the spectrum is the option of a sunset in Ex-Im Bank's authority, such as by taking no legislative action (since sunset provisions are contained in Ex-Im Bank's charter in 12 U.S.C. Section 635f), or passing legislation with specific parameters for a wind-down in Ex-Im Bank's functions. In between are options including a renewal of Ex-Im Bank's charter with limited changes (such as revising its exposure cap) or renewal with more substantive reforms (such as to its authorities, policies, and practices). Reforms may be motivated by a range of reasons, including enhancing Ex-Im Bank's ability to fill in gaps in private sector financing and offset competition from foreign ECAs; limiting its size and scope and exposure to U.S. taxpayers; and furthering efforts to eliminate all ECA activity internationally. Proposed reforms may raise, among other things, issues regarding the extent to which such changes would balance Ex-Im Bank's core mission to boost U.S. exports and jobs with supporting other U.S. policy interests. Other options also exist, such as reorganization of Ex-Im Bank's functions. To this end, various proposals have been considered over time, including President Obama's proposal in 2012 to reorganize the business- and trade-related functions of Ex-Im Bank and five other agencies into an umbrella "department of trade," a proposal reiterated in the President's subsequent budget requests. Such proposals prompt debates about whether reorganization would reduce costs and duplication and improve the effectiveness of trade policy programs, or undermine the effectiveness of federal agencies, given their differing missions, and result in the creation of a larger, more costly bureaucracy. Members of the 114 th Congress actively debated Ex-Im Bank and ultimately reauthorized the Bank with bipartisan support. Division E of a surface transportation authorization measure ( H.R. 22 / P.L. 114-94 ), enacted on December 4, 2015, renewed Ex-Im Bank's charter through the end of FY2019. The Senate passed an amended version of H.R. 22 on July 30, 2015, including an Ex-Im Bank extension, as an amendment (voted 64-29). The Ex-Im Bank provisions are substantively identical to those in S. 819 (Kirk). The House voted (363-64) on November 5, 2015, on further changes to the highway bill, which also included the Ex-Im Bank extension, as an amendment to the Senate amendment to H.R. 22 . Congress used conference proceedings to resolve differences on the House and Senate-passed versions of H.R. 22 ( H.Rept. 114-357 ). The House action on H.R. 22 followed a vote on October 27, 2015, in favor (313-118) of H.R. 597 (Fincher) which, as amended, was substantively the same as the Ex-Im Bank extension in the Senate-passed version of H.R. 22 . The House considered and passed H.R. 597 pursuant to H.Res. 450 , which was a special rule that the House voted to discharge from the Committee on Rules (246-177). Multiple stand-alone bills related to Ex-Im Bank, many focusing on "reforms," also were introduced in the 114 th Congress. In addition to S. 819 (Kirk) and H.R. 597 (Fincher) (discussed above), others included S. 824 (Shaheen), H.R. 1031 (Waters), H.R. 1605 (Amash), and H.R. 3847 (Issa). Ex-Im Bank reauthorization was an active issue in debates over other legislative issues in the 114 th Congress. For example, Senator Cantwell filed amendments to H.R. 1314 , the vehicle in the Senate for Trade Promotion Authority (TPA), to reauthorize Ex-Im Bank: three ( S.Amdt. 1376 , S.Amdt. 1377 , and S.Amdt. 1415 ) would have provided short-term extensions of authority, and one ( S.Amdt. 1248 ) appeared to be substantively identical to S. 819 (Kirk). Additionally, a motion to table S.Amdt. 1986 (Kirk)—an amendment to reauthorize Ex-Im Bank that was offered to H.R. 1735 , the National Defense Authorization Act for FY2016—failed by a vote of 31-65. The amendment was later withdrawn, but was characterized as a "test vote" on bipartisan support in the Senate for Ex-Im Bank reauthorization. As discussed in the above sections, Ex-Im Bank continues to present possible issues of oversight and legislative interest in the 114 th Congress. Appendix A. Selected CRS Resources General Resources CRS Report R43581, Export-Import Bank: Overview and Reauthorization Issues , by [author name scrubbed]. CRS In Focus IF10017, Export-Import Bank of the United States (Ex-Im Bank) , by [author name scrubbed]. International and Market Context CRS Report RS21128, The Organization for Economic Cooperation and Development , by [author name scrubbed]. CRS Report R42744, U.S. Implementation of the Basel Capital Regulatory Framework , by [author name scrubbed]. Budget and Appropriations CRS Report R42632, Budgetary Treatment of Federal Credit (Direct Loans and Loan Guarantees): Concepts, History, and Issues for Congress , by [author name scrubbed]. CRS Report R42098, Authorization of Appropriations: Procedural and Legal Issues , by [author name scrubbed] and [author name scrubbed]. Federal Export Promotion Programs CRS Report R41495, U.S. Government Agencies Involved in Export Promotion: Overview and Issues for Congress , coordinated by [author name scrubbed]. CRS Report R43155, Small Business Administration Trade and Export Promotion Programs , by [author name scrubbed]. CRS Report 98-567, The Overseas Private Investment Corporation: Background and Legislative Issues , by [author name scrubbed]. CRS Report R42555, Trade Reorganization: Overview and Issues for Congress , by [author name scrubbed]. Appendix B. Examples of Ex-Im Bank Financial Product Structures Appendix C. Laws and Final Legislative Action Related to the Sunset Date of Ex-Im Bank Functions The tables below list the public laws that created the Ex-Im Bank and extended its authority. The tables include the specific statutory text as well as the new sunset date set by the amending act. Table C-1 contains the original law and amendments that were identified through analysis of the statutory notes to 12 U.S.C. Section 635f. Specifically, they are the laws listed in the "Amendments" section. In contrast, in some cases, particularly in the modern era, an extension of the authority of the Export-Import Bank was provided through an appropriations act, such as a consolidated appropriations bill or a continuing resolution. Table C-2 reflects these provisions. As such, it contains provisions allowing the Export-Import Bank to continue to exercise its functions as described in the "Continuation of Bank Functions" section of the statutory notes accompanying 12 U.S.C. Section 635f, as well as some additional such provisions that were independently identified by CRS and the Wall Street Journal . While CRS has made every attempt to be comprehensive, it is possible that some laws that extended the Bank's authority did not come up in our search. The final two columns of both tables contain information on the last action taken by the Senate and House, respectively, on the legislative vehicle that became law. If the action was taken by roll call vote, the number of yea and nay votes, as well as the number of Members not voting, is also presented. (The one instance that a bill was approved through a division vote is also noted.) Additional actions, including roll call votes, might have occurred during other stages of consideration of these measures, for example, House and Senate votes on earlier versions of these measures prior to action on resolving differences, such as through a conference report. In addition, legislative vehicles proposing to extend the authority of Ex-Im Bank that did not become law are also not listed in the table. Information on final disposition of the measure in each chamber since the 93 rd Congress (1973-1974) was gathered from the Legislative Information System (LIS). Information for the period not in LIS was collected from the Congressional Record, and page citations are provided in the table.
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The Export-Import Bank of the United States (Ex-Im Bank or the Bank), a wholly owned federal government corporation, is the official export credit agency (ECA) of the U.S. government. Its mission is to assist in financing and facilitating U.S. exports of goods and services to support U.S. employment. Ex-Im Bank operates under a renewable general statutory charter (Export-Import Bank Act of 1945, as amended). In the 114th Congress, Ex-Im Bank's charter was extended through September 30, 2019, by the Export-Import Bank Reform and Reauthorization Act of 2015 (Division E of P.L. 114-94, a surface transportation authorization measure). Enacted on December 4, 2015, this act generally lowered Ex-Im Bank's statutory lending authority ("exposure cap" for outstanding portfolio) to $135 billion for each of FY2015-FY2019, and made reforms to, among other things, Ex-Im Bank's policies or operations in risk management, fraud controls, and ethics, as well as the U.S. approach to international negotiations on export credit financing. Ex-Im Bank's reauthorization, ultimately on a bipartisan basis in Congress, was preceded by active debate among Members about whether to renew Ex-Im Bank's authority and if so, for how long and under what terms. Debate continues in Congress over Ex-Im Bank's rationales. Proponents contend that the Bank supports U.S. exports and jobs by filling gaps in private sector financing and helping U.S. exporters compete against foreign companies backed by their ECAs. Critics contend that Ex-Im Bank crowds out private sector activity, provides "corporate welfare," and poses a risk to taxpayers. Members also may consider other issues, particularly possible nominations of members to Ex-Im Bank's five-member Board of Directors. The Board, whose members are appointed by the President and with the Senate's advice and consent, is responsible for approving Ex-Im Bank transactions for financing and insurance. Due to current vacancies on the Board, the Board does not have a quorum and cannot approve financial commitments above $10 million. Congress also may conduct oversight of Ex-Im Bank's implementation of reforms required by the 2015 reauthorization act, as well as issues presented by the international context for ECA activity, among other issues. Congressional consideration of Ex-Im Bank raises a range of questions. This report addresses a number of those questions that are frequently asked, including: What is the Export-Import Bank and what is the debate over its reauthorization? What is its leadership structure? What are its programs, policies, and activities? What is its international context? How does its budget work? How does it manage risk? What are the implications of a sunset in authority for the Bank's activities? What are historical and current approaches to Ex-Im Bank reauthorization? Additional CRS resources on Ex-Im Bank include CRS Report R43581, Export-Import Bank: Overview and Reauthorization Issues, by [author name scrubbed], and CRS In Focus IF10017, Export-Import Bank of the United States (Ex-Im Bank), by [author name scrubbed].
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U.S. Citizenship and Immigration Services (USCIS), an agency within the Department of Homeland Security (DHS), performs multiple functions including the adjudication of immigration and naturalization petitions and refugee and asylum claims, as well as other immigration-related services. USCIS currently funds over 95% of its budget by charging user fees to petitioners for its services. The agency and its predecessor, the former Immigration and Naturalization Service (INS), have had the legal authority to do so since at least the passage of the Immigration and Nationality Act of 1952 (INA). In 1988, Congress created the Immigration Examinations Fee Account, which made the portion of USCIS's budget collected from user fees no longer subject to annual congressional approval. This budgetary structure has attracted congressional attention as the result of President Obama's recent executive action on immigration. Among its other provisions, the action would expand the current use of deferred action that some estimate could affect up to 5 million unauthorized aliens living in the United States. USCIS would process all new deferred action petitions, the cost of which would be paid for through user fees. Some Members of Congress oppose the executive action, particularly its expansion of existing deferred action provisions. However, because USCIS's funding is largely independent of the annual appropriations process, Congress cannot use that process to halt the deferred action programs contained in the President's executive action. If Congress wanted to alter existing statutory provisions governing the collection of user fees in the Immigration Examinations Fee Account, the availability of user fees for expenditure, or the prohibition of user fees for certain purposes, it would need to enact legislation. Apart from the agency's accountability to Congress, other issues may merit congressional attention. These include the agency's capacity to handle surges in application volume while maintaining stable service levels for the rest of its caseload; whether the underlying reasoning used to establish petition fees continues to be appropriate; whether current fees are at a level where they may be affecting or altering both the pool of applicants who apply for benefits and the pool of lawful permanent residents who decide to naturalize; and the pace and progress of information technology modernization within an agency that remains reliant upon paper copies of petitions and documents. This report begins with a brief overview of USCIS functions. It then describes the agency's budgetary structure, including its three primary fee accounts for processing user fees. It discusses how the agency calculates user fees for particular immigration services and benefits. The report closes with a discussion of issues for Congress. USCIS was established with the Homeland Security Act of 2002 and assumed responsibility for the immigration service functions of the federal government on March 1, 2003. USCIS has over 200 offices around the world and employs roughly 19,000 employees and contractors within four directorates and nine program offices. Processing petitions and applications, which is most of the agency's workload, occurs in four major USCIS Service Centers and 83 Field Offices in the United States, Puerto Rico, and Guam. Three major activities dominate USCIS functions: adjudication of immigration petitions, adjudication of naturalization petitions, and consideration of refugee and asylum claims and related humanitarian and international concerns. USCIS also provides a range of immigration-related services, such as employment authorizations and change-of-status petitions. While most costs are directly related to the agency's processing functions, other costs, such as administrative overhead, support these functions indirectly. Of the activities listed below, only humanitarian functions generally have no associated fee. Immigration Adjudication : USCIS processes roughly 6 million petitions each year, including about 1 million for permanent status and 5 million for temporary nonimmigrant status. USCIS adjudicators determine the eligibility of immediate relatives and other family members of U.S. citizens and lawful permanent residents (LPRs); employees that U.S. businesses have demonstrated that they need (and their immediate family members); and other foreign nationals who meet specified criteria. They also must determine whether a foreign national in the United States on a temporary visa (i.e., a nonimmigrant) is eligible to change to another nonimmigrant status or adjust to LPR status. Work Authorization : USCIS adjudicates work authorizations for aliens who meet certain conditions. Employment Verification : USCIS is responsible for the Electronic Employment Eligibility Verification (E-Verify) program used by employers to ensure that their employees possess lawful status to work in the United States. Since FY2007, congressional appropriations have supported the E-Verify program. International Services : The USCIS Office of International Affairs adjudicates refugee applications and conducts background and record checks related to some immigrant petitions abroad. The largest component of this program is the asylum officer corps, a small but occasionally high-profile part of USCIS's workload, whose members interview and screen asylum applicants. Fraud Detection and National Security : USCIS must confirm that all applicants are eligible for the particular immigration status they are seeking, or alternatively, determine they should be rejected because they fail to meet other legal requirements. USCIS established the Office of Fraud Detection and National Security at the agency's inception in 2003 to work with the appropriate law enforcement entities to handle foreign nationals whose applications and petitions trigger national security and criminal database notifications and to identify systemic fraud in the application process. Many such duties formerly performed by the INS enforcement arm are now the responsibility of DHS's Immigration and Customs Enforcement (ICE). Civic Integration : USCIS promotes instruction and training on citizenship rights and responsibilities and provides immigrants with the information and tools necessary to successfully integrate into American civic culture. This includes maintaining a Citizenship Resource Center website and managing the Immigrant Integration Grants Program, which assists public or private nonprofit organizations that provide citizenship instruction and naturalization application services to LPRs. Naturalization : USCIS is responsible for naturalization, a process that grants U.S. citizenship to LPRs who fulfill the related requirements established by Congress in the Immigration and Nationality Act of 1952 (INA). Adjudicators must determine whether aliens have continuously resided in the United States for a specified period; possess good moral character, are able to read, write, speak, and understand English; and possess a basic knowledge of U.S. civics and history. USCIS's workload can fluctuate considerably from year to year. To facilitate planning, USCIS regularly projects total application workload volume and associated user fees based on which applicants pay fees or receive exemptions. While USCIS makes such projections by using modeling techniques and by anticipating filing trends and events that may influence volume, the agency's final tallies are influenced by factors such as shifts in U.S. immigration policy, the economy, and international political events, all of which can affect the decisions of people abroad who consider immigrating to the United States. USCIS continues to process petitions in a paper-based form. This mode of operation generates complaints of lost files. Many observers comment that it is entirely outmoded to meet the growing workload and challenges facing the agency. Since 2008, USCIS has been implementing a long-term project to modernize its systems and processes in an effort to improve information sharing, workload capacity, and system integrity (see " IT Modernization and Client Service " below). Referred to as the USCIS Transformation, the project is expected to transition the paper-based system to a digital format managed and accessed online by USCIS and users. Over two decades ago, the budgetary structure of USCIS's predecessor agency, the former INS, was transformed when the Immigration Examinations Fee Account (IEFA) was created to fund the agency's activities and operations. Since the creation of USCIS in 2003, the agency has been largely dependent upon fees to fund its operations. The agency has two other smaller accounts described below that were created to receive monies to support specific purposes both within and outside USCIS: the H-1B Non-Immigrant Petitioner Fee Account and the H-1B and L Fraud Prevention and Detection Fee Account. USCIS also receives a small portion of its budget through appropriations. USCIS receives direct appropriations through the annual DHS appropriations process. In earlier years, appropriations funded temporary special projects such as backlog reduction. More recently, appropriations have exclusively funded E-Verify and immigrant integration grants. (See Appendix A for a brief history of USCIS fee-funding.) In FY2014, direct appropriations constituted less than 4% of USCIS's budget ( Figure 1 ). USCIS funds the processing and adjudication of immigrant, nonimmigrant, refugee, asylum, and citizenship benefits through its user fees deposited into the Immigration Examination Fee Account (IEFA). This account is not subject to annual congressional approval. The INA states that user fees be set at a level that ensures recovery of the full costs of providing adjudication and naturalization services, including similar services to those people who are not charged, such as asylum applicants. User fees can also be set at levels to cover "costs associated with the administration of the fees collected." Further, the INA provides that deposited funds remain available until expended "for expenses in providing immigration adjudication and naturalization services and the collection, safeguarding and accounting for fees deposited in and funds reimbursed from the 'Immigration Examinations Fee Account.'" As such, the authority to set user fee levels and expend user fees is controlled outside the annual appropriations process and does not depend on annual action by Congress. In 1998, Congress passed the American Competitiveness and Workforce Improvement Act (ACWIA), which, among other provisions, temporarily increased the number of temporary skilled H-1B workers admitted to the United States. To provide training for American workers and thus reduce employer reliance on nonimmigrant workers, the act established the H-1B Nonimmigrant Petitioner Fee Account to fund training and education programs administered by the Department of Labor and the National Science Foundation, thereby establishing an affirmative role for U.S. employers to assist with education and training efforts for U.S. workers. The statutorily set H-1B Nonimmigrant Petitioner Fee is currently $1,500 ($750 if the employer has 25 or fewer full-time equivalent employees). USCIS receives 5% of the fees paid into the account by all employers participating in the H-1B program. In FY2014, the USCIS share of funding in this account was $13 million, representing 0.07% of the USCIS budget. On December 8, 2004, Congress passed the H-1B Visa Reform Act of 2004, which established the Fraud Prevention and Detection Account. This account receives funds for fraud detection and prevention activities from a "Fraud Fee" (currently $500) that must be submitted with a petition seeking an initial grant of H-1B, H-2B, or L visa classification to foreign nationals or by an employer seeking to change an alien's employer within those classifications. USCIS receives 33% of the Fraud Detection and Prevention Account fees. As with the H-1B Nonimmigrant Petitioner Fee, the Fraud Prevention and Detection Fee is set by statute, and DHS has no authority to adjust it. In FY2014, the USCIS share of funding in this account was $41 million, representing 1.36% of the USCIS budget. USCIS maintains a cash reserves balance—the accumulated excess of user fees collected over user fees expended. As of February 2015, this balance totaled $1.3 billion. USCIS asserts that because it operates similar to a commercial enterprise, it must maintain a cash reserve balance of at least $600 million annually for its fiscal protection. As noted above, the INA permits USCIS to collect fees at a level that ensures recovery of the full costs of providing adjudication and naturalization services, including services provided without charge to asylum applicants and certain other immigrant applicants, as well as administrative costs. (See Appendix B for a list of selected USCIS petition fees as well as actual (FY2014) and projected (FY2015) petition processing volumes.) As such, USCIS can (with exceptions) adjust fees according to its budgetary needs. Setting fee levels, however, can be politically contentious (see " Fee Levels and Public Policy " below). To do so, USCIS must regularly assess the cost of providing its services and apply cost accounting analyses to appropriately and accurately assess fees to each petition type. Such analyses are particularly important for an agency that derives most of its operating budget from user fees. Since its formation, USCIS has come under scrutiny for weak cost assessments and occasional long processing waiting periods. (For a brief history of USCIS fees, see Appendix A .) The Government Accountability Office (GAO) has investigated the degree to which the USCIS fee schedule corresponds to its processing costs. Substantial revisions to USCIS fees in FY2004, FY2007, and FY2010 have resulted in part from such GAO reviews. For instance, the FY2004 fee adjustments stemmed from a cost review and fee assessment in FY1998. The FY2007 fee adjustment was based on a cost review in FY2006, the first in eight years. In contrast, the FY2010 fee adjustments emerged following a cost review completed in FY2009, just three years after the previous one. The timing of GAO and internal assessments can significantly affect both the average level of fee increases as well as USCIS workloads. In its 2009 report GAO recommended more frequent fee reviews to reduce the need for disproportionately large increases. For instance, the FY2010 fee review resulted in an average fee increase of about 10%, compared with an 88% fee increase in FY2007. In the month prior to when USCIS enacted the FY2007 fee increase, application volume soared, outpacing the agency's processing capacity. This contributed to a processing backlog of roughly 1.5 million petitions and created unplanned costs for the agency to store its paper-based applications. As of April 2015, USCIS was working on a fee review for the FY2016-FY2017 biennial period. Based on the results of the fee review, USCIS will determine whether to adjust its fee structure. The President's executive action of November 20, 2014, highlights the challenges facing Congress if it wishes to exert control over USCIS's budget or activities which are funded through user fees. As mentioned, in 1988 Congress effectively delegated to USCIS the authority to set fees, and to expend those fees once collected, through the law that established the Immigration Examinations Fee Account. Some may appreciate that a declining portion of USCIS's budget consists of appropriations because it reduces the agency's fiscal burden on U.S. taxpayers. Others may be concerned about the limits it places on congressional oversight of the agency. Some immigration observers have argued that greater dependence of USCIS upon appropriations increases congressional oversight and provides an additional check on the executive branch. Some contend that USCIS, by not having to request budgetary resources from Congress each year for many of its day-to-day operations, also faces fewer incentives to provide timely, efficient, or effective customer service. To alter existing statutory provisions concerning the collection of the fees in the Immigration Examinations Fee Account, the availability of user fees for expenditure, or the prohibition of its use for certain purposes would require an enactment of law. Provisions of a bill or joint resolution to accomplish these purposes would be subject to the constitutional requirements associated with the lawmaking process, which include that the measure be signed by the President. Such an enactment would be within Congress's constitutional authority to legislate. The practice of charging user fees for immigration services has long created a rift between those who prefer that USCIS be entirely funded through fees ( agency cost advocates ) and those who prefer that fees reflect only the cost of specific services provided ( service cost advocates ). Service cost advocates have called on Congress to prevent fee increases at times when USCIS was considering fee structure revisions. Although they have generally not opposed increased funding for USCIS, they have argued that the agency should recover only direct service costs and otherwise request direct appropriations to offset agency costs. Service cost advocates believe that more rigorous oversight by Congress of appropriated funds would protect the interests of immigration services applicants and provide more transparency and accountability in the agency. They contend that if costs escalate, fees could also increase to levels that may be prohibitive for some potential applicants. Agency cost advocates, on the other hand, have argued that USCIS fees are set at reasonable levels that reflect the full cost of delivering immigration services and that provide users with valuable benefits. They note that fees include costs for preventing fraud and providing services to those applying for immigration benefits on the basis of humanitarian need. They argue that subsidizing agency costs might be disadvantageous because it would keep fees at levels that would permit some immigrants to receive immigration services who would otherwise be classified as "public charges" under the INA. These two perspectives reflect a debate over who pays for immigration services received by beneficiaries who are exempted from fees. For example, when a policy decision is made to exempt foreign national victims of human trafficking (T visa) or victims of certain crimes (U Visa) from paying petition fees, the processing costs for those petitions must then be recovered through the fees charged against other applications. Fee levels for immigration services can reflect policy considerations. In its 2010 review of USCIS fees, GAO outlined four broad policy considerations that could be used when considering how to set fee levels: equity (everyone pays his/her fair share), efficiency (simultaneously constrain demand and reveal the value that beneficiaries place on the service), revenue adequacy (the extent to which fee collections cover the intended share of costs), and administrative burden (the entire cost of administering the fee). Policy considerations not only affect how the fees are set, but also who should pay. In the case of USCIS, these policy considerations can conflict with each other. For instance, while the agency pursues revenue adequacy as a goal, it nevertheless does not collect fees from asylees and refugees on humanitarian grounds. Similarly, USCIS aims for equity in establishing fee levels, but when attempting to adjust fees for naturalization petitions on par with other petition fee adjustments, it confronts a vocal immigration advocacy community as well as its own broader policy objectives to foster citizenship. Immigrant advocates in particular argue that fee increases place disproportionate hardship on applicants for immigration services and benefits. They contend that higher fees force some families to seek services and benefits incrementally rather than as a family unit, causing some members to forgo the application process entirely. Some argue that high fees discourage eligible lawful permanent residents (LPRs) from naturalizing. At a broader level, immigration advocates have argued that sizeable fee increases may make wealth a de facto driving element of immigration policy. They have also suggested that increased fees might impact the size of the unauthorized alien population by encouraging illicit work arrangements and visa overstays. Under current regulations, applicants may receive a fee waiver if they can demonstrate an inability to pay. According to USCIS, about 1% of applicants apply for fee waivers. Others argue that some fees in the United States, such as that for naturalization, are substantially higher than comparable fees in other advanced economies. Agency cost advocates cite immigration statutes to argue that concerns about the potential financial hardship are not valid criteria for developing a USCIS fee schedule. They argue that immigrants who receive the many benefits of living in the United States should pay the full cost the U.S. government incurs on their behalf to make their immigration possible. They contend that substantial fee increases should not be judged to be excessive if they accomplish the goal of recovering the full cost of services provided to immigrants, including expenses such as overhead, personnel support, and particularly, the cost of background checks and fraud reduction. They object to a fee structure that requires "overtaxed and overstretched Americans" to support an agency that benefits immigrants. USCIS customers who seek immigration services and benefits often face challenges as they navigate the complexity of U.S. immigration laws and regulations. Obtaining answers to questions and resolving issues may require visits to USCIS offices that can be time-consuming and inconvenient. For many services, USCIS customers must apply for most benefits by mail. USCIS employees then review submitted paper files and ship documents between offices to complete their adjudication. According to the DHS Inspector General's office, USCIS was relying on paper-based processes to manage the filing and adjudication of immigration benefits as recently as 2011. As part of a comprehensive set of initiatives to modernize the agency, USCIS embarked on an agency-wide investment referred to as "transformation" that began transitioning the agency from a fragmented, paper-based operational environment to a centralized and consolidated environment facilitating electronic processing of the adjudication function. In 2012, USCIS formally launched the first two phases of its electronic immigration application system, known as ELIS. Under ELIS, eligible individuals can establish an account and apply online to extend or change their nonimmigrant status for certain visa types. ELIS enables USCIS officers to review and adjudicate filings online. It also includes tools to combat fraud and identify national security concerns. Nevertheless, ELIS still possesses limited features and must expand substantially before USCIS can move to an entirely electronic platform. Congress has repeatedly called upon USCIS to improve its processing times and, on occasion, to eliminate backlogs of applications awaiting adjudication. Between FY2002 and FY2010, Congress provided approximately $574 million in direct appropriations towards backlog reduction efforts. Immigration observers questioned some backlog reduction efforts that resulted from changes in how USCIS defined the backlog. Some critics believe that USCIS's reliance on other agencies to conduct background checks limits the agency from preventing future backlogs, even with funding that fully covers adjudication costs. If reforms or changes to immigration laws or regulations occur that affect large numbers of individuals, the issue of managing adjudication workloads and recovering service costs could become an issue for USCIS. Some observers question whether the agency can process in a timely fashion the increased application volumes resulting from such changes. Previous efforts at immigration reform, for example, resulted in substantial increases in applications for immigration services as well as USCIS's overall adjudication costs. USCIS regularly faces concerns from immigration observers about the agency's ability to manage adjudication workloads, particularly during surges in application volume that result from changes in immigration policy or other major events. The issue arose most recently with the President's executive action, causing some to question how the agency would handle the workload from as many as 5 million new deferred action applications. Agency spokespersons posit that USCIS has the capacity to quickly scale up and deal with surges in volume such as those expected to result from the President's executive action. They argue that the agency's experience with the 2012 Deferred Action for Childhood Arrivals (DACA) program served as a test case for handling larger workloads anticipated from the most recent executive action. They also cite past examples, such as the roughly 2.7 million persons the agency processed between 1987 and 1989 following passage of the Immigration Reform and Control Act of 1986 (IRCA, P.L. 99-603 ), which, by most accounts, was successfully administrated. Other immigration observers refute such assessments. They note that USCIS struggled for several years to reduce a processing backlog caused by the surge in petition volume from its relatively large FY2007 fee adjustments. Going back earlier, GAO noted that when the 3 million individuals who legalized under IRCA in 1986 became eligible for naturalization in 1995, the application backlog increased markedly. Processing backlogs may affect processing times for other petitions as resources within the agency are reconfigured to address urgent needs. This latter concern has been raised by some who argue the agency is diverting resources used to process petitions of those immigrating to the United States legally in order to process DACA and other petitions that benefit the unauthorized alien population. Critics also describe a processing system that continues to rely primarily on paper applications and postal mail and argue that other agency services will suffer from the diversion of USCIS resources to attend to the pressing caseload caused by the 2014 executive action. Since it was announced in November, the agency has made plans to hire over 1,000 full and part-time personnel to handle the workload. Costs for the new hires reportedly would be covered by the DACA petition fees. If the executive action goes forward as planned, it remains to be seen whether the new personnel and required procedures would be in place and sufficient to handle the volume of related petitions. Over two decades ago, the budget structure of USCIS's predecessor agency, the former INS, was transformed by the law that created the Immigration Examinations Fee Account to fund the agency's activities and operations. Since that time, and particularly since USCIS was created in 2002, the agency has relied almost entirely on user fees to fund its operations. Appropriations have been granted for special projects and currently fund the E-Verify program. Having a government agency funded by user fees reduces the fiscal burden on U.S. taxpayers. However, it also might reduce the influence and oversight that Congress can exert over how the agency spends its user fees. Such limitations became more apparent following the passage of the President's executive action of November 20, 2014, which included a new deferred action program that some Members of Congress oppose. Some have expressed concerns about the impact that a relatively sudden and large demand for USCIS adjudication services might have on the rest of the agency's workload. USCIS has experience in handling surges in petition volume. It also has, with the existing DACA program initiated in 2012, an active model for confronting potential challenges posed by similar programs initiated within the recent executive action. However, past experience also suggests that processing backlogs could occur, as well as increases in processing times for other types of petitions. Such delays underscore both the agency's limited personnel resources and its continued reliance on a largely paper-based system. In addition to these issues, immigration observers continue to express concerns over several perennial issues related to USCIS. The most frequently cited concern involves fee levels. Some evidence suggests that the current naturalization petition fee, in particular, poses a barrier to individuals wishing to become U.S. citizens, a critical step toward political and civic incorporation. While immigrant advocacy groups argue that lower fees would increase the numbers of LPRs who naturalize, USCIS has not signaled any plans to adjust its fee structure to address this concern beyond maintaining the naturalization petition fee at its current level. Appendix A. History of USCIS Fee Funding In its original version, the Immigration and Nationality Act of 1952 (INA) prescribed fees for certain immigration services. Furthermore, a general "user" statute in Title V of the Independent Offices Appropriations Act of 1952 granted government agencies the authorization to charge fees for services performed. Legislation in 1968 removed the enumeration of statutory fees under the INA, and subsequently immigration fees were prescribed in regulations under the authorization of the latter "user" statute. Following the 1968 legislation, the former Immigration and Naturalization Service (INS) continued to periodically adjust fees as it deemed necessary. However, the second term of the Reagan Administration saw more concerted efforts to make INS adjudication functions fee-reliant. At the same time that Congress passed the Immigration Reform and Control Act of 1986 (IRCA), which included a legalization program for certain unlawfully present aliens, the INS decreased fees for stays of deportation but increased them for certain other deportation-related motions. In the publication of the final fee schedule after passage of IRCA, the agency stated that it believed it was legally required to recover all of its costs for services it provided. The 1987 amendment to the fee schedule added fees for the legalization program under IRCA, and despite opposition to the $185 filing fee, the INS maintained the charge was needed to ensure the program was self-funding. In 1988, Congress mandated the creation of the Immigration Exam Fee Account (IEFA) in the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Act of 1989, such that the funding for the legalization fees could be isolated and a portion of those fees retained by the agency. These fees would then be available to the INS to recover some of the costs associated with providing immigration services. The following fiscal year, the IEFA was amended in the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Act of 1990, giving INS the authority to retain and expend all of the adjudication fees collected. The purpose of this change was that funding for the Adjudications and Naturalization Program of the INS would be financed solely through this mechanism. Following the passage of the Immigration Act of 1990, the INS experienced a period of unprecedented growth in applications and petitions for immigration services. This growth was further compounded in 1995 when approximately 3 million individuals who had legalized under IRCA became eligible to naturalize. At roughly the same time, GAO released a report on the financial practices of the INS that found inadequate controls over fee funding and vulnerability to fraud and other abuses. GAO also found that despite a large increase in fee funding, the agency suffered from inadequate service processing times and weak leadership and management. The INS responded to this report through centralization initiatives and by stating that its new fee schedule of 1991 would reduce the growing applications backlog. Yet, by 1993 observers expressed growing concerns that increased fees had not yielded the promised performance improvements. Some asserted that the INS was using a portion of funds from the IEFA for enforcement activities rather than adjudication services. Between 1993 and 2001, the INS continued to receive criticism for not meeting its service objectives, despite increases in funding from fees and appropriations. Many observers continued to assert that INS was using a portion of its immigration services collections to fund non-service activities such as border security and interior enforcement. This suspected interweaving of service and non-service funding prompted a push to separate the service and enforcement functions of the INS. In 1997, the U.S. Commission on Immigration Reform recommended that the INS be dismantled and the adjudication and enforcement functions be divided up between the Department of State and the Department of Justice (DOJ), respectively. The Clinton and Bush Administrations, however, categorically rejected the proposed dismantling of INS and instead encouraged internal reforms. Following the terrorist attacks of September 11, 2001, Congress decided to formally separate INS's enforcement and adjudication functions. With the passage of the Homeland Security Act of 2002 (HSA), Congress dissolved the INS and established USCIS, a new immigration adjudication agency, within the newly formed Department of Homeland Security (DHS). The INS did attempt to increase its fees in FY2003 to cover anticipated additional costs related to security checks, but DOJ did not act upon the request due to the upcoming transition of immigration functions from DOJ to DHS. Since its creation, USCIS has been largely dependent upon fees to fund its services, with direct appropriations provided primarily for temporary projects. Appendix B. Fee and Processing Volume Statistics
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U.S. Citizenship and Immigration Services (USCIS), an agency within the Department of Homeland Security (DHS), performs multiple functions including the adjudication of immigration and naturalization petitions, consideration of refugee and asylum claims and related humanitarian and international concerns, and a range of immigration-related services, such as issuing employment authorizations and processing nonimmigrant change-of-status petitions. Processing immigrant petitions remains USCIS's leading function. In FY2014, it handled roughly 6 million petitions for immigration-related services and benefits. USCIS's budget relies largely on user fees. The agency and its predecessor, the former Immigration and Naturalization Service (INS), have had the legal authority to charge fees for immigration services since before the passage of the Immigration and Nationality Act of 1952 (INA). In 1988, Congress created the Immigration Examinations Fee Account, which made the portion of USCIS's budget collected from user fees no longer subject to annual congressional approval. Since the President announced the Immigration Accountability Executive Action on November 20, 2014, USCIS's budgetary structure has received increased attention. Among other provisions, the executive action included an expansion of the existing Deferred Action for Childhood Arrivals (DACA) program that was initiated in 2012, as well as a new Deferred Action for Parents of Americans and Lawful Permanent Residents (DAPA) program that grants certain unauthorized aliens protection from removal, and work authorization, for three years. If implemented, these programs would require applicants to submit petitions and pay a user fee to USCIS. The user fees would purportedly pay for the cost of administering the program. Some in Congress oppose deferred action programs. However, Congress has limited options for halting the programs using the annual appropriations process. The executive action highlights some challenges Congress faces if it wishes to exert control over an agency whose funding is largely independent of the annual appropriations process. To alter existing statutory provisions governing the collection of user fees in the Immigration Examinations Fee Account, the availability of user fees for expenditure, or their prohibited use for certain purposes would require an enactment of law. Congress does appropriate a small portion of the agency's budget each year, primarily to fund E-Verify, a system used to electronically confirm that individuals have proper authorization to work in the United States. Since 2003, such annual direct appropriations have constituted a declining portion of USCIS's budget. While some have welcomed this trend for reducing the cost to U.S. taxpayers of running USCIS, others have voiced concerns over the limitations on congressional oversight it reflects. Some contend that such budget independence also makes the agency less responsive to the need for affordable user fees and timely and effective customer service. Potential issues that Congress may decide to consider include USCIS's accountability to Congress, given that much of its funding does not require annual congressional approval; whether some fees are at levels that inhibit some potential applicants from applying for benefits or inhibit lawful permanent residents from becoming citizens; whether the pace and progress of information technology modernization is sufficient to meet the agency's multiple functions and efficiently serve petitioners; and whether USCIS's management of its personnel and resources adequately addresses sudden demands for processing and adjudication of petitions while maintaining processing times and adequate levels of service for all other petitions.
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The Kurds, a mountain-dwelling Indo-European people, comprise the fourth-largest ethnic group in the Middle East, but they have never obtained statehood. The World War I peace settlement and subsequent Treaty of Sevres (1920) raised hopes of Kurdish independence, but under a subsequent treaty (Treaty of Lausanne, 1923) they were given minority status in their respective countries—Turkey, Iran, Iraq, and Syria—with smaller enclaves elsewhere in the region. Kurds region-wide number between 20 and 25 million, with an estimated 4 to 4.5 million in Iraq, roughly 15% to 20% of the Iraqi population. Most are Sunni Muslims, and their language is akin to Persian; Kurds celebrate the Persian new year (Nowruz) each March 21. Even before the fall of Saddam Hussein, Kurds have had more national rights in Iraq than in any other host country; prior Iraqi governments have allowed Kurdish language use in elementary education (1931), recognized a Kurdish nationality (1958), and implemented limited Kurdish autonomy (1974, with Iraq under Baath Party rule). For the three decades that preceded the U.S.-led expulsion of Iraqi forces from Kuwait in 1991, an intermittent insurgency by Iraqi Kurdish militia (" peshmerga ") faced increasing suppression, particularly by Saddam Hussein's regime. Kurdish dissidence in Iraq was initially led by the Barzani clan, headed by the late storied chieftain Mulla Mustafa Barzani, who founded the Kurdish Democratic Party (KDP) after World War II. He rejected Baghdad's Kurdish autonomy plan in 1974, but his renewed revolt collapsed in 1975 when Iran, then led by the Shah, stopped supporting it under a U.S.-supported "Algiers Accord" with Iraq. Barzani, granted asylum in the United States, died in 1979, and KDP leadership passed to his son, Masoud. Years earlier, a younger, more urban and left-leaning group under Jalal Talabani emerged; it broke with Barzani in 1964 and, in 1975, became the rival Patriotic Union of Kurdistan (PUK). The KDP and the PUK remain dominant among Iraqi Kurds; their differences have centered on leadership, control over revenue, and the degree to which to accommodate Baghdad. The KDP, generally traditional, is strong in the tribal, mountainous northern Kurdish areas, bordering Turkey, whereas the PUK is strong in southern Kurdish areas, bordering Iran. During the first few years of the 1980-1988 Iraq-Iran war, the Iraqi government tried to accommodate the Kurds in order to persuade them not to assist Tehran. In 1984, the PUK agreed to cease fighting Baghdad, but the KDP remained in rebellion. Iraqi forces launched at least two lethal gas attacks against Kurdish targets in 1988, including at the town of Halabja (March 16, 1988, about 5,000 killed). Iraq claimed the chemical attacks were responses to Iranian incursions. During 1987-1989, the height of the Iran-Iraq war and its immediate aftermath, Iraq tried to set up a "cordon sanitaire" along the border with Iran, and it reportedly forced Kurds in many border villages to leave their homes in a so-called "Anfal (Spoils) campaign." Some organizations, including Human Rights Watch, say the campaign killed as many as 100,000 Kurds. During the 1990s, U.S.-led containment of Iraq following the invasion of Kuwait paved the way for substantial Kurdish autonomy. After Iraqi forces suppressed an initial post-war Kurdish uprising, U.S. and allied forces in mid-1991 instituted a "no-fly zone" over the Kurdish areas, protecting the Kurds from Iraqi forces. Later in 1991, Kurdish leaders joined the Iraqi National Congress (INC), a U.S.-backed opposition group, and allowed it to operate from Iraqi Kurdish territory. The Iraqi Kurds set up an administration in their enclave and held elections for a 105-member provisional parliament in 1992. The KDP and the PUK each gained 50 seats; another five went to Christian groups (most of Iraq's 900,000 person Christian community resides in northern Iraq or in Baghdad). Without a clear winner in the concurrent presidential election, the two main factions agreed to joint rule. In October 1992, the Kurdish parliament called for "the creation of a Federated State of Kurdistan in the liberated part of the country" but added that the Kurds remained committed to Iraq's territorial integrity. This caveat did not allay fears among Iraq's Arab leaders that the Kurds would drive for full independence; a concern shared by neighboring states with large Kurdish populations (Turkey, Iran, and Syria). In early 1994, the uneasy KDP-PUK power-sharing collapsed into armed clashes over territorial control and joint revenues. The nadir in PUK-KDP relations occurred in mid-1996, when the KDP enlisted Saddam's regime to help it seize Irbil, the seat of the regional Kurdish government, which the PUK had captured in 1994. The Kurdish regional authority effectively split into KDP and PUK entities. However, the United States spearheaded negotiations that culminated in a September 1998 "Washington Declaration" between the two parties. It was endorsed when the Kurdish parliament reconvened on October 5, 2002, by which time the Kurds and other oppositionists were preparing for a likely U.S. war to overthrow Saddam Hussein. In February 2003, opposition groups met in Kurdish-controlled territory to prepare for post-Saddam Iraq, but these groups were disappointed by a U.S. decision to set up a post-Saddam occupation authority rather than immediately turn over governance to Iraqis. Some Bush Administration officials have attributed the post-Saddam insurgency and instability to this decision. Both before and since the 2003 ousting of Saddam Hussein's regime, the Kurds have been the most pro-U.S. group in Iraq. The Kurds welcomed the U.S. invasion of Iraq and have cooperated with U.S. political and military officials in Iraq since. In return for what they assert has been their consistent pro-U.S. orientation, the Kurds have sought U.S. support for their positions in their various disputes with the other groups in Iraq, and have sought to ensure that the planned December 2011 end to U.S. military involvement does not cause the United States to abandon Iraq, and the Kurds. A wide variety of U.S.-Kurdish issues, including the U.S. drawdown, were discussed when Kurdistan Regional Government (KRG) President Masoud Barzani visited Washington, DC, in late January 2010, and U.S. officials in Iraq meet him regularly. U.S. positions and activities relating to the Kurds are discussed throughout this paper. Although the Kurds welcomed the U.S. decision to overthrow Saddam Hussein militarily, there was virtually no combat in northern Iraq during Operation Iraqi Freedom (OIF), the U.S.-led war that began on March 19, 2003, and toppled Saddam Hussein's regime by April 9, 2003. Turkey did not agree to host U.S. invasion forces prior to the start of the war, and U.S. forces moved up from Kuwait through southern Iraq, and not down from the north. (Turkey reportedly has offered to allow some U.S. troops to depart Iraq through the north, as part of the U.S. drawdown that is to be completed by December 31, 2011.) The Kurds entered post-Saddam national politics on an equal footing with Iraq's Arabs for the first time ever by participating in a U.S.-led occupation administration (Coalition Provisional Authority, CPA). Holding seats on a 25-person advisory "Iraq Governing Council (IGC)," appointed in July 2003, were Barzani, Talabani, and three independent Kurds. In the transition government that assumed sovereignty on June 28, 2004, a top Barzani aide, Hoshyar Zebari, became Foreign Minister (over the objection of many Arab Iraqi figures). This government operated under a March 8, 2004 "Transitional Administrative Law" (TAL)—a provisional constitution that laid out a political transition process and preserved the Kurds' autonomous "Kurdistan Regional Government" (KRG) and its power to alter the application of some national laws. Another TAL provision allowed the Kurds to continue to field their militia, the peshmerga ("those who face death"), now numbering 75,000-100,000. The TAL did not give the Kurds control of Kirkuk (Tamim province), instead setting up a process to allow Kurds expelled from Kirkuk by Saddam to reclaim their homes. Despite opposition from Iraq's Arab leaders, the Kurds succeeded in inserting a provision into the TAL that allowed any three provinces to vote down, by a two-thirds majority, a permanent constitution. The Kurds constitute a majority in Dohuk, Irbil, and Sulaymaniyah provinces, assuring them of veto power. The Kurds supported the constitution in the October 15, 2005, referendum because it appeared to meet their most significant demands. The constitution not only retained substantial Kurdish autonomy but also included the Kurds' insistence on "federalism"—de-facto or formal creation of "regions,"each with its own regional government. The constitution recognizes the three Kurdish provinces of Dohuk, Irbil, and Sulaymaniyah as a legal "region" (Article 113)—the Kurdistan Regional Government (KRG)—with the power to amend the application of national laws not specifically under national government purview; to maintain internal security forces; and to establish embassies abroad (Article 117). Arabic and Kurdish are official languages (Article 4). In September 2007, the Senate endorsed the federalism concept for Iraq in an amendment to the FY2008 defense authorization bill ( P.L. 110-181 ). The Kurdish region fully participated in the Iraqi elections of January 30, 2005—which included provincial council elections nationwide and elections for the Kurdistan National Assembly (KNA), as well as national elections for an interim government. After the 2005 KNA elections, on June 12, 2005, the Kurdistan National Assembly (KNA, the separate parliament of the Kurdistan Regional Government) selected Masoud Barzani "President of Kurdistan." This reflected Barzani's strategy of shoring up his regional base in the north rather than focusing on the central government. Elections for a four-year government were held on December 15, 2005. During 2005-2009, the "prime minister" of the KRG was Barzani's 50-year-old nephew, Nechirvan (son of the Kurdish guerrilla commander Idris, who was killed in battle against Iraqi forces in 1987). Nechrivan was slated to be replaced in early 2008 by a PUK official (Kosrat Rasoul), but the parties agreed to extend Nechirvan's term, in part because of Rasoul's health and in part because of turmoil within the PUK on a consensus candidate to replace Nechirvan. As noted below, following the KNA elections of July 25, 2009, Nechirvan was replaced by PUK senior figure Barham Salih. The peshmerga primarily remain in Kurdish areas to protect Kurdish inhabitants there, but some have joined the Iraqi Security Forces (ISF) and have served mostly in Arab northern cities such as Mosul and Tal Affar but also in Sunni areas, in the Baghdad "troop surge," and in the March 2008 crackdown on Shiite militias in Basra. On May 30, 2007, formal security control over the three KRG provinces was handed from the U.S.-led coalition in Iraq to mostly Kurdish ISF units. On July 25, 2009, the KRG held its second elections for a KNA, and there were direct elections for a KRG President. Running against five relatively poorly known challengers, Masoud Barzani was handily reelected KRG President with about 70% of the vote. The KNA elections, in which voters chose members of the 111-seat KNA, shaped up to be the most competitive in the Iraqi Kurdish region. The KNA elections treated the Kurdistan region as one voting district in a closed-list system (voters vote for lists, not individuals). Twenty-four total lists registered, of which one was the joint KDP and PUK "Kurdistani" list that has long dominated the region's politics and economy. However, the joint list faced stiff competition from an opposition "Change List" (Gorran), headed by Nechirvan Mustafa, a former PUK leader who quit the party in 2006 because of alleged PUK corruption. Gorran, said to be populated by younger, well-educated urban Kurds, ran on a platform opposed to corruption and the dominance of the two main Kurdish parties, as well as on reducing confrontation with the central government. Prior to the election, the Kurdistani list proposed Barham Salih, who was deputy Prime Minister in the Iraqi central government, as Prime Minister of the KRG, should that list finish first. In the election, the Kurdistani list did finish first, winning 59 seats out of the 111 and thereby retaining its majority control of the KNA. This is a sharp drop from the 82 seats the bloc held in the previous KNA. However, Gorran did unexpectedly well, winning about 25% of the total vote and, under the election rules, winning 25 of the 111 seats. A joint Islamist and Socialist list (Reform and Service List) won 13 seats, and various parties won the remainder of the seats up for election. Under a quota system implemented by the KRG, out of the 111 seats, there are five reserved seats for Assyrian Christians, five for ethnic Turkmen, and one reserved seat for the Armenian community. There are no reserved seats for the minority Yazidi or Shabak communities, but there is one Yazidi who won election as part of the Kurdistani bloc. Because there has not been an agreement between the Kurds and the central government on the Kirkuk issue, the July 25 vote did not include provincial elections in Kirkuk or the three KRG provinces. The Kurds had also considered including in the vote a referendum on a KRG regional constitution. A draft was adopted by the KNA on June 25, 2009. However, the Iraqi central government opposed it as an infringement on the nationally adopted constitution and as a Kurdish effort to assert rights to oil resources in the Kurdish region and to disputed territories (see below). In the face of that opposition, the KRG dropped the constitutional referendum, and it was not part of the July 25 elections. Politically, the strong showing of Gorran weakened the PUK, because Gorran is a breakaway faction of that party. Gorran apparently won about half of the votes in Sulaymaniyah Province, which is the PUK's main stronghold. Although the PUK was weakened, the KDP still proceeded with the agreement to name Barham Salih as KRG Prime Minister. He and Masoud Barzani were sworn into their KRG offices on August 20, 2009. In January 2010, Dr. Rowsch Shaways, a KDP member, who had served as deputy Prime Minister in the 2004-2005 interim government, was named deputy Prime Minister to fill Salih's vacant central government slot. The 2005 constitution and post-Saddam politics—coupled with the Kurdish leaders' close relations with the United States—gave the Kurds substantial political strength. However, that strength caused Iraqi minorities in the north, Iraq's neighbors, and Iraq's Arab leaders to perceive the Kurds as asserting excessive demands and threatening Iraq's integrity. For their part, the Kurds believe that the strengthening central government is not living up to the promise of the post-Saddam era to build a diverse, multi-ethnic democracy that allows the Kurds full rights and redresses the perceived abuses of the Saddam era. The Bush Administration and the Obama Administration have sought to support and acknowledge the Kurds' cooperation with U.S. policy while curbing the Kurds' demands enough to mollify the Kurds' opponents and prevent any explosion of violence in the north. As a sign of appreciation for the Kurds' support and of a U.S. commitment to ensure that the Kurd-Arab rift does not widen, the Obama Administration has decided to establish a U.S. consulate in Irbil. In addition, there are to be two embassy branch offices in northern Iraq: one in Kirkuk (see below), and another in Mosul, where the Kurds and central government are at odds. Another U.S. consulate is to be established in Basra, but branch offices in Anbar and in Najaf are not being set up immediately (in part due to Congressional decisions to delay funding their establishment in a FY2010 supplemental appropriation, P.L. 111-212 ). The Senate report on the supplemental legislation said that the Committee on Appropriations supported the placement of these facilities along "Arab-Kurdish fault lines," and the Administration appears to be following that recommendation. As noted previously, the Kurds generally, but the PUK more so, have viewed participation in post-Saddam politics in Baghdad as enhancing Kurdish interests. The KDP and PUK allied in the two national elections in 2005. In the January 30, 2005, elections, their Alliance won about 26% of the vote, earning 75 National Assembly seats out of 275. Partly on that strength, Talabani became President of Iraq. Because of a boycott of those elections by most Sunni Arabs, the Kurds also won control of the provincial council of Nineveh Province, which is mostly Arab inhabited, and had a strong presence on the council of the mostly Arab province of Diyala as well. The Kurdistan Alliance showing in the December 2005 elections for a full-term government was not as strong (53 seats), largely because Sunni Arabs participated in the elections. In the four-year government selected in April–May 2006, Talabani remained President; Zebari stayed Foreign Minister, and a top Talabani aide, Barham Salih ("Prime Minister" of the Kurdish region before Saddam's ouster) became one of two deputy prime ministers, as noted above. Budgetary issues have been somewhat contentious recently. In the 2008 Iraqi budget deliberations (adopted February 13, 2008), Iraq's Arab leaders tried but did not succeed in efforts to cut the revenue share for the Kurds from 17% of total government revenue to 13%. The Kurds agreed to abide by a revenue share determined by a census that was to be held but has been repeatedly postponed. There was no similar move to cut the Kurds' share in deliberations over the 2009 budget, which was adopted in March 2009. The Kurds continue to want the peshmerga 's salaries to be paid out of national revenues. However, a census is set to get under way in October 2010, which could result in a reduction of the Kurds' revenue share if the census determines that the Kurds's share of the population is less than has been assumed to date (based on other measures, such as ration card lists). It is not clear whether or not the Iraqi constitution permits the KRG to buy weapons from foreign or other sources, for the peshmerga . However, the central government expressed "no objection" to a reported KRG purchase of guns and ammunition from Bulgaria in November 2008. The weapons were flown into KRG-controlled territory by C-130. During 2003-2008, the Kurdish parties were aligned politically with the mainstream Shiite Islamist parties, including the Da'wa Party of Prime Minister Nuri al-Maliki and that of the Islamic Supreme Council of Iraq (ISCI), led by Abd al-Aziz al-Hakim (who died on August 26, 2009, and has been replaced by his son, Ammar al-Hakim). The support of the Kurds helped Maliki survive several political challenges in 2006 and 2007 not only from Sunni Arab factions but also from within his own Shiite community, particularly that posed by radical young cleric Moqtada al Sadr. The Kurds supported Maliki's decision to confront Sadr's militia in Basra in March 2008, which the Kurds said demonstrated Maliki's increasing even-handedness. By the end of 2008, the Kurds had begun to break with Maliki because of his failure to accede to their core demands, particularly northern Iraq territorial issues. The rift had become so pronounced that KRG President Barzani appeared on a local television program in November 2008 accusing Maliki of trying to monopolize power. Maliki responded on November 20, 2008, by saying the Kurds were pursuing "unconstitutional" policies, such as deploying peshmerga outside the KRG region and opening representative offices in foreign countries. Press reports in late 2008 said the Kurds explored discussions with other factions to possibly call for a vote of no-confidence against Maliki. Relations worsened following political developments in disputed Nineveh Province, as discussed below, and Masoud Barzani and Prime Minister Maliki did not meet for more than one year, until Maliki flew to the KRG region on August 2, 2009. The next phase of KRG-government relations is being shaped by the outcome of the March 7, 2010, parliamentary elections. As in the past, the two main Kurdish parties ran on a joint list. However, Gorran, the Kurdish opposition group, ran on a separate slate, as is another Kurdish faction called the Kurdistan Islamic Union. As a result of the elections, many observers assess that the main Kurdish factions are no longer "kingmakers" in central government politics. The number of seats held by the two main factions was reduced from 53 in the 2006-2010 Assembly to 43 seats in the current Assembly. Other Kurdish factions, including Gorran and the Kurdistan Islamic Union, hold 14 seats (up from 5 "other" Kurdish seats in the previous Assembly). Even though Gorran is a Kurdish faction, it does not necessarily back all the positions of the two main factions in political deliberations with Iraq's Arabs. As a result, the two main Kurdish parties have not taken clear or definitive positions on the composition of the next full term government, even though nearly seven months have elapsed since the election and no executive branch has been chosen. The deadlock appears to emanate from disagreements among Iraq's Arabs over whether Maliki should be selected for another term as Prime Minister. The Kurds are said to favor an alternate Shiite figure, Adel Abdul Mahdi, a known moderate, as Prime Minister, but Abdul Mahdi has not amassed enough support to displace Maliki. (For more information on efforts to form the next executive, see CRS Report RS21968, Iraq: Politics, Elections, and Benchmarks , by [author name scrubbed]). Because Maliki's slate has 89 seats in the Assembly, a Sunni-backed slate of former Prime Minister Iyad al-Allawi (who believes he deserves the chance to form the next government) has 91, and a rival Shiite slate of ISCI/Sadr/other Shiites have 70 seats, the main Kurdish bloc's 43 seats are not sufficient to swing the debate either way. The Kurds are said to find Allawi acceptable, if he were to prevail in this debate, although the Kurds are said to consider some of his parliamentary allies from the northern governorates (Hadba'a Gathering) as unacceptably hardline Sunni nationalists. The question of outright Kurdish independence is not an active source of friction between the Iraqi Kurds and the central government at this time, but it remains a concern of Iraq's neighbors that have Kurdish minorities. The top Kurdish leaders—possibly at odds with mainstream Kurdish opinion—have said that they would not push for outright independence. This is perhaps because doing so is likely to be vehemently opposed—possibly to the point of armed conflict—by Turkey, Iran, Syria, and Arab Iraq. However, there is concern among these outside parties that younger Kurds who will eventually lead the KRG might ultimately seek independence. The Iraqi Kurds' vocal and consistent insistence that Kirkuk/Tamim and some cities in Diyala and Nineveh provinces be integrated into the KRG is a primary source of tension with the Maliki government and with minorities in the north, particularly the Christians, Turkomens, and Yazidis. The Kirkuk issue is considered "existential" not only by the Kurds, but by Turkey, which fears that KRG integration of Kirkuk would propel a Kurdish drive for independence. Kirkuk sits on 10% of Iraq's overall oil reserves of about 112 billion barrels. Turkey also sees itself as protector of the Turkoman minority in Kirkuk and environs. At Kurdish insistence, the Iraqi constitution reaffirmed the process of resettling Kurds displaced from Kirkuk and stipulated the holding of a referendum (by December 31, 2007—"Article 140 process"), to determine whether its citizens want to formally join the KRG region. In 2008, the Kurds grudgingly accepted Bush Administration urgings to accede to a delay of the referendum in favor of a temporary compromise under which the U.N. Assistance Mission-Iraq (UNAMI) is analyzing, reporting on, and making recommendations on Kirkuk and on whether to integrate some Kurdish-inhabited cities in Diyala and Nineveh provinces into the KRG. The U.S. strategy has been to convince the Kurds that this gradual process might eventually gain the Kurds control of Kirkuk, and that belief, in and of itself, is perceived as ensuring that the tensions over the issue do not erupt into major violence. The major cities in Diyala and Ninveveh that UNAMI has been studying include Khanaqin, Sinjar, Makhmour, Akre, Hamdaniya, Tal Afar, Tilkaif, Mandali, and Shekhan. A June 2008 UNAMI report leaned toward the Kurds on some of these territories, but with keeping other territories, such as Hamdaniya and Mandali, as part of central government-controlled Iraq. Anticipating such a referendum, the Kurds—reportedly used their intelligence service the Asayesh —reportedly have been trying to strengthen their position in Kirkuk by pressuring the city's Arabs, both Sunni and Shiite, and Turkomans to leave. Under that Article, the referendum is also contingent on the completion of a census, which is to get under way in late October 2010. However, it is not clear that the census will trigger the Kirkuk referendum once the census is completed; the constitutional deadline of December 31, 2007 has expired. Still, in an apparent nod toward the Kurds, the Obama Administration released a statement on December 7, 2009 that, among other points, "reaffirms [U.S.] respect for the Iraqi constitution, including Article 140, which addresses the dispute over Kirkuk and other internal borders." Even though the referendum has not been held, UNAMI has been assessing possible methods to resolve the issue of the disputed territories. UNAMI circulated this report on April 22, 2009, recommending a form of joint Baghdad-KRG administration of Kirkuk. The major parties to the dispute say they will use the UNAMI report as a basis for negotiations, but it does not appear that the proposal has brought the disputed territories issue significantly closer to resolution. (The separate COR report was not issued on March 31, 2009, and the release date is not known.) Without resolution of this key issue, differences between the Kurds and the central government have only widened. Because Sunni Arabs fully participated in the January 31, 2009, provincial elections, the Kurdish influence in the two provinces of Nineveh and Diyala—the location of several disputed terrorities—was sharply reduced. In Nineveh province, the Kurds have lost control of the 37-seat provincial council and provincial administration to a Sunni Arab slate called Al Hadba'a, which campaigned on a platform of reducing Kurdish influence in the province and refusing to compromise on disputed territories located in Nineveh. Al Hadba'a won 19 out of the 37 seats of the provincial council, and one of its members, Atheel al-Nujaifi, is now governor of the province. Since the accession of Nujaifi, several clashes have nearly erupted as peshmerga have physically prevented Nujaifi and other provincial officials from entering Kurdish-inhabited parts of Nineveh province. The Kurds refuse to recognize Nujaifi's authority in Kurdish-inhabited areas of the province. In Diyala Province, which is also mixed, the Kurdistan Alliance fared better than it did in Nineveh. It came in third, but with only six seats out of the 29 on the provincial council there. The mainstream Sunni Arab bloc called the Accord Front ("Tawafuq"), took the first position with nine seats. The Accord Front is now running that province in alliance with the Kurds and the mainstream Shiite party Islamic Supreme Council of Iraq (ISCI). The Kurds' subordinate position in the Diyala provincial administration weakens their ability to assert political control over Kurdish-inhabited towns in the province, such as Khanaqin. The tensions over Kirkuk contributed to delays in several election laws needed to hold elections, including the January 31, 2009, provincial elections, and the law needed for the March 7, 2010, election. In both cases, Kurdish leaders directly held up the needed laws as part of the broader dispute with the Iraqi Arabs and the central government over Kirkuk and other issues. President Talabani vetoed a July 22, 2008, COR-passed election law (needed for the provincial elections), on the grounds that it provided for, as an interim arrangement pending Kirkuk provincial elections, an equal division of power in the Kirkuk provincial administration and council (among Kurds, Arabs, and Turkomans). A compromise was later found and the elections were held. In the long debate over the election law needed for the upcoming national elections, Kurdish leaders threatened to boycott the elections unless the law was drafted in a way to accommodate Kurdish views on the voter eligibility pool. In the latter case, the Kurds did obtain some major concessions, for example by agreeing to use the 2009 version of a food rationing list, not a 2005 version, to determine voter eligibility. The 2009 version presumably contains more eligible Kurds, because Kurds have moved back to northern Iraq as time has elapsed since the fall of Saddam Hussein. With this compromise, the election law was passed November 8, 2009, and the elections were held on March 7, 2010. Despite the Kurd-Arab tensions in the north, clashes between the pe shmerga and the Iraqi Security Forces (ISF) were defused with the help of the U.S. military and U.S. diplomats in Baghdad. However, the then overall commander of U.S. forces in Iraq, Gen. Raymond Odierno, became sufficiently concerned about the tensions that in August 2009, he unveiled a plan to build confidence between the security forces of the two sides. Under the plan, additional U.S. military personnel deployed to the north to partner with peshmerga and ISF units in patrols that built confidence between the Kurdish and central government forces. Under the plan, 15 joint checkpoints were set up along the Kurd-Arab frontier, primarily in Nineveh and Diyala provinces Agreement was reached for the three sides to share intelligence, to coordinate command and control. Another part of the plan is that the peshmerga who join the patrols are given training by the United States at a military base in Kirkuk. However, some raise questions as to what would replace this effort as U.S. troops in Iraq were reduced to 50,000 by August 31, 2010, and then reduce further in the run-up to the December 31, 2011, final U.S. withdrawal date. In concert with the end of Operation Iraqi Freedom and the start of the supporting role of Operation New Dawn on September 1, 2010, U.S. troops already have left four of the fifteen checkpoints. The remainder are to be vacated by U.S. forces by December 2011, unless the U.S.-Iraq Security Agreement is renegotiated to permit a number of U.S. troops to continue this mission beyond December 2011. Gen. Odierno publicly floated the idea of a U.N. force to take over the neutral partner role from the United States, although that suggestion has not appeared to resonate widely. At the same time, Iraqi minorities in northern Iraq are increasingly fearful of their status as tensions increase between Baghdad and the Kurds. These minorities, as well as Arabs in the north, fear that the Kurds are trying to push them out of the area in order to monopolize power in the north and gain control of the disputed territories. A provision was stripped out of the July 2008 provincial elections law that would have allotted 13 reserved provincial council seats (spanning six provinces, including Baghdad)—out of 440 seats to be voted on nationwide—for Christians, Yazidis, Sabeans, and the Shabek minority. Subsequent to the passage of that election law, Christians in Mosul protested the law and began to be subjected to assassinations and other attacks by unknown sources, possibly Al Qaeda in Iraq. About 1,000 Christian families that reportedly fled the province in October 2008 apparently have returned—although they remain fearful and wary. Some minorities are upset that the election law adopted in November 2009 for the March 7, 2010, election only allots seven total reserved seats for minority candidates. Some Christians are calling for the formation of a "Nineveh Plains Protection Force," although many Iraqis appear to oppose that idea as forming another potential militia force that might clash with other armed forces. Control over oil revenues and new exploration is another hotly debated issue. At the very least, the Kurds want to ensure they receive their share of revenues from energy production in the KRG region and to manage new energy investment. Some suspect that the Kurds want to control their own oil reserves in order to ensure they have the economic resources to support a future drive for outright independence. On the other hand, according to energy observers, the Kurds are dependent on the central government to be able to exploit their energy resources because oil exports need to flow through the national oil pipeline grid. Iraq's cabinet approved a draft version of a national hydrocarbon framework law in February 2007, but Kurdish officials withdrew support from a revised version passed by the Iraqi cabinet in July 2007 on the grounds that it would centralize control over oil development and administration. In June 2008, Baghdad and the KRG formed a panel to try to achieve compromise on the national framework oil law, and the U.S. Embassy stated in August 2008 that an agreement might be near on a revenue-sharing law. An earlier draft of that law would empower the federal government to collect oil and gas revenue, and reserve 17% of oil revenues for the KRG. However, U.S. officials now appear to have concluded that the various sides are so far apart that a national package of oil laws is unlikely. Despite the lack of comprehensive agreement, the KRG has moved forward in developing its energy sector. The KRG has signed numerous development deals with foreign firms under its own oil law adopted in August 2007, even though Iraq's Oil Minister, Hussein Shahristani, has called these deals "illegal." Deals so far are with Genel (Turkey), Hunt Oil (United States), Dana Gas (UAE), BP (Britain), DNO Asa (Norway), OMV (Austria), SK (South Korea), Talisman (Canada), Addax (Switzerland) and several others. The Hunt Oil deal attracted controversy because of the firm's leaders' ties to Bush Administration officials and the perception that it contradicted the U.S. commitment to the primacy of the central government. It is not clear whether the Bush Administration tacitly blessed the Hunt deal. In December 2008, Baghdad agreed to link two northern oil fields (in KRG territory) to Iraq's main oil export pipeline that lets out in Turkey. Further progress came in May 2009 when the KRG and Baghdad agreed to allow the KRG to begin exporting oil from its Taq Taq field (40,000 barrels per day initially, but likely to rise to 250,000 barrels per day by 2010) through the national oil grid. Under the agreement, the KRG receives 17% of the revenue earned from the exportation—the same revenue-sharing formula now used for allocated national revenues. Observers believe that Baghdad agreed to this exportation now in order to earn extra revenues to compensate for the dramatic fall in oil prices since July 2008. However, exports from the Kurdish region were suspended in October 2009 because of a lack of an established mechanism to pay, and audit payments, to the energy firms producing the oil in the KRG region. The energy firms were not being paid by Baghdad. A tentative deal to clear up these disagreements was reached in May 2010 but not implemented. Most oil exports through the national grid from the KRG area remain suspended. Some believe the issue might be resolved when there is a new government, particularly if Oil Minister Shahristani, considered a hardliner against KRG control of oil resources, is replaced. The signing of energy deals between the KRG and foreign energy firms raises questions about how the KRG's resources are used. Observers from the region say that many Kurds resent the high degree of control of the KRG regional economy exercised by the two main Kurdish factions. According to these observers, the Barzani clan and Talabani clan, which control the KDP and PUK, respectively, have used their political positions to benefit financially, in turn using their financial clout to solidify political support. Some Kurds believe there is little opportunity for independent or smaller Kurdish families to profit from entrepreneurship, because business and economics are heavily dominated by the Barzanis and the Talabanis. Such allegations appeared to be at the heart of the unexpectedly strong showing of Gorran in the July 25, 2009, KRG elections. Although Turkey has become substantially less concerned about Iraqi Kurdish autonomy over the past few years, Turkey closely watches and acts against the presence of the Turkish Kurdish opposition Kurdistan Workers' Party (PKK) in KRG-controlled territory. The accusation has been leveled particularly at the KDP, whose strongholds border Turkey. The PKK—increasingly known by its alias Kongra Gel (KGK)—is named a foreign terrorist organization (FTO) by the United States (under the Immigration and Naturalization Act). In the mid-1990s, Iraqi Kurds fought the PKK, but many Iraqi Kurds support the Turkish Kurdish struggle against Turkey. In June 2007, Turkey moved forces to the border after Barzani warned that Iraq's Kurds could conduct attacks in Turkey's Kurdish cities. On October 17, 2007, the Turkish government obtained parliamentary approval for a major incursion into northern Iraq, causing stepped-up U.S. diplomacy to head off that threat. U.S. officials reportedly set up a center in Ankara to share intelligence with Turkey on PKK locations, contributing to Turkey's apparent decision to limit its intervention to air strikes and brief incursions. The northern Iraq border has been relatively quiet since 2008, with few reported Turkish military incursions or other clashes with the PKK. A special envoy from Turkey and Masoud Barzani held talks on the issue in Baghdad in mid-October 2008—the first direct talks in four years. Further progress in reducing Iraqi Kurd-Turkish tensions was made during a visit to Baghdad by Turkey's President Abdullah Gul on March 23, 2009. He met during that visit not only with Talabani but also with then KRG Prime Minister Nechirvan Barzani. This marked the first time a Turkish leader had met a KRG official. The expanding diplomatic contacts coincide with the emergence of Turkey as the largest investor in the KRG region, in virtually all aspects of the KRG economy. The presence of another Kurdish militant group in KRG territory is also of growing concern not only to Turkey but to Iran as well. Iran and Turkey are aligned in criticizing Iraq's failure to curb the Party for a Free Life in Kurdistan (PJAK), an Iranian Kurdish splinter group of the PKK. PJAK has been staging incursions into Iran, according to U.S. officials. On February 4, 2009, the Treasury Department named PJAK a terrorism-supporting entity under Executive Order 13224—which freezes any U.S. assets of the group—on the grounds that the PKK controls PJAK, selected its leader (Hajji Ahmad), and appointed its 40-person central committee. Iran blamed PJAK for a late September 2010 bomb at a military parade in Mahabad (a Kurdish-inhabited area of Iran). Secretary of State Clinton condemned the bombing in a statement, and PJAK itself denied involvement and condemned the attack. Iran claimed it crossed the border with Iraq to attack PJAK fighters in retaliation, but anti-Iranian Kurdish observers in Iraq said they were not aware of any Iranian incursion.
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The Kurdish-inhabited region of northern Iraq has been relatively peaceful and prosperous since the fall of Saddam Hussein. However, the Iraqi Kurds' political autonomy, and territorial and economic demands, have caused friction with Prime Minister Nuri al-Maliki and other Arab leaders of Iraq, and with Christian and other minorities in the north. As the United States transitions to a support role in Iraq, these tensions are assessed by U.S. commanders as having the potential to erode the security gains that have taken place in Iraq since 2007. Some U.S. officials want to establish clear policies and provisions to contain these frictions in advance of the expected completion of the U.S. military departure from Iraq at the end of 2011. Turkey and Iran were skeptical about Kurdish autonomy in Iraq but have reconciled themselves to this reality and have emerged as major investors in the Kurdish region of Iraq. The major territorial, financial, and political issues between the Kurds and the central government do not appear close to resolution. Tensions increased after Kurdish representation in two key mixed provinces was reduced by the January 31, 2009, provincial elections. The disputes nearly erupted into all-out violence between Kurdish militias and central government forces in mid-2009, and the Kurds continue not to recognize the authority of the Sunni Arab governor of Nineveh Province in Kurdish-inhabited areas of the province. The low-level clashes in 2009 caused the U.S. military to propose new U.S. deployments designed to build confidence between Kurdish and government forces; joint U.S.-Iraqi-Kurdish militia patrols began in January 2010. The Kurds also perceive that their role as "kingmakers" in Iraq's central government - their ability to throw their parliamentary votes toward one side or another – was reduced by the March 7, 2010 elections which saw the seats held by the major Kurdish factions lowered from previous levels. The Kurds' political clout in Baghdad is further reduced by the political ferment in the Kurdish region itself. The Kurdish region voted for president and for members of the Kurdistan National Assembly on July 25, 2009. The results, in which an opposition list won almost 25% of the vote, have threatened the previously iron grip on the politics and economy of the region exercised by the two main factions—the Kurdistan Democratic Party and the Patriotic Union of Kurdistan. The two main factions competed as a joint list in the March 7, 2010, national elections for the next full-term government. However, the Kurdish opposition competed separately and won several seats on its own—parliamentary votes which the opposition might not necessarily place at the disposal of the mainstream Kurdish leaders for the purpose of bargaining with Iraq's Arabs. For more on Iraq, see CRS Report RL31339, Iraq: Post-Saddam Governance and Security, by [author name scrubbed].
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Congress has adopted several significant changes in the federal law concerning the disclosure of lobbying activities by professional lobbyists, and in internal congressional rules with respect to the acceptance of gifts and travel by Members of Congress and staff from certain outside private interests, such as lobbyists and their clients. Amendments to the Lobbying Disclosure Act of 1995, and to internal House and Senate rules, were made in S. 1 , passed by the House on July 31, 2007, and by the Senate on August 2, 2007, and signed into law, P.L. 110-81 , on September 14, 2007. Additionally, changes to the internal rules of the House were made previously by H.Res. 6 , 110 th Congress, adopted by the House on January 4, 2007. The intent of the statutory amendments and the internal congressional rules changes was to address the concerns over allegations and appearances of improper or undue influence of special private interests, and their hired lobbyists, over high-ranking government officials and decision makers. Over the last few years several instances of individual Members of Congress and of certain high-ranking officials in the President's Administration incurring ethics problems and/or being involved in federal or state corruption investigations and prosecutions have been widely reported in the press and have garnered significant national publicity. The unfolding of an extensive "lobbying and gifts" scandal concerning convicted lobbyists and their provision of privately funded travel, free meals, and entertainment to Members, congressional staff, and certain executive branch officials, has been a continuing major news story focusing public and congressional attention on questions of lobbying reform, gift rules, and transparency in congressional and other governmental operations. The subject of "ethics" and "corruption" in government may arguably have been the single most significant issue for voters in the 2006 congressional elections, with national exit polls showing that the issue of "corruption" was "extremely important" to 42% of the voters, greater even than "terrorism" (40%), the "economy" (39%), or "Iraq" (37%). The task facing the 110 th Congress was to enact legislation to help restore the confidence of the general public in the fairness and equity of the democratic processes in government, and in the integrity of the institution of the Congress and its Members. Any legislative "solutions" needed to take into consideration, however, the constitutional guarantees of freedom of speech, association, and the right to petition the government for all citizens, including those who are or who hire "lobbyists" to represent those interests, as well as the realities of representational self-government to prevent isolating or insulating Members of Congress from interactions with persons, groups, and parties representing varied public and private interests and concerns. Additionally, in the U.S. system of government and elections, campaigns for public office are privately financed, and any reforms enacted had to recognize the necessity and reality of having to raise large sums of campaign funds from private citizens by any Member of Congress or other candidate seeking to run a viable campaign for federal office. The statute and rule changes which have been adopted address five general areas of reform: (1) broader and more detailed disclosures of lobbying activities by paid lobbyists, and more disclosures concerning the intersection of the activities of professional lobbyists and government policy makers; (2) more extensive restrictions on the offering and receipt of gifts for Members of Congress and their staff, including gifts of transportation and travel expenses; (3) new restrictions addressing the so-called "revolving door," that is, post-government-employment "lobbying" activities by former high level government officials on behalf of private interests; (4) reform of the pension provisions with regard to Members of Congress found guilty of abusing the public trust; and (5) greater transparency in the internal legislative process in the House and Senate, including "earmark" disclosures and accountability. The activity of citizens joining together in an effort to influence policy makers and decision makers in the federal government, including hiring persons to represent such interests before the government and the public, involves expression and conduct protected by the First Amendment's guarantees of freedom of speech, association, and petition. Any "regulation" of lobbying activities must therefore not overly or unduly interfere with such protected advocacy rights and activities. In the area of "lobbying" activities by paid, professional lobbyists, the "regulation" of such activity at the federal level has thus involved merely disclosure, reporting, and publicity, as opposed to prohibitions, limitations, or restrictions on such conduct. The Lobbying Disclosure Act of 1995 [LDA], which replaced an earlier 1946 law governing lobbying disclosures, is directed at so-called "professional lobbyists," that is, those who are compensated to engage in certain lobbying activities on behalf of a client or an employer. In addition to covering only those who are paid to lobby, the initial "triggering" provisions of the law cover only lobbying activities which may be described as "direct" contacts and communications with covered officials. The law's registration requirements are not separately triggered by "grass roots" lobbying activities. That is, an organization which engages only in "grass roots" lobbying, regardless of the extent of "grass roots" lobbying activities, is not required to register its members, officers, or employees who engage in such activities, and does not need to report or disclose its activities or expenses under the LDA. The provisions of S. 1 , 110 th Congress ( P.L. 110-81 ) expand the information that must be provided by those who qualify as professional lobbyists under the existing provisions of the LDA of 1995 (either as an outside lobbyist who must register and list his/her clients, or as an "in-house" lobbyist who is an employee engaging in a certain amount of lobbying on behalf of his/her employer). S. 1 does not expand or amend the definition of "lobbyist," or require additional persons to register and report as "lobbyists" under the LDA of 1995, as amended. The provisions of P.L. 110-81 ( S. 1 , 110 th Congress) regarding disclosures by professional lobbyists are summarized as follows: Quarterly Reports . Registered lobbyists will now be required to file quarterly, instead of semi-annual, reports 20 days after the quarterly periods beginning on the 1 st of January, April, July, and October. (Section 201(a), amending 2 U.S.C. § 1604(a)). Conforming " Threshold " Amounts. The threshold amounts of time and expenditures (or income received) relevant to "lobbying contacts" and lobbying activities to determine if one qualifies as a "lobbyist" under the LDA are amended (generally halved) to conform to the new quarterly, as opposed to the former semi-annual, reporting periods. (Section 201(b)(5), (6), amending 2 U.S.C. §§ 1603(a)(3)(A)(i) and (ii), 1603(b)(3)(A) and 1603(b)(4), and 2 U.S.C. § 1604(c)(1) and (2)). Identifying State or Local Governmental Clients. In lobbying reports, lobbyists must now specify if a client is a state or local government, department, agency, district, or other instrumentality. (Section 202, amending 2 U.S.C. § 1604(b)). Semi-Annual Reports of New and Additional Information and Activities. Requires semi-annual reporting of new and additional information by registrants of political committees âthe names of all political committees established or controlled by the lobbyist or registered organization campaign contributions âthe name of each federal candidate or officeholder, leadership PAC, or political party committee to which contributions of more than $200 were made in the semi-annual period payments for events or to entities connected with government officials âthe date, recipient, and the amount of funds disbursed (i) to pay the costs of an event to honor or recognize a covered government official; (ii) to an entity that is named for a covered legislative branch official, or to a person or entity "in recognition" of such official; (iii) to an entity established, maintained, or controlled by a covered government official, or an entity designated by such official; (iv) to pay the costs of a meeting, conference, or other similar event held by or in the name of one or more covered government officials, unless the events, expenses or payments are in a campaign context such that the funds provided are to a person required to report their receipt under the Federal Election Campaign Act (2 U.S.C. § 434) payments to presidential libraries or for inaugurations âthe name of each presidential library foundation and each presidential inaugural committee to whom contributions of $200 or more were made in the semi-annual reporting period certifications concerning House and Senate gift rulesâ provide a certification that the person or organization filing (i) "has read and is familiar with" the rules of the House and Senate regarding gifts and travel, and (ii) had not provided, requested or directed that a gift or travel be offered to a Member or employee of Congress "with knowledge that the receipt of the gift would violate" the respective House or Senate rule on gifts and travel. (Section 203, amending and adding to 2 U.S.C. § 1604(d)) Bundling Disclosure. Amends the Federal Election Campaign Act to require all reporting campaign committees (and every federal "candidate" is required to have a campaign committee) to list a separate schedule setting forth the name, address, and employer of each person "reasonably known" to the committee to be a registered lobbyist, a registered organization (for whom one or more employees act as a lobbyist), or any employee of such a lobbyist or organization who lobbies, if such person has provided two or more "bundled" campaign contributions aggregating more than $15,000 during any semi-annual reporting period (not counting that individual's or the individual's spouse's contributions). This information will be publicly available on the FEC website, and linked electronically to the lobbying websites maintained by the Clerk of the House and the Secretary of the Senate. "Bundled" campaign contributions are those that are either forwarded by, or credited in some manner to, the registered lobbyist or employee/lobbyist. (Section 204, amending 2 U.S.C. § 434). Electronic Filing. Requires the reports to be filed by registrants to be filed in electronic form to the Clerk of the House and Secretary of the Senate, and requires those offices to use the same software for receipt and recording of the filings under the LDA. (Section 205, amending 2 U.S.C. § 1604 by adding subparagraph (e)). Offering Gifts or Travel to Members or Employees of Congress. Places an express prohibition in the federal lobbying law on any registered lobbyist, organization that employs one or more lobbyists and is registered, and any employee required to be listed as a lobbyist by a registrant, from making a gift to a Member or staffer of Congress if the person has knowledge that the gift or travel offered may not be accepted under the respective, applicable rules of the House or Senate. (Section 206, amending 2 U.S.C. § 1601). Coalition Lobbying Disclosures. In addition to the disclosure of the client-"coalition" in lobbying registrations, the lobbyist-registrant for a coalition must also identify the name of any organization in the coalition which contributes at least $5,000 in a reporting quarter and actively participates in the planning, supervision, or control of such lobbying activities. If the organization is listed in the coalition's website as a member, then that organization need not also be listed in the lobbying registration (as long as the website is disclosed by the registrant), unless that organization "in whole or in part" plans, supervises, or controls the coalition's lobbying activities, and then such organization must be listed in the registration. (Section 207, amending 2 U.S.C. § 1603(b)(3)). Disclosure of Past Government Employment. A registrant-lobbyist must disclose if that person served as a covered executive branch or legislative branch official within the past 20 years. (Section 208, amending 2 U.S.C. § 1603(b)(6)). Availability of Lobbying Information. The Clerk of the House and Secretary of the Senate, to whom lobbying registrations and reports must be filed, are required to make publicly available for free over the Internet in a searchable, sortable, and downloadable manner, the information required in the lobbying registrations and reports; to link this information to Federal Election Commission databases; and to retain all records for six years. (Section 209; amending 2 U.S.C. § 1605). Disclosure of Non-Compliance Actions. The Clerk of the House and Secretary of the Senate are required to publicly disclose twice a year the aggregate number of referrals made to the U.S. Attorney for the District of Columbia for non-compliance with the provisions of the Lobbying Disclosure Act. The Attorney General is then required to report to the appropriate House and Senate Committees on the aggregate number of enforcement actions taken by the Department of Justice during the semi-annual period, and any sentences imposed, but need not disclose information on the identity of individuals not already a matter of public record. (Section 210; amending 2 U.S.C. § 605). Increased Civil and Criminal Penalties. The penalty for knowing failure to remedy a defective filing after being notified by the Clerk of the House or Secretary of the Senate, or other knowing failure to comply with a provision of the Lobbying Disclosure Act, has been increased to a civil penalty of up to $200,000. A specific criminal penalty has been added to the LDA for knowing and corrupt failure to comply with the act of imprisonment of up to five years and a fine in accordance with code. (Section 211, amending 2 U.S.C. § 1606). Electronic Filing and Database for Foreign Agents. Agents of foreign principals who are required to register and file under the Foreign Agents Registration Act are now required to file in electronic form with the Attorney General, and the Attorney General is required to make publicly available for free over the Internet in a searchable, sortable, and downloadable manner, the information required in the registrations and reports. (Section 212, amending 22 U.S.C. §§ 612, 616). Annual Audit by Comptroller General. The Comptroller General of the United States is required to audit on an annual basis compliance with the lobbying disclosure laws through random sampling of registrations and reports, and to report to Congress an assessment of compliance and any recommendations for improvement in the disclosure system. (Section 213, adding section 26 to the LDA of 1995). The provisions of S. 1 , 110 th Congress ( P.L. 110-81 ) incorporated changes to the internal rules of both the Senate and the House. These changes were made pursuant to the express rule-making authority of the House and Senate under Article I, Section 5, clause 2, of the Constitution; and thus even though these rule provisions were enacted in a public law, they may be changed or modified by each House separately by way of a simple resolution (without the concurrence of the other body or the signature of the President). The provisions in S. 1 regarding the Senate rules on gifts are similar in many aspects to the internal changes made to the rules of the House in H.Res. 6 , in January of 2007. The new rules of both the House and Senate now work to restrict under-$50 gifts from lobbyists, foreign agents, and their private clients, which had been permitted under the former rules; change the manner in which tickets or passes to "luxury boxes" at sporting and entertainment events are valued for gift purposes; and substantially restrict quasi-officialâ"officially connected"âtravel of Members and staff being paid for, arranged, or participated in by a registered lobbyist, a foreign agent, or their clients, with certain exceptions for educational institutions (House) or other qualifying charitable institutions (Senate), and for certain short-term conferences and events. Concerning such "officially connected" travel, one significant change which is intended to increase oversight and enforcement of the restrictions in the rules is that Members and staff must now receive advance approval from the appropriate ethics committee when such travel is to be paid for by any outside, private source. Prior to the current rules changes, receipt of expenses or payment for such travel from lobbyists, or travel which substantially involved "recreational" activities such as golfing, or water sports, or tennis, were already prohibited by the express provisions of both House and Senate rules, and legitimate questions of enforcement and oversight of those rules had been raised. Under the new rules, however, before receiving such approval for "officially connected" travel, a Member or staff employee must now certify to the appropriate ethics committee that the trip conforms to the requirements and strictures of the new regulations including the limitation on a lobbyist's involvement and participation in the trip, and assuring that the source of funds does not come from lobbyists, or (except in very limited circumstances) their clients. Additionally, registered lobbyists who must file periodic reports on expenditures under the Lobbying Disclosure Act of 1995, as amended, must now also certify that they have not offered gifts, including travel, to Members of Congress or staff that would violate the provisions of House or Senate rules. Like any certification to an agency or department of the federal government, such statement, if intentionally false or fraudulent, could be subject to the criminal penalties for false statements and fraud, at 18 U.S.C. § 1001. Changes have also been made in internal congressional rules that require a Senator or Senate staffer to reimburse for the use of a non-commercial aircraft at the higher charter or rental rate (as opposed to a commercial, first class rate), while the House has generally banned its Members and staff from accepting any flights on such private aircraft. Internal congressional rules will also now restrict official staff contact with the spouse of a Member who is a registered lobbyist and, in the Senate, also with the immediate family of their employing Senator. The internal congressional rule changes made by S. 1 (and the corresponding and similar changes made earlier for the House in H.Res. 6 ) are as follows: No Under-$50 De Minimis Gifts From Lobbyists. Amends Senate rules to eliminate the exception to the gifts restriction for (and thus prohibits) gifts of under $50 if the gift is from a registered lobbyist, a foreign agent, or a private entity that employs a registered lobbyist or a foreign agent. ( S. 1 , Section 541, amending Senate Rule XXXV, para. 1(a)(2)). Similar changes to House rules were adopted in H.Res. 6 , 110 th Congress, so that the under-$50 exception no longer applies to (and thus works to prohibit) even such de minimis gifts to House Members and staff from registered lobbyists, foreign agents, or their private clients. National Party Convention Events. A Member of the Senate or the House may not participate in an event to honor the Member during the course of the national party convention of his or her political party (other than in the capacity of the party's nominee for President or Vice President), if the event is paid for by a registered lobbyist or a private client that retains or employs a registered lobbyist. ( S. 1 , Section 542, amending Senate Rule XXXV, para. 1(d), and S. 1 Section 305, amending House Rule XXV(8)). Valuation of Tickets to Entertainment or Sporting Events. When a Senator or a staff employee is allowed to accept an under-$50 de minimis gift from an outside source, and the gift is in the form of a ticket or pass to a sporting event or an entertainment venue, then the "value" of the ticket is its face value, or if it has no face value (such as a pass to a luxury box or suite), then the value of the ticket with the highest face value for the event will be used (unless equivalency to another ticket with a face value can be established by the ticket holder). ( S. 1 , Section 543, amending Senate Rule XXXV, para. 1(c)(1)). Similarly, under the new rules adopted earlier by the House, the "value" of such a ticket or pass will be the actual "face value" printed on the ticket, or when there is no face value on the ticket, then the value of such pass or ticket will be the highest face-value price of a ticket to the same event. ( H.Res. 6 , amending House Rule XXV, clause 5(a)(1)(B)(ii)). Officially Connected Travel. One of the ongoing exceptions to the general prohibition in congressional rules on the receipt of gifts from private sources has been the permissibility of accepting from certain outside sources reimbursement or payment of expenses for travel by a Member or staffer when that travel is in connection with one's official duties, when the travel is not for recreational purposes, when the travel is limited in duration, and when the travel is not paid for by a lobbyist. In light of allegations and findings of abuses of this exception for ostensibly officially connected travel, whereby certain Members and staff would allegedly engage in substantially recreational travel with lobbyists, the internal congressional rules in the House and the Senate have been amended and tightened. Senate:(1) Donor of Travel Expenses or Payments . In addition to prohibiting a registered lobbyist from paying for a Member's or staffer's expenses for "officially connected" travel, the new provisions narrow the permissible acceptance of expenses by prohibiting the receipt of such expenses if provided not only by registered lobbyists or foreign agents, but also by their clients, that is, "a private organization retaining one or more lobbyists or foreign agents," except that a charitable (501(c)(3)) organization may provide such expenses if approved by the Ethics Committee. ( S. 1 , Section 544, amending Senate Rule XXXV, para. 2(a)(1) and 2(a)(2)(A)(ii)). (2) Further Restrictions on Lobbyist Participation. In addition to the restriction on lobbyists paying for such travel, the new provisions bar the receipt of expenses if the trip was "planned, organized, or arranged by or at the request of a lobbyist," or when the lobbyist accompanies the Member on "any segment" of an otherwise permissible one-day event, or if a lobbyist accompanies the Member "at any point" of any other trip. ( S. 1 , Section 544, new Senate Rule XXXV, paragraph 2(d)). (3) Duration of Travel. "Officially connected" travel, when permitted, may be for three days for domestic travel and seven days for foreign travel, not counting travel days (newly numbered Rule XXXV, paragraph 2(f)), unless the expenses are provided by a private organization (including a non-approved charitable organization) which retains at least one lobbyist or foreign agent, and then trip may be for a one-day event only (including one overnight). ( S. 1 , Section 544, adding Rule XXXV, paragraph 2(a)(2)(A)(i)). The Senate Select Committee on Ethics may approve two overnights for extended-distance travel. ( S. 1 , Section 544, adding to Rule XXXV, paragraph 2(a)(2)(B)). (4) Prior Certification and Approval. Employees of the Senate have to receive advance approval for officially connected travel from their employing Member and, additionally, all Members and employees must provide a "certification" of conformance of the proposed trip with the restrictions and requirements of Senate rules, and must receive advanced approval from the Senate Ethics Committee. ( S. 1 , Section 544, amending Rule XXXV, paragraph 2(b) and adding new paragraph 2(e)). (5) Post-Travel Reporting . Within 30 days after the completion of any officially connected travel, the Member or staff employee must make disclosures of good faith estimates of expenses received, disclose a copy of the certification now required, and must also now include a "description of meetings and events attended." ( S. 1 , Sec. 544, amending Senate Rule XXXV, paragraph 2(c)). (6) Ethics Committee Guidelines on " Reasonable Expenses. " Under congressional rules when expenses for officially connected travel are allowed to be accepted, such expenses must be "necessary" and "reasonable." There are currently no specific guidelines or valuations for what "reasonable" expenses are in relation to any specific journey. The Ethics Committee is instructed to develop guidelines on the reasonableness of travel expenses. House of Representatives: The House adopted rules substantially similar to those changes made to the Senate rules by S. 1 for "officially connected" travel, in H.Res. 6 , on January 4, 2007. The principal difference is that instead of allowing "officially connected" travel to be compensated by any "charitable organization," even if it employs lobbyists, as in the Senate, the House rules more narrowly allow such travel to be compensated by an "institution of higher education," even if such institution retains or employs lobbyists. The duration of permissible trips in the House is four days for domestic and seven days for foreign travel. Additionally, reporting and disclosures at the conclusion of a trip must be made by Members and staff in the House 15 days after the completion of the trip, as opposed to 30 days in the Senate. Non-Commercial Air Travel. Reimbursement by Members of Congress and staffers had to generally be provided for flights on private, non-commercial aircraft (such as "corporate jets") so that such flights would not constitute prohibited "gifts" from private sources, prohibited contributions to an "unofficial office account," or illegal campaign contributions (2 U.S.C. §§ 441a, 441b, 441c)). No specific reimbursement amount had been provided in Senate or House rules, and such flights were generally reimbursed at a 1 st class commercial rate. In the Senate, under the new rules, "fair market value" for reimbursement for flights on such private, non-commercial airline flights is to be the pro rata share of the normal charter fare or rental charge for similar aircraft, instead of commercial fare. The higher reimbursement provision will not apply to aircraft owned or leased by a Member or the Member's immediate family. ( S. 1 , Section 544, adding Senate Rule XXXV, paragraph 1(c)(1)(C)(i)-(iii)). The House, however, has substantially banned a Member or employee of the House from taking trips on private, non-commercial aircraft, by prohibiting the reimbursement or payment of such trips with any funds, unless the aircraft is owned or leased by the Member personally, or by a family member. ( H.Res. 6 , as modified by H.Res. 363 , 110 th Congress). Constituent Events. In the Senate, the new Senate rules expressly permit a Member or employee to accept an offer of "free attendance" in the Member's home state at a "constituent event," which is an event sponsored by constituents, or a group mainly of constituents, and attended by at least five of the Member's constituents, when the Member or staffer participates in the event as a speaker or panel participant and when a "lobbyist" will not be in attendance. "Free attendance" may include an "accompanying individual" where appropriate, and includes event fees, local transportation only, meals (if under $50), refreshments, entertainment, and instructional materials furnished to all attendees as an integral part of the event. ( S. 1 , Section 545, adding to Senate Rule XXXV, paragraphs 1(c)(24) and 1(g)). Public Information on Travel and Disclosure. In the Senate, the Secretary of the Senate is instructed to create a searchable, free website to post the travel information that must be disclosed concerning "officially connected" travel. ( S. 1 , Section 546). In the House, the Clerk of the House is instructed to establish a free, searchable website that contains the information, certifications, and disclosures relating to "officially connected" travel, and the personal financial disclosure reports that are required to be made under the Ethics in Government Act of 1978 by Members. ( S. 1 , Section 304). Official Contact With Member ' s Spouse or Family Who Are Lobbyists. In the Senate, the Senate rules will now require that a Senator prohibit all staff from having any official direct "lobbying contact" with the Member's spouse or Member's immediate family if such spouse or family member is a registered lobbyist, or is employed or retained by a registered lobbyist or an entity retaining lobbyists. ( S. 1 , Section 552, adding Senate Rule XXXVII, para. 11(a)). All staff employees are further prohibited from having any official "lobbying contact" with a spouse of any Member of the Senate who is a registered lobbyist, or is employed or retained by a registered lobbyist, unless the spouse was serving as a registered lobbyist at least one year prior to the most recent election of that Member or at least one year prior to his or her marriage to that Member. ( S. 1 , Section 552, adding Senate Rule XXXVII, paragraphs 11(b) and (c)). In the House, a Member must instruct his or her staff (including personal, committee, or leadership offices) not to have official, direct "lobbying contacts" with that Member's spouse if the spouse is a lobbyist under the LDA of 1995 or is employed or retained by a lobbyist to influence legislation. ( S. 1 , Section 302, adding Rule XXV, cl. 7). Contractors and Members of their Firms Lobbying the House. The House rules (Rule XXIII, cl. (18)(b), as re-numbered by H.Res. 6 and S. 1 )) provide that contractors to the House are not permitted to lobby the contracting committee or Members or staff of that committee. The changes in S. 1 now provide that members and employees of the firm or business of which the contractor is a member are also prohibited from lobbying the contracting committee or Members or staff of that committee. ( S. 1 , Section 303, amending House Rule XXIII, cl.18(b)). Ethics Training. In the Senate, S. 1 requires Senators and staff to complete an ethics training given by the Senate Select Committee on Ethics within 60 days of commencement of service, or if currently serving, within 165 days after the enactment of S. 1 . ( S. 1 , Section 553). In the House, H.Res. 6 has amended the rules of the House to require the House Committee on Standards of Official Conduct to "offer" ethics training on a yearly basis to Members of the House and staff. Only staff employees, however, and not House Members, are required to take such ethics briefings and training. ( H.Res. 6 , Section 211, adding House Rule XI, cl. 3(a)(6)(A) and (B)). Financial Interests in " Earmarks. " The ethics rules in the Senate and the House have been amended to provide an express standard prohibiting Members of Congress from introducing, and Members and staff from working towards the passage of, an "earmark" in which they have a particular financial interest. In the Senate, current Senate rules, at Rule XXXVII, para. 4, prohibit a Senator or staffer from using his or her "official position to introduce or aid the progress or passage of legislation, a principal purpose of which is to further only his pecuniary interest, only the pecuniary interest of his immediate family, or only the pecuniary interest of a limited class of persons or enterprises, when he, or his immediate family, or enterprises controlled by them, are members of the affected class." S. 1 will now apply this restriction expressly to "earmarks," that is, "congressionally directed spending items, limited tax benefits, or limited tariff benefits." ( S. 1 , Section 521, adding new Senate Rule XLIV, para. 9). In the House, the Code of Official Conduct within House rules was amended to prohibit certain "logrolling" with respect to "earmarks," that is, to prohibit the conditioning of the inclusion of an earmark "on any vote cast by another Member," ( H.Res. 6 , Section 404(b), adding new House Rule XXIII, cl.16), and by requiring a certification for any earmark request to the chairman and ranking minority member of the committee of jurisdiction including the name, recipient, and purpose of the earmark, and a statement that the Member "has no financial interest" in the earmark. ( H.Res. 6 , Section 404(b), adding new House Rule XXIII, cl.17). Current provisions of federal law, at 18 U.S.C. § 207, restrict certain high-level officers and employees of the federal government from engaging in particular representational activity on behalf of private parties before the government for a period of time after leaving federal service. Known commonly as "revolving door" provisions, these restrictions, in addition to prohibiting all "switching sides" on a narrow range of particular matters involving identified parties, put into place a more general, so-called "cooling off" period for one year, whereby top officials may not "lobby" or make communications with intent to influence someone in their former department or agency. In the case of "very senior" officials, such officials (including the Vice President and cabinet members) had been prohibited for one year from lobbying other high-level officials in the entire branch of government that they left. Members of Congress had been prohibited for one year after leaving service from lobbying anyone in their former House of Congress, and under S. 1 that one-year ban will be extended to two years for Senators, but the restriction will remain the same for House Members and employees. Under the provisions of S. 1 , the following changes were made regarding post-employment conflicts of interest: Senators and " Very Senior " Executive Officials. United States Senators and "very senior" officials in the executive branch (substantially, the Vice President, cabinet level officials, and certain top white House aides), will have the one-year "cooling off" period extended to two-years. ( S. 1 , Section 101, amending 18 U.S.C. § 207(d)(1) and 207(e)(1)). " Senior " Senate Staff. "Senior" Senate employees (those compensated for 60 days at a rate of 75% or more of a Member's salary) will now be prohibited for one year after leaving office from making communications, with intent to influence, to any Senator or officer or employee of the Senate ( S. 1 , Section 101, amending 18 U.S.C. § 207(e)(2)), as opposed to restricting such communications only to their former employing office. " Senior " Senate StaffâSenate Rule. Senate Rule XXXVII, para. 9, is amended to conform with the statutory restriction to prohibit "senior" Senate staff, for one year after leaving employment, from lobbying all Senators and Senate staff, if such former senior employee becomes a registered lobbyist or is employed by registered lobbyists or by organizations retaining registered lobbyists, to influence legislation. ( S. 1 , Section 531(b)). All Senate StaffâSenate Rule. Senate Rule XXXVII, para. 9, is amended to prohibit any Senate staff employee, for one-year after leaving employment, from lobbying the Member or committee for whom he or she worked, if the employee becomes a registered lobbyist or is employed by registered lobbyists or organizations retaining registered lobbyists , to influence legislation. ( S. 1 , Section 531(b)). Exception for Representing Indian Tribes . The exception to the post-employment laws for representing Indian Tribes (in the Indian Self-Determination Act) is narrowed to conform more closely to the current law exceptions for representing state and local governments, that is, when carrying out official duties as an employee or an elected or appointed official of the tribal organization, a former officer or employee of the United States may do so without regard to the prohibitions in 18 U.S.C. § 207. Notification. Members and employees of Congress who leave their offices and positions, and who are covered by the post-employment, "revolving door" law are to be notified of the beginning and ending dates of the prohibitions that apply. ( S. 1 , Section 103, and for Senate, see also Section 535). House Members. Members of the House are prohibited from having negotiations or agreements for future private employment until their successor is elected, unless the Member, within three business days after the commencement of these negotiations or agreement, files a statement disclosing the names of the entity or entities involved in such negotiations or agreements, and the dates such negotiations commenced. These Members must recuse themselves from any matter in which there is a "conflict of interest or appearance of a conflict for that Member," must notify the Committee on Standards of Official Conduct of the recusal, and then must submit for public disclosure the statement of disclosure of the negotiations or arrangements that had been filed under the requirements of this rule. ( S. 1 , Section 301, adding new, renumbered House Rule XXVII, cl. 1 and 4). House Employees. Senior officers or employees of the House (those earning in excess of 75% of a Member's salary) shall notify the Committee on Standards of Official Conduct (within three business days after the commencement of negotiations or agreement) that such employee is negotiating or has any agreement for future employment or compensation. An employee to whom this rule applies must also recuse himself or herself from any matter in which there is a "conflict of interest or appearance of a conflict for that" employee. ( S. 1 , Section 301, adding new, renumbered House Rule XVII, cl. 2 and 3). Senators. Senators are prohibited from having negotiations or agreements for future private employment until their successor is elected, unless the Senator, within three business days after the commencement of these negotiations or agreement, files a statement for public disclosure regarding these negotiations and arrangements and including the names of the entity or entities involved in such negotiations or agreements, and the dates such negotiations commenced. Senators may not, however, negotiate or have an arrangement for prospective employment if the job involves "lobbying activities" (as defined by the LDA of 1995) until after his or her successor has been elected. ( S. 1 , Section 532, adding new, renumbered Senate Rule XXXVII, para. 12(a) and (b)). Senate Employees. "Senior" Senate staff (compensated at a rate of 75% of a Senator's salary) are required to notify within three business days the Senate Select Committee on Ethics that they are negotiating or have arrangements for private employment, and then must recuse themselves from communicating with that prospective private employer on official matters and from working on legislation where there is a conflict or an appearance of a conflict of interest (and to notify Ethics Committee of any such recusal). ( S. 1 , Section 532, adding new, renumbered Senate Rule XXXVII, para. 12(c)). Floor Access for Former Members Who are Lobbyists. The provisions of S. 1 restrict the privileges of former Members to the floor of the Senate, and Senate athletic facilities and member-only parking, if the former Member is a registered lobbyist or agent of a foreign principal, or is in the employ of or represents any party for the purpose of influencing legislation. ( S. 1 , Section 533, amending Senate Rule XXIII). The House rules have already restricted the privileges for former Members to the House floor, in House Rule IV, cl. 4, as amended by H.Res. 648 (February 1, 2006). H.Res. 6 , Section 511(c) (January 4, 2007) added the restriction to access to the exercise facilities for former Members who are registered lobbyists or foreign agents. Influencing Private Employment Decisions on the Basis of Partisan Affiliation. Although not specifically directed at post-employment activities of former Members, there had been raised allegations that the hiring of some former Members and staff (as well as others) by lobbying firms was being influenced, or attempted to be influenced, by current Members of Congress on the basis of the partisan political affiliation of the prospective employee or partner. There existed no specific federal provision regarding this particular conduct; but depending on the specific facts and what was promised, threatened, or received in the particular situation, the general statutory laws against bribery (18 U.S.C. § 201(b)), illegal gratuities (18 U.S.C. § 201(b)), and "honest services" fraud (18 U.S.C. §§ 1341, 1343, 1346), do prohibit certain exchanges of official acts/influence for things of value, even things of value that would be directed at third parties ( i.e ., the prospective employee). The provisions of S. 1 now create a specific federal crime to expressly prohibit a Member or employee of Congress from taking or withholding official action, or threatening or offering to take official action, or from influencing or threatening or offering to influence an official act of another, in an attempt to influence, solely on the basis of partisan political affiliation, an employment practice or decision of a private entity. ( S. 1 , Section 102, adding 18 U.S.C. § 227). In addition to the statute, the House has adopted a rule with similar prohibitions. ( H.Res. 6 , Section 202, House Rule XXIII(14)), as has the Senate ( S. 1 , Section 534, amending Senate Rule XLIII, para. 6). Under the so-called "Hiss Act," Members of Congress, in a similar manner as most other officers and employees of the federal government, would forfeit the federal retirement annuities for which they had qualified if convicted of a federal crime which relates to espionage, treason, or other national security offense against the United States. The existing federal law, at 5 U.S.C. § 8312, provides for application of this additional penalty upon conviction for such offenses as, for example, disclosure of classified information, espionage, sabotage, treason, misprision of treason, rebellion or insurrection, seditious conspiracy, harboring or concealing persons, gathering or transmitting defense information, and perjury in relation to those and other designated national security offenses. Under the provisions of P.L. 110-81 ( S. 1 , 110 th Congress) the offenses for which Members of Congress may forfeit their pension annuities for congressional service is expanded to cover convictions for a number of other laws that bear upon abuse of the public trust and public corruption in office. Section 401 of P.L. 110-81 amends the provisions of the Civil Service Retirement System (CSRS), and the Federal Employee Retirement System (FERS), to provide that a Member of Congress will not receive "creditable service" towards his or her federal pension for any time of service as a Member of Congress if convicted for conduct (which occurred while the individual was a Member of Congress) that violated any of the following anti-corruption provisions of federal criminal law: bribery and illegal gratuities (18 U.S.C. § 201); acting as an agent of a foreign principal (18 U.S.C. § 219); wire fraud, including a scheme to defraud the public of the "honest services" of a public official (18 U..C. §§ 1343, 1346); bribery of foreign officials (Section 104(a) of the Foreign Corrupt Practices Act); depositing proceeds from various criminal activities (18 U.S.C. § 1957); obstruction of justice, intimidation or harassment of witnesses, etc., (18 U.S.C. § 1512); an offense under "RICO,"âracketeer influenced and corrupt organizationsâ(18 U.S.C. chapter 96); conspiracy to commit an offense or to defraud the United States (18 U.S.C. § 371) to the extent that the conspiracy constitutes an act to commit one of the offenses listed above; conspiracy (18 U.S.C. § 371) to violate the post-employment, "revolving door" laws (18 U.S.C. § 207); perjury (18 U.S.C. § 1621) in relation to the commission of any offense described above; or subornation of perjury (18 U.S.C. §1622) in relation to the commission of any offense described above. In a somewhat similar manner as the current "Hiss Act," a Member of Congress may receive back his or her own contribution (lump sum payment) to the retirement system, and to the Member's Thrift Savings Plan (TSP) ( P.L. 110-81 , Section 401(a), amending 5 U.S.C. § 8332(o)(1), and Section 401(b), amending 5 U.S.C. § 8411(l)(1)). Since the provision increases the penalties attached to the conviction of a crime, however, the law can apply prospectively only, and could not work to take away or limit the pensions of those Members of Congress who have already engaged in the conduct covered by this amendment, even if convicted at a later date. Both the House and Senate have adopted internal rule changes that affect internal legislative procedures, and which are intended to provide more transparency and accountability in the legislative process, particularly with regard to "earmarks." This report, intended to focus specifically on lobbying and ethics provisions, will provide only a very brief overview of these procedural and parliamentary changes made in S. 1 , and more detailed analysis will be provided in other CRS products. Under the provisions of S. 1 , Section 511(a), if "new material" is added to a conference report, a point of order may be raised by any Senator, and if sustained, those provisions "shall be stricken." A Senator may move to waive any or all points of order by an affirmative vote of 3/5 th s of the Members. A report of a conference committee must be available to Members and the public at least 48 hours before a vote on the matter will be in order, unless that requirement is waived by 3/5 th s of the Members. ( S. 1 , Section 511(b)). Section 512 deals with "holds" in the Senate, and is intended to end the practice of anonymous holds by requiring the identification of a Member who places a "hold" on a measure or matter in the Senate. Under Section 513, committees and subcommittees in the Senate are required to make available through the Internet a video or a transcript of any meeting within 21 days of the event, unless the meetings are closed in accordance with Senate rules. Section 514 requires any "amendment and any instruction" accompanying a motion to recommit to be in writing. S. 1 also expresses the sense of the Senate that conference committee meetings should be open to the public, all conferees be given adequate notice of meetings and afforded an opportunity to participate in debate on the matters considered, and that the text of a conference committee report should not be changed after being signed by a majority of the Senate conferees ( S. 1 , Section 515). "Earmark" reforms were also enacted in S. 1 . An "earmark" is intended to mean a "congressionally directed spending item, limited tax benefit, and limited tariff benefit." ( S. 1 , Section 521). Senate Rule XLIV is amended to provide that it will not be in order to consider a bill or joint resolution reported by any committee, a bill or joint resolution not reported by a committee, or the adoption of a conference committee report, unless the chairman of the committee of jurisdiction or the Majority Leader, or his or her designee, certifies that any earmark has been identified, including the name of each Senator who submitted a request for each item identified, and that such information is publicly available on a congressional website for at least 48 hours. For any amendment that contains an earmark proposed in floor consideration of a measure, the Senator proposing such amendment must as soon as practicable provide a list of the items and the name of the Senator requesting those items, to be placed in the Congressional Record. All committee reports including earmarks must provide a list or chart of such items identifying the Senator submitting the requests, and must provide such information to the public on the Internet. Any Senator who requests an earmark is now under an affirmative obligation to submit a written statement to the chairman and ranking member of the committee of jurisdiction naming the Senator, identifying and naming the location of the recipient of the spending or the tax benefit, the purpose of the earmark, and a certification that neither the Senator nor the Senator's immediate family has a pecuniary interest in the item, that is, that the principal purpose of the earmark is not to further only the Member's pecuniary interest, only the pecuniary interest of the member's immediate family, or only the pecuniary interest of a limited class of persons or enterprises when the Member, his or her family, or enterprises controlled by them are members of the affected class. ( S. 1 , Section 521, amending Senate Rule XLIV, paragraphs 6 and 9). The House rules on procedure and "earmark" requirements were not amended by S. 1 , but were changed for the House on the first day of the 110 th Congress, in H.Res. 6 , adopted January 4, 2007.
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Significant changes were made by Congress to the current lobbying laws, and to internal House and Senate rules on ethics and procedures, by the passage of S. 1 , 110 th Congress ( P.L. 110-81 , 121 Stat. 735, September 14, 2007) and the adoption of H.Res. 6 , 110 th Congress. In the face of mounting public and congressional concern over allegations and convictions of certain lobbyists and public officials in a burgeoning "lobbying and gift" scandal, and with a recognition of legitimate concerns over undue influence and access of certain special interests to public officials, Congress has adopted stricter rules, regulations, and laws attempting to address these issues. This report provides summaries of the changes made to law and congressional rule in S. 1 , 110 th Congress ( P.L. 110-81 ), and the changes adopted to internal House rules earlier in the Congress in H.Res. 6 . The statutory and internal congressional rule changes which have been adopted address five general areas of reform: (1) broader and more detailed disclosures of lobbying activities by paid lobbyists, and more disclosures concerning the intersection of the activities of professional lobbyists with government policy makers; (2) more extensive restrictions on the offering and receipt of gifts and favors for Members of Congress and their staff, including gifts of transportation and travel expenses; (3) new restrictions addressing the so-called "revolving door," that is, post-government-employment "lobbying" activities by former high-level government officials on behalf of private interests; (4) reform of the government pension provisions with regard to Members of Congress found guilty of abusing the public trust; and (5) greater transparency in the internal legislative process in the House and Senate, including "earmark" disclosures and accountability.
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It has been proposed that there be a domain on the Internet exclusively for Websites that contain sexually explicit material; it might be labeled ".xxx" to complement the current ".com," ".org," and others. Some propose making use of a ".xxx" domain voluntary, but others propose that Congress make it mandatory. The latter proposal raises the question whether a mandatory separate domain would violate the First Amendment, and this report focuses on that question. Congress has already provided for a ".kids" domain: the Dot Kids Implementation and Efficiency Act of 2002 directs the National Telecommunication and Information Administration (NTIA), which is an agency in the Department of Commerce, to establish a "new domain" "that provides access only to material that is suitable for minors and not harmful to minors." The URL for the domain is http://www.kids.us , and that site lists 20 websites that use the domain. An article reports that chairman and president of ICM Registry Inc., "Stuart Lawley, a Florida entrepreneur, [is] trying to establish a pornography-only '.xxx' domain. In such a realm, Lawley could restrict porn marketing to adults only, protect users' privacy, limit span and collect fees from Web masters. The .xxx proposal was finally slated for approval in August [2005] by the Internet Corporation for Assigned Names and Numbers (Icann), but because of a flurry of protest," was deferred, and, on May 10, 2006, ICANN voted against the establishment of a ".xxx" domain. Another article explains that the reason that the proposal was put off is that "the Commerce Department sought more time to hear objections [and] ICANN cannot move forward without Commerce Department approval." On January 6, 2007, the Associated Press reported that ICANN had revived the proposal and opened it for public comment, but, on March 30, 2007, ICANN rejected the proposal. On June 26, 2008, ICANN approved a plan that would allow a virtually unlimited number of top-level domains names. The plan could disallow a name for only a few reasons, such as that it is confusingly similar to an existing name or is "contrary to generally accepted legal norms relating to morality and public order that are recognized under international principles of law." It remains to be seen whether, under this plan, ICANN would approve an application to use a ".xxx" domain. Before the plan takes effect, ICANN must approve a final version of it; this is expected to occur in early 2009. Some opponents of pornography support the proposal for a voluntary ".xxx" domain and some oppose it; likewise, some in the pornography business support the proposal and some oppose it. Both the above-mentioned articles comment on the support and opposition to the proposal: The proposal has had its share of critics. Some of them claim that a .xxx domain would provide legitimacy to the pornography industry. Supporters claim that a .xxx domain would make it easier for people to filter out content they do not want. The Family Research Council warns that it [the proposal] will simply breed more smut. But Senator Joe Lieberman supports a virtual red-light district because he says it would make the job of filtering out porn easier. Meanwhile, some pornographers, apparently drawn by the promise of catchier and more trustworthy U.R.L.'s, have gotten behind Lawley. Other skin-peddlers, echoing the A.C.L.U., see the establishment of a voluntary porn zone as the first step toward the deportation of their industry to a distant corner of the Web, where their sites could easily be blocked by skittish Internet service providers, credit card companies and even governments. Finally, some opponents of pornography oppose the proposal for a voluntary ".xxx" domain because "sites would be free to keep their current '.com' address in effect making porn more easily accessible by creating yet another channel to house it." Two bills have been introduced to create a mandatory ".xxx" domain for material that is "harmful to minors," as the bills would define the term. They are S. 2426 , 109 th Congress, which was introduced by Senator Baucus, and S. 2137 , 107 th Congress, which was introduced by Senator Landrieu. Both bills direct the Secretary of Commerce, acting through the National Telecommunications and Information Administration, to establish the new domain. The rest of this report will consider the constitutionality of a mandatory ".xxx" domain, without focusing on these bills or any other particular proposal. It does not matter for constitutional purposes specifically how the bill would define the material that it would require to be in the ".xxx" domain; we will assume merely that such material would include sexually explicit material that is protected by the First Amendment. And all sexually explicit material is generally protected by the First Amendment, unless it constitutes obscenity, or child pornography that is produced with an actual minor. To require that websites with sexually explicit material be under a separate domain name would be to treat such material differently from other speech, and therefore could be viewed as discriminating against speech on the basis of its content. The Supreme Court has said that "[i]t is rare that a regulation restricting speech because of its content will ever be permissible." As a general rule, the Supreme Court will uphold a content-based speech regulation only if it satisfies "strict scrutiny," which means only if it is necessary "to promote a compelling interest" and is "the least restrictive means to further the articulated interest." By contrast, if a regulation of speech is " justified without reference to the content of the speech," then the Supreme Court considers it "content-neutral" and will uphold it if it "is designed to serve a substantial governmental interest and allows for reasonable alternative avenues of communication." In other words, if a regulation of speech has a purpose other than to protect people from harm that the speech itself might cause, then it stands a better chance of being found constitutional. One might argue that, although requiring sexually explicit material to be under a separate domain name would discriminate against speech on the basis of its content, that would not be the purpose of the requirement, and the requirement could be justified without reference to the content of the speech it would regulate. Its purpose would arguably be to facilitate parents' or librarians' use of filters when children access the Internet. It would accomplish this by dividing websites into two categoriesâthose with sexually explicit material and those without it. This could be viewed as analogous to requiring "adult" movie theaters to locate in areas that are zoned for them. In City of Renton v. Playtime Theaters, Inc. , the Supreme Court upheld such zoning on the theory that it "is not aimed at the content of the films shown at 'adult motion picture theaters,' but rather at the secondary effects of such theaters on the surrounding community." "The ordinance by its terms is designed to prevent crime, protect the city's retail trade, maintain property values, and generally 'protec[t] and preserv[e] the quality of [the city's] neighborhoods, commercial districts, and the quality of urban life,' not to suppress the expression of unpopular views." Analogously, one might argue, to restrict sexually explicit material to a separate domain name arguably would "zone" certain websites not because of the content of their speech but to lessen the "secondary effect" of minors' viewing those websites without parental approval. In effect, the proposal, like a zoning ordinance, would seek to isolate certain material into particular "neighborhoods" in cyberspace, and assist parents in preventing their children from visiting those "neighborhoods." A possibly fatal flaw with this analogy, however, is that, in Renton , the secondary effects that the zoning ordinance sought to preventâcrime, lowered property values, and a deterioration in the quality of urban lifeâwere not effects of viewing the regulated speech itself. The ".xxx" proposal, by contrast, would apparently attempt to protect minors from the effects of viewing the regulated speech itself, and these effects therefore are arguably not "secondary" in the sense that the Supreme Court meant in Renton . The ".xxx" proposal, from this view, would impose a burden on speech because Congress deems it harmful, and that is not a sufficient basis on which the government may regulate speech in a manner that affects adults, unless the regulation satisfies strict scrutiny. In Ashcroft v. Free Speech Coalition , for example, the Supreme Court struck down a federal statute that banned "virtual" child pornography and other child pornography produced without the use of an actual minor, despite various harms that the government claimed that viewing such pornography could cause, such as "whet[ting] the appetites of pedophiles and encourag[ing] them to engage in illegal conduct." The Supreme Court has stated: "We have made clear that the lesser scrutiny afforded regulations targeting the secondary effects of crime or declining property values has no application to content-based regulations targeting the primary effects of protected speech. The statute now before us burdens speech because of its content; it must receive strict scrutiny." Thus, a court might view the ".xxx" proposal either as a content-based regulation, which is constitutional only if it satisfies strict scrutiny by advancing a compelling governmental interest by the least restrictive means; or as a content-neutral regulation, which is constitutional if it advances a substantial governmental interest and allows for reasonable alternative avenues of communication. We will apply these two tests to the ".xxx" proposal, in the sections below titled "Strict scrutiny" and "Content-neutral scrutiny." First, however, we will explain why the ".xxx" proposal would even raise a free speech issue, in light of the fact that it would not censor speech. The ".xxx" proposal could be viewed as, in effect, compelling speech on the part of websites with sexually explicit material. It would compel them to identify themselves, through use of a separate domain name, as containing such material. In general, it is as unconstitutional for the government to compel speech as it is for it to censor speech, except in the commercial context. In Riley v. National Federation of the Blind of North Carolina, Inc. , a North Carolina statute required professional fundraisers for charities to disclose to potential donors the gross percentage of revenues retained in prior charitable solicitations. The Supreme Court held this unconstitutional, writing There is certainly some difference between compelled speech and compelled silence, but in the context of protected speech, the difference is without constitutional significance, for the First Amendment guarantees "freedom of speech," a term necessarily comprising the decision of both what to say and what not to say. In Meese v. Keene , however, the Court upheld compelled disclosure in a noncommercial context. This case involved a provision of the Foreign Agents Registration Act of 1938, which requires that, when an agent of a foreign principal seeks to disseminate foreign "political propaganda," he must label such material with certain information, including his identity, the principal's identity, and the fact that he has registered with the Department of Justice. The material need not state that it is "political propaganda," but one agent objected to the statute's designating material by that term, which he considered pejorative. The agent wished to exhibit, without the required labels, three Canadian films on nuclear war and acid rain that the Justice Department had determined were "political propaganda." In Meese v. Keene , the Supreme Court upheld the statute's use of the term, essentially because it considered the term not necessarily pejorative. On the subject of compelled disclosure, the Court wrote: Congress did not prohibit, edit, or restrain the distribution of advocacy materials. . . . To the contrary, Congress simply required the disseminators of such material to make additional disclosures that would better enable the public to evaluate the import of the propaganda. One might infer from this that compelled disclosure, in a noncommercial context, gives rise to no serious First Amendment issue, and nothing in the Court's opinion would seem to refute this inference. Thus, it seems impossible to reconcile this opinion with the Court's holding a year later in Riley (which did not mention Meese v. Keene ) that, in a noncommercial context, there is no difference of constitutional significance between compelled speech and compelled silence. In Meese v. Keene , furthermore, the Court did not mention earlier cases in which it had struck down laws compelling speech in a noncommercial context. For example, in Wooley v. Maynard , the Court struck down a New Hampshire statute requiring motorists to leave visible on their license plates the motto "Live Free or Die" ; in West Virginia State Board of Education v. Barnette , the Court held that a state may not require children to pledge allegiance to the United States ; and, in Miami Herald Publishing Co. v. Tornillo , the Court struck down a Florida statute that required newspapers to grant political candidates equal space to reply to the newspapers' criticism and attacks on their record. In any event, if one views the ".xxx" proposal as discriminating on the basis of content, then one could cite most of the compelled speech cases for the proposition that the ".xxx" proposal would be unconstitutional unless it can pass strict scrutiny. But one could cite Meese v. Keene (adapting the above quotation from it) to argue that the ".xxx" proposal would be constitutional because it would "not prohibit, edit, or restrain the distribution of [sexually explicit material]. . . . To the contrary, Congress [would] simply require[ ] the disseminators of such material to make additional disclosures that would better enable the public to evaluate the [content] of the [website]." If the ".xxx" proposal were viewed as content-based, and not as constitutional simply by virtue of its similarity to the statute upheld in Meese v. Keene , then, as noted, it would be subject to "strict scrutiny," which means that it would be constitutional only if it is necessary "to promote a compelling interest," and is "the least restrictive means to further the articulated interest." Though the Supreme Court may be becoming less absolute in viewing the protection of all minors, regardless of age, from all sexual material, to be a compelling interest, it has never struck down, on the ground that it did not further a compelling governmental interest, a statute aimed at denying minors access to sexual material. Rather, the Court tends to assume the existence of a compelling governmental interest in denying minors access to pornography and move on to the "least restrictive means" part of the strict scrutiny test, upholding or striking down the statute on that issue. In striking down the part of the Communications Decency Act of 1996 that banned from the Internet all "indecent" material that was accessible to minors, the Court wrote: In order to deny minors access to potentially harmful speech, the CDA effectively suppresses a large amount of speech that adults have a constitutional right to receive and to address to one another. That burden on adult speech is unacceptable if less restrictive alternatives would be at least as effective in achieving the legitimate purpose that the statute was enacted to serve. The ".xxx" proposal would not suppress speech, but would only compel it to be under a separate domain name. But are there less restrictive means by which to accomplish the ".xxx" proposal's goal? We will consider two alternative means. One alternative might be to make use of the separate domain name voluntary. The question with respect to this alternative would be whether there would be an incentive for sexually explicit websites to use a separate domain name voluntarilyâan incentive sufficient to induce enough of them to use a separate domain name so as to make the proposal as effective as it would be if it compelled them to use a separate domain name. An incentive, arguably, is that, just as the proposal would make it easier to block websites that use a separate domain name, it might make it easier to locate websites that use a separate domain name. In addition, one might argue, a statute could effectively make use of a separate domain name mandatory only for websites based in the United States, as the U.S. government does not generally have authority over foreign websites. Therefore, a statute that mandated use of a separate domain name would not cover all websites with sexually explicit material, and this would appear to strengthen the case that voluntary use of a separate domain name would be as effective as mandatory use. A second alternative to the proposal might be one that already exists: the Dot Kids Implementation and Efficiency Act of 2002, mentioned at the beginning of this report. This statute may enable parents who wish to do so to block out all websites not under the "dot kids" domain name. If parents used a filter to prevent their children from gaining access to any website that does not use the "dot kids" domain, then they would be denying their children access to much material on the Internet that is not sexually explicit. If one deems a purpose of both the "Dot Kids" statute and the ".xxx" proposal to be not only to deny children access to sexually explicit material, but not to deny them access to non-sexually explicit material, then the "Dot Kids" Act might be viewed as less effective than the ".xxx" proposal, and therefore as not an adequate alternative to the latter. But, in another respect, the "Dot Kids" statute could be more effective because it could enable parents to block foreign as well as domestic websites; in that respect it might be viewed as an adequate alternative to the ".xxx" proposal. If a court were to find the ".xxx" proposal to be analogous to the zoning of "adult" theaters that the Supreme Court has upheld, then it would ask whether the proposal is designed to serve a substantial governmental interest and allows for reasonable alternative avenues of communication. Because it appears that a court would likely find the proposal to serve a "compelling" interest, a court would ipso facto likely find the proposal to meet the less rigorous test of serving a "substantial" interest. And, because the proposal would not prevent anyone from posting protected speech, but would merely require them to post some speech under a separate domain name, it apparently could not even be said to reduce their avenues of communication except insofar as Internet users chose to block websites that used the separate domain name. Though the proposal would presumably facilitate such blocking, it would not require it, and therefore would seem likely to be found constitutional if this less-than-strict-scrutiny test were applied. A factor that might make a difference to the ".xxx" proposal's constitutionality is whether it imposed criminal penalties; if it did, that might tip the balance toward making it unconstitutional. In Reno v. American Civil Liberties Union , the Supreme Court, in striking down the Communications Decency Act of 1996, was apparently influenced by the fact that the statute would have imposed criminal penalties, including imprisonment. It distinguished Federal Communications Commission v. Pacifica Foundation , in which it had upheld the ban on "indecent" material on broadcast media, in part on the ground that the radio station that had broadcast George Carlin's "Filthy Words" monologue had been penalized with only a Federal Communications Commission declaratory order. "[T]he Commission's declaratory order," the Court in Reno wrote, "was not punitive; we expressly refused to decide whether the indecent broadcast 'would justify a criminal prosecution.'" Another factor that might make a difference to the ".xxx" proposal's constitutionality is whether it applied only to websites that contained predominantly pornographic material, or it applied to any posting of material that might be deemed pornographic, even on websites that did not contain predominantly pornographic material. The latter approach would seem more problematic from a constitutional standpoint because it would deter any website not under the ".xxx" domain name from posting material that might be deemed pornographic, even if the website posted it for other than pornographic purposes, and even if the website contained material that was predominantly, for example, of a literary, artistic, or medical nature that would not attract children. But even a proposal that applied only to websites that contained predominately pornographic material might be unconstitutional if it defined too vaguely the websites that it would require to use the ".xxx" domain. The constitutional problem with an overly vague definition is that it might deter a website that did not use the ".xxx" domain from posting sexually explicit material for its literary, artistic, or medical content. It might be deterred for fear that the material could be construed as pornographic and the website sanctioned. A vague law violates due process because it fails to "give the person of ordinary intelligence a reasonable opportunity to know what is prohibited, so that he may act accordingly. . .. [P]erhaps the most important factor affecting the clarity that the Constitution demands of a law is whether it threatens to inhibit the exercise of constitutionally protected rights. If, for example, the law interferes with the right of free speech or of association, a more stringent vagueness test should apply." If a court were to apply "strict scrutiny" to the ".xxx" proposal, then it appears difficult to predict whether it would be constitutional. Although it seems likely that the Supreme Court would find that it serves a compelling governmental interest, it is not certain whether it would find that it would be the least restrictive means to serve that interest. If a court were to apply "content-neutral scrutiny," or if the Court were to follow its reasoning in Meese v. Keene , then it seems likely that it would find the ".xxx" proposal to be constitutional.
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It has been proposed that there be a domain on the Internet exclusively for websites that contain sexually explicit material; it might be labeled ".xxx" to complement the current ".com," ".org," and others. Some propose making use of a ".xxx" domain voluntary, and a June 26, 2008, decision by the Internet Corporation for Assigned Names and Numbers (ICANN) to allow a virtually unlimited number of top-level domain names may make the voluntary use of ".xxx" possible in 2009. Others propose that Congress make use of ".xxx" mandatory for websites that contain sexually explicit material. This proposal raises the question whether a mandatory separate domain would violate the First Amendment, and this report focuses on that question. It is unclear whether making a ".xxx" domain mandatory would violate the First Amendment. Whether it would be constitutional might depend upon whether a court viewed it as a content-based restriction on speech or as analogous to the zoning of adult theaters, or even as a mere disclosure requirement that did not raise a significant First Amendment issue. If a court viewed it as a content-based restriction on speech, then it would be constitutional only if the court found that it served a compelling governmental interest by the least restrictive means. Other factors that could affect its constitutionality might be whether it imposed criminal penalties and whether it were limited to websites that are predominantly pornographic.
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This report describes the ways that international terrorists and insurgents use the Internet, strategically and tactically, in pursuit of their political agendas. This discussion covers terrorist information operations in cyberspace but does not discuss similar activities in other domains. The government response is also discussed in terms of information operations. Technical aspects of cybersecurity and network intrusion detection are outside the scope of this report. Information warfare can be defined as the use of information technology and content to affect the cognition of an adversary or target audience. Information operations is defined by the Department of Defense as "the integrated employment ... of information-related capabilities in concert with other lines of operations to influence, corrupt, disrupt or usurp the decision-making of adversaries and potential adversaries while protecting our own." One area where these operations can take place is cyberspace, defined by the Department of Defense as "a global domain within the information environment consisting of the interdependent network of information technology infrastructures, including the Internet, telecommunications networks, computer systems, and embedded processes and controllers." 3 This report focuses on one particular element of the information environment: the Internet. Terrorists make use of the Internet in a variety of ways, including what are often referred to as "jihadist websites." Most Al Qaeda-produced ideological material reflects Al Qaeda supporters' shared view of jihad as an individual duty to fight on behalf of Islam and Muslims, and, in some cases, to offensively attack Muslims or non-Muslims who are deemed insufficiently pious or who oppose enforcement of Islamic principles and religious law. Al Qaeda and other violent Islamist groups draw on the Quran and other Islamic religious texts and adapt historical events to current circumstances as a propaganda tactic. This approach is prominently displayed in jihadists' use of the Internet for recruiting and propaganda purposes. The Internet is used as a prime recruiting tool for insurgents. Extremists use chat rooms, dedicated servers and websites, and social networking tools as propaganda machines, as a means of recruitment and organization, for training grounds, and for significant fund-raising through cybercrime. These websites and other Internet services may be run by international terrorist groups, transnational cybercrime organizations, or individual extremists. YouTube channels and Facebook pages of Taliban and Al Qaeda supporters may radicalize Western-based sympathizers, and also provide a means for communication between these "lone wolf" actors and larger organized networks of terrorists. The decentralized nature of the Internet as a medium and the associated difficulty in responding to emerging threats can match the franchised nature of terrorist organizations and operations. It is unclear how great a role the Internet plays in coordinating the efforts of a single group or strategy. Many Arabic-language websites are said to contain coded plans for new attacks. Some reportedly give advice on how to build and operate weapons and how to pass through border checkpoints. Other news articles report that a younger generation of terrorists and extremists, such as those behind the July 2005 bombings in London, are learning new technical skills to help them avoid detection by various nations' law enforcement computer technology. Cybercrime has now surpassed international drug trafficking as a terrorist financing enterprise. Internet Ponzi schemes, identity theft, counterfeiting, and other types of computer fraud have been shown to yield high profits under a shroud of anonymity. According to press reports, Indonesian police officials believe the 2002 terrorist bombings in Bali were partially financed through online credit card fraud. There may be some evidence that terrorist organizations seek the ability to use the Internet itself as a weapon in an attack against critical infrastructures. Also, links between terrorist organizations and cybercriminals may show a desire to hone a resident offensive cyber capability in addition to serving as a means of procuring funds. To some observers, the term "cyberterrorism" is inappropriate, because a widespread cyberattack may simply produce annoyances, not terror, as would a bomb, or other chemical, biological, radiological, or nuclear explosive (CBRN) weapon. However, others believe that the effects of a widespread computer network attack would be unpredictable and might cause enough economic disruption, fear, and civilian deaths to qualify as terrorism. At least two views exist for defining the term cyberterrorism as traditionally understood: Effects-based . Cyberterrorism exists when computer attacks result in effects that are disruptive enough to generate fear comparable to a traditional act of terrorism, even if done by criminals other than terrorists. Intent-based . Cyberterrorism exists when unlawful, politically motivated computer attacks are done to intimidate or coerce a government or people to further a political objective, or to cause grave harm or severe economic damage. In a July 2005 letter to Abu Musab al-Zarqawi, the late leader of Al Qaeda operations in Iraq, senior Al Qaeda leader Ayman al-Zawahiri wrote, "We are in a battle, and more than half of this battle is taking place in the battlefield of the media." Terrorist organizations exploit the Internet medium to raise awareness for their cause, to spread propaganda, and to inspire potential operatives across the globe. Websites operated by terrorist groups can contain graphic images of supposed successful terrorist attacks, lists and biographies of celebrated martyrs, and forums for discussing ideology and methodology. The Quetta Shura Taliban reportedly maintains several dedicated websites, including one with an Arabic-language online magazine, and publishes daily electronic press releases on other Arabic-language jihadist forums. The As-Shahab Institute for Media Production is Al Qaeda Central's media arm and distributes audio, video, and graphics products online through jihadist forums, blogs, and file-hosting websites. A recent online English-language terrorist propaganda periodical called Inspire appears to have originated from the media arm of a Yemen-based Al Qaeda group and contains articles by Anwar al-Awlaki, an English-speaking, U.S.-born radical imam whose sermonizing rhetoric and calls to action make extensive use of cyberspace. Al-Awlaki has been connected to several terrorist plots, including the attempted Times Square bombing in New York City in May 2010. Al-Awlaki has also been either directly or indirectly linked to radicalizing Nidal M. Hasan, who allegedly committed the November 2009 shooting at Fort Hood, Texas, and Umar Farouk Abdulmutallab, the Nigerian suspect accused of trying to ignite explosives on Northwest/Delta Airlines Flight 253 on Christmas Day 2009. Faisal Shahzad, a naturalized U.S. citizen from Pakistan, admitted to trying to set off a car bomb in Times Square and said he was inspired by al-Awlaki's online lectures. Some experts question the authenticity of the periodical Inspire and its link to Al Qaeda. The effectiveness of violent images used to reach its mainstream target audience is debated, as the violent images may appeal only to a small, self-selected segment of the population. In the July 2005 letter discussed above, al-Zawahiri, in a reference to winning the "hearts and minds" of Muslims, noted that "the Muslim populace who love and support you will never find palatable ... the scenes of slaughtering the hostages." These websites can also carry step-by-step instructions on how to build and detonate weapons, including cyber weapons. One website reportedly carries a downloadable "e-jihad" application, through which a user can choose an Internet target and launch a low-level cyberattack, overwhelming the targeted website with traffic in order to deny its service. The websites may also contain instructions for building kinetic weapons, such as bombs and improvised explosive devices, as well as for conducting surveillance and target acquisition. The Internet can also be used to transmit information and material support for planned acts of terrorism. A recent case involving a U.S. citizen residing in Pennsylvania alleges that a woman using the nickname "JihadJane" posted messages on YouTube and used jihadist websites and chat rooms to plan and facilitate an overseas attack. Cybercrime has increased in past years, and several recent terrorist events appear to have been funded partially through online credit card fraud. Extremist hackers have reportedly used identity theft and credit card fraud to support terrorist activities by Al Qaeda cells. When terrorist groups do not have the internal technical capability, they may hire organized crime syndicates and cybercriminals through underground digital chat rooms. Reports indicate that terrorists and extremists in the Middle East and South Asia may be increasingly collaborating with cybercriminals for the international movement of money and for the smuggling of arms and illegal drugs. These links with hackers and cybercriminals may be examples of the terrorists' desire to refine their computer skills, and the relationships forged through collaborative drug trafficking efforts may also provide terrorists with access to highly skilled computer programmers. Although terrorists have been adept at spreading propaganda and attack instructions on the web, it appears that their capacity for offensive computer network operations may be limited. The Federal Bureau of Investigation (FBI) reports that cyberattacks attributed to terrorists have largely been limited to unsophisticated efforts such as e-mail bombing of ideological foes, denial-of-service attacks, or defacing of websites. However, it says, their increasing technical competency is resulting in an emerging capability for network-based attacks. The FBI has predicted that terrorists will either develop or hire hackers for the purpose of complementing large conventional attacks with cyberattacks. During his testimony regarding the 2007 Annual Threat Assessment, FBI Director Robert Mueller observed that "terrorists increasingly use the Internet to communicate, conduct operational planning, proselytize, recruit, train and to obtain logistical and financial support. That is a growing and increasing concern for us." In addition, continuing publicity about Internet computer security vulnerabilities may encourage terrorists' interest in attempting a possible computer network attack, or cyberattack, against U.S. critical infrastructure. The Internet, whether accessed by a desktop computer or by the many available handheld devices, is the medium through which a cyberattack would be delivered. However, for a targeted attack to be successful, the attackers usually require that the network itself remain more or less intact, unless the attackers assess that the perceived gains from shutting down the network entirely would offset the accompanying loss of their own communication. A future targeted cyberattack could be effective if directed against a portion of the U.S. critical infrastructure, and if timed to amplify the effects of a simultaneous conventional physical or chemical, biological, radiological, or nuclear (CBRN) terrorist attack. The objectives of a cyberattack may include the following four areas: loss of integrity, such that information could be modified improperly; loss of availability, where mission-critical information systems are rendered unavailable to authorized users; loss of confidentiality, where critical information is disclosed to unauthorized users; and physical destruction, where information systems create actual physical harm through commands that cause deliberate malfunctions. Publicity would also potentially be one of the primary objectives for a terrorist cyberattack. Extensive media coverage has shown the vulnerability of the U.S. information infrastructure and the potential harm that could be caused by a cyberattack. This might lead terrorists to believe that even a marginally successful cyberattack directed at the United States would garner considerable publicity. Some suggest that were such a cyberattack by an international terrorist organization to occur and become known to the general public, regardless of the level of success of the attack, concern by many citizens and cascading effects might lead to widespread disruption of critical infrastructures. For example, reports of an attack on the international financial system's networks could create a fiscal panic in the public that could lead to economic damage. According to security experts, terrorist groups have not yet used their own computer hackers nor hired hackers to damage, disrupt, or destroy critical infrastructure systems. Yet reports of a recent disruptive computer worm that has spread through some government networks, including that of the National Aeronautics and Space Administration, have found a possible link to a Libyan hacker with the handle "Iraq Resistance" and his online hacker group "Brigades of Tariq ibn Ziyad," whose stated goal is "to penetrate U.S. agencies belonging to the U.S. Army." According to these reports, references to both the hacker and group have been found in the worm's code. However, this does not provide conclusive evidence of involvement, as e-mail addresses can be spoofed and code can be deliberately designed to implicate a target while concealing the true identity of the perpetrator. The recent emergence of the Stuxnet worm may have implications for what potential future cyberattacks might look like. Stuxnet is thought to be the first piece of malicious software (malware) that was specifically designed to target the computer-networked industrial control systems that control utilities, in this case nuclear power plants in Iran. Although many experts contend that the level of sophistication, intelligence, and access required to develop Stuxnet all point to nation states, not only is the idea now in the public sphere for others to build upon, but the code has been released as well. An industrious group could potentially use this code as a foundation for developing a capability intended to degrade and destroy the software systems that control the U.S. power grid, to name one example. A number of U.S. government organizations appear to monitor terrorist websites and conduct a variety of activities aimed at countering them. Given the sensitivity of federal government programs responsible for monitoring and infiltrating websites suspected of supporting terrorism-related activities, much of the information regarding the organizations and their specific activities is deemed classified or law enforcement-sensitive and is not publicly available. The information listed below represents a sampling of what has been publicly discussed about some of the federal government organizations responsible for monitoring and infiltrating jihadist websites. It should be noted that the actions associated with the organizations listed below could be conducted by employees of the federal government or by civilian contract personnel. Central Intelligence Agency (CIA): development, surveillance, and analysis of websites, commonly referred to as honey pots, for purposes of attracting existing and potential jihadists searching for forums to discuss terrorism-related activities. National Security Agency (NSA): surveillance of websites and rendering them inaccessible. Department of Defense (DOD): surveillance of websites focused on discussions of perceived vulnerabilities of overseas U.S. military facilities or operational capabilities and disabling those that present a threat to operations. Department of Justice (DOJ): development of polices and guidelines for creating, interacting within, surveilling, and rendering inaccessible websites created by individuals wishing to use the Internet as a forum for inciting or planning terrorism-related activities. Federal Bureau of Investigation (FBI): monitoring of websites and analysis of information for purposes of determining possible terrorist plans and threats to U.S. security interests. Department of Homeland Security (DHS): monitoring of websites and analysis of information for purposes of determining possible threats to the homeland. Numerous other federal government organizations have cybersecurity responsibilities focused on policy development, public awareness campaigns, and intergovernmental and private sector coordination efforts. Information gleaned from the agencies noted above may at times be used to help inform and advise non-federal government entities responsible for safeguarding a geographic area or activity that has been discussed in an online jihadist forum. A number of reasons exist that may provide justification for the federal government to monitor websites owned, operated, or frequented by individuals suspected of supporting international jihadist activity that pose a threat to U.S. security interests. Such websites may be used for purposes of spreading propaganda, recruiting new members or enticing existing participants, communicating plans counter to U.S. interests, or facilitating terrorist-related activities. Quite often the jihadist websites are the first indicators of extreme elements of the jihadist community identifying a controversial issue for purposes of inciting action harmful to U.S. interests. For example, a recent controversy in the United States about a proposed burning of copies of the Quran on the ninth anniversary of the September 11, 2001, attacks led to increased chatter on international jihadist websites. The FBI reportedly disseminated an intelligence bulletin specifically noting online threats to the pastor and church planning to conduct this event and more general threats to U.S. global interests. When assessing whether to monitor, infiltrate, or shut down a website suspected of inciting participants to take harmful actions against U.S. security interests, numerous competing interests should be considered. First, the federal government would determine whether the website is owned by a U.S. corporation and whether U.S. citizens may be participating in the Internet forum. Such a determination is necessary to ensure that proper procedures are adhered to with respect to upholding the rights afforded by the U.S. Constitution's First and Fourth Amendments, in particular. Second, once it is confirmed that a suspected jihadist website is being used to facilitate terrorism-related activities, the national security community may consider the short- and long-term implications of a variety of operational responses. Options include permanently or temporarily shutting down the website, passively monitoring the website for intelligence-gathering purposes, or covertly engaging the members of the forum with the desire to elicit additional information for purposes of thwarting a potential terrorism-related activity and/or building a stronger criminal case. Different agencies may weigh each option differently, creating a need to achieve interagency consensus prior to action. DOD has been considering establishing a computer network monitoring database for government and private networks. Organizations would provide information on a voluntary basis, and the data collected would be shared with all participants. However, privacy concerns and questions of DOD's proper role in federal cybersecurity make the implementation of such a program unlikely in the current political climate. A memorandum of agreement signed in October 2010 between DHS and DOD represents an effort to increase coordination of operations and plans to protect civilian critical infrastructure as well as military networks. The partnership could be used as a means through which DOD would have a greater role in defending privately owned critical infrastructure using the EINSTEIN 2 and 3 network monitoring systems developed by DHS. In common parlance and in media reporting, the terms "strategic communications," "public diplomacy," "global engagement," "information operations," and "propaganda" are often used interchangeably. This confusion in terms makes it difficult to determine exactly what sorts of programmatic activities are being discussed. There is no overarching definition of strategic communications for the federal government. DOD has defined strategic communication as "focused United States Government efforts to understand and engage key audiences to create, strengthen, or preserve conditions favorable for the advancement of United States government interests, policies, and objectives through the use of coordinated programs, plans, themes, messages, and products synchronized with the actions of all instruments of national power." This term, as defined, describes a U.S. government-wide process, not an organizational structure, capability, or discrete activity within DOD or any other government agency. As prescribed by the 2009 National Framework for Strategic Communication, the Deputy National Security Advisor for Strategic Communications (DNSA/SC) serves as the National Security Advisor's principal advisor for strategic communications. The Senior Director for Global Engagement (SDGE) is the principal deputy to the DNSA/SC. Together, they are responsible for ensuring that (1) the message-value and communicative impact of actions are considered during decision-making by the National Security Council (NSC) and Homeland Security Council (HSC); (2) the mechanisms to promote strategic communication are in place within the National Security Staff (NSS); and (3) similar mechanisms are developed across the interagency. The DNSA/SC and SDGE are also responsible for guiding and coordinating interagency deliberate communication and engagement efforts, and they execute this responsibility through the NSS Directorate for Global Engagement (NSS/GE) and through the Interagency Policy Committee (IPC) on Strategic Communication. Public Diplomacy (PD) within the State Department is led by the Under Secretary for Public Diplomacy and Public Affairs. The Department of State distinguishes between Public Affairs (PA), which includes outreach to domestic publics, and PD—which seeks to promote the national interest of the United States through understanding, engaging, informing, and influencing foreign publics, and by promoting mutual understanding between the people of the United States and people from other nations around the world. In DOD, strategic communication-related activities are primarily supported by the integration of three capabilities: Information Operations (IO), and, primarily within IO, Psychological Operations (PSYOP), Public Affairs (PA), and Defense Support to Public Diplomacy (DSPD). Military Diplomacy (MD) and Visual Information (VI) also support strategic communications-related activities. DOD sees strategic communications as a process to synchronize efforts that: improve U.S. credibility and legitimacy; weaken an adversary's credibility and legitimacy; convince selected audiences to take specific actions that support U.S. or international objectives; cause a competitor or adversary to take (or refrain from taking) specific actions. Many DOD activities support the State Department's public diplomacy efforts and objectives, which in turn support national objectives. DOD refers to these activities as "Defense Support to Public Diplomacy" (DSPD). Although some reports warn of social media's potential misuse by terrorists, government policies are evolving to embrace the use of tools such as Facebook and Twitter as a means of strategic communications and public diplomacy. On the one hand, according to a U.S. Army report, social media tools such as Twitter and Facebook can be used by terrorist groups to expand networks and exchange real-time information, enabling operatives to organize and act quickly. These tools can not only spread propaganda, but can also host embedded malicious software in links and applications that can corrupt an unsuspecting user's electronic device. Based on these security concerns, several services and offices within DOD had banned certain social networking sites from access on their unclassified networks. However, the federal government has begun to embrace using these same tools to allow free access to information, spread democratic values and ideas, and combat the misinformation spread by terrorist groups' media campaigns. In February 2010, DOD issued a directive-type memo (DTM) outlining the department's new social media policy, citing Internet-based capabilities including social networking services as integral to operations. This policy is due to expire in March 2011; reportedly, there are no plans to develop a replacement policy, nor plans to fill the top positions that were instrumental in creating the social media policy. Some fear that the recent WikiLeaks issue may push the pendulum back toward more restricted access to Internet-based capabilities and less information sharing between organizations. Others note that, to date, much of the activity conducted under the current policy has been one-sided, focused on using social network tools to gather information about others, including potential adversaries, rather than to send messages outward in order to shape the information environment. Reportedly, the U.S. Air Force and U.S. Central Command have been developing deceptive identities on the Internet in order to infiltrate chat rooms and other social media using a special software. The U.S. Air Force software contract states that it shall be used to target adversarial sites worldwide without detection, and spokesmen for the U.S. Central Command have stated that it shall not be used to target law-abiding American citizens. Critics of these programs point to the potential loss of credibility, a tenet of successful information operations, using the former Office of Strategic Influence (OSI) as an example. Reports that the OSI was planting false news stories into foreign newspapers to gain support for the war in Iraq led many—including the Public Affairs Office—to question the legality of such activity. The OSI was subsequently disestablished. Information operations do not refer exclusively to messaging and content; another integrated capability within this area is computer network operations (CNO), which includes cyberattack capabilities, cyber espionage and exploitation, and cyber defense. The Joint Functional Command Component—Network Warfare (JFCC-NW) and the JFCC—Space & Global Strike (JFCC-SGS) have responsibility for overall DOD cybersecurity, while the Joint Task Force—Global Network Operations (JTF-GNO) and the Joint Information Operations Warfare Center (JIOWC) both have direct responsibility for defense against cyberattack. The DOD focal point for coordinating military information operations is the JIOWC. The JTF-GNO defends the DOD Global Information Grid, while the JIOWC assists combatant commands with an integrated approach to information operations. These include operations security, military information support operations (formerly psychological operations), military deception, and electronic warfare. Many of the specific programs under the JIOWC's purview are classified. The JIOWC also coordinates computer network operations and network warfare with the JTF-GNO and with JFCC-NW. These latter two organizational activities are to fall under the responsibility of the newly formed U.S. Cyber Command (USCYBERCOM), a sub-unified command under U.S. Strategic Command (USSTRATCOM). The commander of USCYBERCOM, General Keith Alexander, also serves as the director of NSA. Traditionally, the NSA mission has been information assurance for national security systems and signals intelligence, and gathering information about potential threats under the Foreign Intelligence Surveillance Act (FISA). The dual-hatted nature of this appointment places this intelligence function alongside the offensive operations command. Information security and cyberwarfare planners in the Pentagon have noted both in doctrine and in informal channels that a good offensive cyber operations capability is the best defense. For this reason, USCYBERCOM has integrated the military's defensive computer network operations components with its offensive arm under one joint command. Many of USCYBERCOM's capabilities are unknown, due to the classified nature of offensive cyber operations. There have also been questions in the executive branch and in Congress about what authorities they operate under and how oversight is to be conducted. A question-and-answer exchange from the Senate Armed Services Committee revealed that DOD had not included cyber operations in its quarterly report on clandestine military activities. Michael Vickers, the nominee for Under Secretary of Defense for Intelligence, reportedly told the committee that those quarterly reporting requirements related only to human intelligence. How USCYBERCOM relates to NSA and how both relate to the private sector, which owns most of the U.S. telecommunications infrastructure, has been a continued subject of discussions. On the defensive side, although USCYBERCOM is developing plans to defend the .mil domain, there is still no unified federal response policy for coordinating offensive cyber operations at the national level. Yet DOD has been working with DHS and the National Cybersecurity and Communications Integration Center through Cyberstorm and other exercises to map out a National Cyber Incident Response Plan, which gives a structure for how the federal government might respond in the event of a major cyberattack. At a Reserve Officers Association conference, USCYBERCOM Chief of Staff Major General David Senty said that the sub-unified command might take the lead in defending the nation's military networks as a "supported command" prior to "turning things over" to U.S. Northern Command. Although organizations, policies, and plans exist to counter violent extremists' use of the Internet, implementation may be hampered by several factors. Laws may be interpreted by some agencies to prohibit certain activities, and in some cases agencies may have competing equities at stake. Legislative and policy authority may be given to organizations that lack the technical capability to fulfill a mission, while entities with the capacity to address cyber attacks may be legally constrained from doing so due to privacy or civil liberties concerns. There may be tensions between the Global Internet Freedom Initiative as highlighted by Secretary of State Hillary Clinton and overall counterterrorism objectives. Additionally, the lack of clarity in definitions related to information operations and terrorism may lead to institutional questions such as which agency has the lead for federal government coordination or independent oversight. Some argue that the effectiveness of the U.S. government's strategic communications, information operations, and global engagement programs is still hampered by the U.S. Information and Educational Exchange Act of 1948 (22 U.S.C. § 1461), also known as the Smith-Mundt Act. The law directs that information about the United States and its policies intended for foreign audiences "shall not be disseminated within the United States, its territories, or possessions." Amendments to the Smith-Mundt Act in 1972 and 1998 further clarified the legal obligations of the government's public diplomacy apparatus, and several presidential directives, including NSPD-16 in July 2002, have set up specific structures and procedures as well as further legal restrictions regarding U.S. public diplomacy and information operations. Some say that these policies have created an unnecessary "firewall" between domestic and foreign audiences, limiting what information the United States produces and distributes to counter extremists in cyberspace for fear of "blow-back" to its own citizens. Cyberspace as a global domain does not recognize territorial boundaries, making it difficult to target a specific geographic region. Some argue that this has effectively created a ban on all government "propaganda," a term that carries with it negative historical connotations, although the term is neither defined nor mentioned in the law itself. Some critics argue that the law does not prevent government propagandizing, but rather has been consistently misinterpreted. Others maintain that the Smith-Mundt provisions may prevent undue government manipulation of citizens and are a necessary protection. In addition to questions over what constitutes propaganda and the applicability of Smith-Mundt, confusion over "information operations" programs has led some to question their budgetary process and management within DOD. Often confused with Information Operations as a whole, PSYOP refers to influence activities specifically intended "to induce or reinforce foreign attitudes and behavior in a manner favorable to U.S. objectives." While PSYOP is focused at audiences abroad, it is supported by the public affairs function. The Public Affairs Office (PAO) is the entity responsible for working with media outlets both domestic and foreign, to "inform" rather than to "influence." Given the public's and government's aversion to the term "propaganda" and particularly military activities that might be described as such, DOD has changed military lexicon from PSYOP to Military Information Support Operations (MISO). The Secretary of Defense approved the name change in June 2010 following a recommendation from the Defense Senior Leadership Council. Some argue that the name change elevates the importance of information support to military operations for commanders in the field, while others point to the traditional career field of PSYOP as a source of pride among its servicemembers. A January 2011 memorandum issued by DOD acknowledges the heightened strategic emphasis on countering violent extremism and transnational, global networks through effective strategic communications and information operations. The memo outlines organizational changes that are designed to facilitate better program integration and coordination to meet these challenges. The new construct places the JIOWC under the Joint Staff in all but its electronic warfare coordinating function, which shall still remain the purview of USSTRATCOM. The memo also describes new requirements for resource managers to capture the costs of MISO and to develop standardized budget methodologies for SC and IO capabilities and activities. This is in response to congressional concerns over what constitutes an "information operation" and how much federal money is spent on what has been perceived as military propaganda. The Department of Defense Appropriations Acts for FY2002 through FY2010 provide that, "No part of any appropriation contained in this Act shall be used for publicity or propaganda purposes not authorized by the Congress." Title 10 of the United States Code , Section 167, authorizes combatant commanders to conduct psychological operations as part of clandestine special operations campaigns in support of military missions. However, Title 10 does not define PSYOP, nor does it clarify DOD's authority to conduct information operations versus propaganda. Some private U.S. citizens have attempted to work outside of these institutional constraints. For instance, inspired by 9/11, Montana resident Shannen Rossmiller has been using the Internet to glean information about potential terrorist suspects and their plans. This information, which she has shared with federal intelligence agencies, has led to the arrests of a Washington state National Guardsman, convicted in 2004 of attempted espionage for plans to transmit U.S. military armor information through the Internet, and a Pennsylvania man who prosecutors say sought to blow up oil installations in the United States. As a self-taught private citizen, Ms. Rossmiller can operate outside of the institutional constraints that may bind federal employees. Rita Katz of Search for International Terrorist Entities (SITE Institute) performs similar activities, funneling intelligence mined from online extremist chat rooms to government officials without having to go through the sometimes onerous and time-consuming official channels. The intelligence agencies have not discussed publicly the nature of the information shared, nor how it was used. Tensions between a website's purported intelligence value and operational threat level can determine the particular capabilities used to thwart the site. For example, a "honey pot" jihadist website reportedly was designed by the CIA and Saudi Arabian government to attract and monitor terrorist activities. The information collected from the site was used by intelligence analysts to track the operational plans of jihadists, leading to arrests before the planned attacks could be executed. However, the website also was reportedly being used to transmit operational plans for jihadists entering Iraq to conduct attacks on U.S. troops. Debates between representatives of the NSA, CIA, DOD, DNI, and NSC led to a determination that the threat to troops in theater was greater than the intelligence value gained from monitoring the website, and a computer network team from the JTF-GNO ultimately dismantled it. This case raised questions of whether computer network attacks on a website are a covert operation or a traditional military activity, and under what authority they are conducted. It also illustrated the risk of collateral damage that an interconnected, networked world represents, as the operation to target and dismantle the honey pot inadvertently disrupted servers in Saudi Arabia, Germany, and Texas. Also, some point to the potential futility of offensively attacking websites, as a dismantled site may be easily relocated to another server. The 2010 National Security Strategy mentions the importance of the Internet for commerce and for disseminating information, and the importance of cybersecurity in protecting national security assets, but does not appear to present a strategy specifically for combating violent extremism on the Internet. A number of hearings have been held to address the issue of violent extremism on the Internet. In a March 2, 2010, "Dear Colleague" letter, Members of the House of Representatives announced the formation of a new Strategic Communications and Public Diplomacy Caucus, whose stated purpose is to "raise awareness of the challenges facing strategic communication and public diplomacy and provide multiple perspectives on proposed solutions." On July 13, 2010, the caucus's chairs, Representatives Mac Thornberry and Adam Smith, introduced H.R. 5729 , the Smith-Mundt Modernization Act of 2010. This measure would amend the United States Information and Educational Exchange Act of 1948 to allow the Secretary of State to create products designed to influence audiences abroad that could also be disseminated domestically, thereby removing the "firewall." Another piece of legislation introduced in the 111 th Congress was S. 3480 , the Protection of Cyberspace as a National Asset Act. This bill, which may be reintroduced in some form in the current Congress, has generated much discussion over what some describe as the "Internet Kill Switch." Recent events of social unrest and government Internet control in the Middle East highlight the question of whether the President has the authority to "turn off" the U.S. connection to the Internet in times of similar crisis and whether such authority is needed. Critics consider such a communication disruption as an attack on the freedom of speech and the free flow of information. Others point to the economic damage that could result from the loss of networked communications. Regardless, blocking the flow of traffic into and out of U.S. information infrastructure would require the assistance of many private Internet service providers (ISPs), as there is no single, government-owned national network. The bill's sponsors wrote that such authorities already exist for the President to compel private companies to suspend service, particularly in the Communications Act of 1934, and the new legislation would actually limit presidential emergency powers over the Internet. A new proposal in the 112 th Congress, S. 413 , the Cybersecurity and Internet Freedom Act of 2011, contains a provision that would amend the Communications Act of 1934 so that, "[n]otwithstanding any provision of this Act, an amendment made by this Act, or section 706 of the Communications Act of 1934 (47 U.S.C. 606), neither the President, the Director of the National Center for Cybersecurity and Communications, or any officer or employee of the United States Government shall have the authority to shut down the Internet." The Communications Decency Act of 1996 (CDA), codified in Title V of the Telecommunications Act of 1996, was an effort to regulate both indecency and obscenity in cyberspace. Although much of it is targeted at lewd or pornographic material, particularly when shown to children under the age of 18, the law's definition of obscenity and harassment could also be interpreted as applying to graphic, violent terrorist propaganda materials or incendiary language. YouTube's terms of use (called "Community Guidelines") prohibit, among other things, "gratuitous and graphic violence" and "hate speech." To control its content, YouTube employs a user-feedback system, where users flag potentially offensive videos that are then reviewed and removed by the site's administrators. However, Section 230 of the CDA reads: "No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider." This would absolve both ISPs and Internet administrators from liability for the words or crimes committed by third-party users of their websites or online forums, even if the provider or administrator fails to take action after receiving notice of the harmful or offensive content. In other words, although many ISPs and website administrators follow internal policies that restrict the type of material posted on their sites or trafficked through their networks, they may not have a legal responsibility to dismantle a site with offensive or violent content. In September 2010, General Alexander told the House Armed Services Committee that the White House was leading an effort to review the legal framework governing operations in cyberspace and the protection of telecommunications infrastructure. The results of this review will be presented to Congress, with legislative recommendations on what new statutes may be required and which should be revised or amended to facilitate effective operations in cyberspace. The 2011 National Military Strategy also contains a point to that effect.
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The Internet is used by international insurgents, jihadists, and terrorist organizations as a tool for radicalization and recruitment, a method of propaganda distribution, a means of communication, and ground for training. Although there are no known reported incidents of cyberattacks on critical infrastructure as acts of terror, this could potentially become a tactic in the future. There are several methods for countering terrorist and insurgent information operations on the Internet. The federal government has organizations that conduct strategic communications, counterpropaganda, and public diplomacy activities. The National Framework for Strategic Communication guides how interagency components are to integrate their activities. However, these organizations may be stovepiped within agencies, and competing agendas may be at stake. This report does not discuss technical and Internet architecture design solutions. Some may interpret the law to prevent federal agencies from conducting "propaganda" activities that may potentially reach domestic audiences. Others may wish to dismantle all websites that are seen to have malicious content or to facilitate acts of terror, while some may have a competing interest in keeping a site running and monitoring it for intelligence value. Key issues for Congress: Although the Comprehensive National Cybersecurity Initiative addresses a federal cybersecurity strategy and departmental roles and responsibilities, overclassification, competing equities, and poor information sharing between agencies hinder implementation of a national cybersecurity strategy. (See "Federal Government Efforts to Address Cyberterrorism.") Federal agencies have interpreted the United States Information and Educational Exchange Act of 1948 (22 U.S.C. § 1461), also known as the Smith-Mundt Act, as creating a "firewall" between foreign and domestic audiences, limiting U.S. government counterpropaganda activities on the Internet. (See "Institutional Constraints.") Some agencies favor monitoring and surveillance of potentially harmful websites, while others would shut them down entirely. (See "Intelligence Gain/Loss Calculus.") Different agency approaches to combating terrorists' use of the Internet and different definitions and strategies for activities such as information operations (IO) and strategic communications (SC) create an oversight challenge for Congress. (See "Counterpropaganda: Strategic Communications, Public Diplomacy, and Information Operations.") Cybersecurity proposals from the 111th Congress such as S. 3480, which contained controversial provisions labeled by the media as the Internet "Kill Switch," are likely to be reintroduced in some form in the 112th Congress. (See "Congressional Activity.") With growing interest in strategic communications and public diplomacy, there may also be an effort to revise the Smith-Mundt Act.
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The Congressional Budget Act of 1974 (hereinafter referred to as the Budget Act) establishes a requirement for Congress to adopt a budget resolution each year. The budget resolution represents an agreement between the House and Senate on a budgetary plan for the upcoming fiscal year (and several out years). The budget resolution does not become law; therefore no money is spent or collected as a result of its adoption. Instead, the outline is designed to establish parameters within which Congress will consider subsequent budgetary legislation that will fulfill the budgetary plan. Once the budget resolution has been agreed to by both chambers, certain levels contained in it are enforceable through points of order. This means that if subsequent legislation was being considered on the House or Senate floor that would violate certain levels established by the budget resolution, a Member could raise a point of order against the consideration of that legislation. Generally, such points of order can be waived in the House by a simple majority of Members and in the Senate by three-fifths of all Senators. The idea of a "traditional" budget resolution means a budget resolution as defined by the Budget Act, which specifies the way that a budget resolution shall be developed and considered and what components it must include. Specifically, it states that House and Senate Budget Committees shall develop the budget resolution, and in doing this, the Committees must hold hearings and receive testimony from Members of Congress and "such appropriate representatives of Federal departments and agencies, the general public, and national organizations as the committee deems desirable." Further, it states that the budget committees will receive input from their congressional colleagues in at least two ways: (1) through "consultation" with committees during the preparation of the budget resolution (the act applies only to the House Budget Committee) and 2) through the review of "Views and Estimates," which are required to be submitted by committees to the Budget Committee and reflect information on the desired levels of spending and revenue within the relevant committee's jurisdiction. The act also specifies how the budget resolution shall be considered by the House and Senate. For example, the Budget Act specifies that the budget resolution be debated for up to 50 hours in the Senate, with amendments permitted, and not subject to filibuster. The Budget Act requires that the budget resolution include the budgetary levels noted below either in the text of the budget resolution on in the accompanying report. It should be noted that while the Budget Act requires the inclusion of all of these levels, not all of these levels are enforceable by points of order. Some levels in the budget resolution are, therefore, included only for informational purposes. Provisions below that are enforceable are marked with an asterisk. total spending for the upcoming fiscal year and at least four out years*; total revenues for the upcoming fiscal year and at least four out years*; the amount, if any, by which the aggregate level of revenues should be increased or decreased by legislation for the upcoming fiscal year and at least four out years; the surplus/deficit for the upcoming fiscal year and at least four out years; new spending for each major functional category for the upcoming fiscal year and at least four out years; the public debt for the upcoming fiscal year and at least four out years; (in the Senate only) Social Security spending and revenue levels*; and amounts of spending allocated among committees*. It is common for the budget resolution to include other optional components such as those listed below. Provisions triggering the reconciliation process . If Congress intends to use the reconciliation process, it must include reconciliation directives (also referred to as reconciliation instructions) in the budget resolution. These directives instruct individual committees to develop and report legislation that would change laws within their respective jurisdictions related to direct spending, revenue, or the debt limit. Such reconciliation legislation is then eligible to be considered under special expedited procedures in both the House and Senate. Procedural provisions . A budget resolution typically includes procedural provisions such as House and Senate budgetary rules (enforced by points of order) and direction on the budgetary treatment of certain activities (such as energy savings contracts). Reserve funds and adjustments . Congress frequently includes "reserve funds" and "adjustments" in the annual budget resolution. These provisions provide the chairs of the House or Senate Budget Committees with the authority to adjust the budgetary allocations, aggregates, and levels in the future if certain conditions are met. Generally, the goal of reserve funds or adjustment is to allow certain policies to be considered on the floor without triggering a point of order for violating levels in the budget resolution. Policy statements . The budget resolution sometimes includes policy provisions that typically apply only to the House. These statements express the underlying assumptions, preferences, or priorities of the budget resolution but are not binding. The Bipartisan Budget Act of 2018 (BBA 2018, P.L. 115-123), enacted February 9, 2018, amended the statutory discretionary spending limits for FY2018 and FY2019. BBA 2018 comprised several other components as well, one of which was related to a congressional budget resolution for FY2019. The budget resolution provisions included in the BBA 2018 require the House and Senate Budget Committee chairs to each file a statement of budgetary levels, which would have effect in the respective chamber as if they had been included in a budget resolution. These levels are required to be filed for publication in the Congressional R ecord between April 15, 2018, and May 15, 2018. The Budget Committee chairs are not given discretion to file any budgetary levels they wish. Instead, the BBA 2018 requires that (1) for discretionary spending, the filed levels be consistent with the statutory limits on discretionary spending (that were amended by the BBA 2018) and (2) for mandatory spending and revenue levels, the filed levels be consistent with the most recent baseline of the Congressional Budget Office (CBO), which was released on April 9, 2018. The baseline is a projection of federal spending and revenue that would occur if existing law were left unchanged . The BBA provisions also give the Budget Committee chairs the option of including in the filing some specified provisions of the FY2018 budget resolution ( H.Con.Res. 71 [115 th Congress]), which was agreed to by Congress in October 2017. The Senate-related section in the BBA 2018 states that when the Senate Budget Committee chair files the required levels, the filing may also include for FY2019 the deficit-neutral reserve funds contained in the FY2018 budget resolution. See Appendix B for a full listing of these provisions. Likewise, the House-related section in the BBA 2018 states that when the House Budget Committee chair files the required levels, the filing may also include for FY2019 specified provisions contained in the FY2018 budget resolution, which include adjustments as well as procedural provisions. See Appendix C for a full listing of these provisions. The existence of the BBA 2018 provisions, however, does not preclude Congress from acting on a traditional budget resolution for FY2019, so Congress still has the option to consider a budget resolution that differs from the levels and components included in the BBA 2018 budget resolution provisions. In fact, the BBA 2018 specifies that the budget resolution sections shall expire if a concurrent resolution on the budget for FY2019 is agreed to by both the Senate and the House. Below, Table 1 and Table 2 compare the components of the budget resolution provisions included in the BBA 2018 with the common components of a traditional budget resolution. As described above, the Budget Act requires Congress to include certain components in a budget resolution while also giving Congress the option of including other types of material. Again, not all of these levels are enforceable through points of order. In the absence of agreement on a budget resolution, Congress will often employ alternative legislative tools to serve as a substitute for a budget resolution. These substitutes are typically referred to as "deeming resolutions," because they are deemed to serve in place of a budget resolution for the purposes of establishing enforceable budget levels for the upcoming fiscal year. Such mechanisms are not formally defined and have no specifically prescribed content. Instead, they simply represent the House and Senate, sometimes separately, using some alternative legislative procedures to deal with enforcement issues. Deeming resolutions can vary significantly in content and timing. Congress has included budget resolution provisions like the ones in the BBA 2018 in prior legislation related to the statutory discretionary spending limits. In each case noted below, the levels required to be filed were baseline levels of spending and revenue that would occur if existing law were left unchanged. The Budget Control Act of 2011 ( P.L. 112-25 ), which re-established statutory limits on discretionary spending, included a section requiring the Senate Budget Committee chair to file enforceable budgetary levels for FY2012 and for FY2013 in the absence of a traditional budget resolution in the Senate. The Bipartisan Budget Act of 2013 (often referred to as the Murray-Ryan Agreement, P.L. 113-67 ), which increased discretionary spending limits for both defense and nondefense for FY2014 and FY2015, included sections designed to serve as substitutes for a traditional congressional budget resolution in both the House and Senate for each FY2014 and FY2015. The Bipartisan Budget Act of 2015 ( P.L. 114-74 ), which increased discretionary spending limits for both defense and nondefense for FY2016 and FY2017, included a section requiring the Senate Budget Committee chair to file enforceable budgetary levels for FY2017 in the absence of a traditional budget resolution in the Senate. Appendix A. Relevant Text of the BBA 2018 Division C-Budgetary and Other Matters Title I- Budget Enforcement SEC. 30103. Authority for fiscal year 2019 budget resolution in the Senate. (a) Fiscal year 2019.—For purposes of enforcing the Congressional Budget Act of 1974 (2 U.S.C. 621 et seq.) after April 15, 2018, and enforcing budgetary points of order in prior concurrent resolutions on the budget, the allocations, aggregates, and levels provided for in subsection (b) shall apply in the Senate in the same manner as for a concurrent resolution on the budget for fiscal year 2019 with appropriate budgetary levels for fiscal years 2020 through 2028. (b) Committee allocations, aggregates, and levels.—After April 15, 2018, but not later than May 15, 2018, the Chairman of the Committee on the Budget of the Senate shall file— (1) for the Committee on Appropriations, committee allocations for fiscal year 2019 consistent with discretionary spending limits set forth in section 251(c)(6) of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended by this Act, for the purposes of enforcing section 302 of the Congressional Budget Act of 1974 (2 U.S.C. 633); (2) for all committees other than the Committee on Appropriations, committee allocations for fiscal years 2019, 2019 through 2023, and 2019 through 2028 consistent with the most recent baseline of the Congressional Budget Office, as adjusted for the budgetary effects of any provision of law enacted during the period beginning on the date such baseline is issued and ending on the date of submission of such statement, for the purposes of enforcing section 302 of the Congressional Budget Act of 1974 (2 U.S.C. 633); (3) aggregate spending levels for fiscal year 2019 in accordance with the allocations established under paragraphs (1) and (2), for the purpose of enforcing section 311 of the Congressional Budget Act of 1974 (2 U.S.C. 642); (4) aggregate revenue levels for fiscal years 2019, 2019 through 2023, and 2019 through 2028 consistent with the most recent baseline of the Congressional Budget Office, as adjusted for the budgetary effects of any provision of law enacted during the period beginning on the date such baseline is issued and ending on the date of submission of such statement, for the purpose of enforcing section 311 of the Congressional Budget Act of 1974 (2 U.S.C. 642); and (5) levels of Social Security revenues and outlays for fiscal years 2019, 2019 through 2023, and 2019 through 2028 consistent with the most recent baseline of the Congressional Budget Office, as adjusted for the budgetary effects of any provision of law enacted during the period beginning on the date such baseline is issued and ending on the date of submission of such statement, for the purpose of enforcing sections 302 and 311 of the Congressional Budget Act of 1974 (2 U.S.C. 633 and 642). (c) Additional matter.—The filing referred to in subsection (b) may also include for fiscal year 2019 the deficit-neutral reserve funds contained in title III of H.Con.Res. 71 (115 th Congress) updated by one fiscal year. (d) Expiration.—This section shall expire if a concurrent resolution on the budget for fiscal year 2019 is agreed to by the Senate and the House of Representatives pursuant to section 301 of the Congressional Budget Act of 1974 (2 U.S.C. 632). SEC. 30104. Authority for fiscal year 2019 budget resolution in the House of Representatives. (a) Fiscal year 2019.—If a concurrent resolution on the budget for fiscal year 2019 has not been adopted by April 15, 2018, for the purpose of enforcing the Congressional Budget Act of 1974, the allocations, aggregates, and levels provided for in subsection (b) shall apply in the House of Representatives after April 15, 2018, in the same manner as for a concurrent resolution on the budget for fiscal year 2019 with appropriate budgetary levels for fiscal year 2019 and for fiscal years 2020 through 2028. (b) Committee Allocations, Aggregates, and Levels.—In the House of Representatives, the Chair of the Committee on the Budget shall submit a statement for publication in the Congressional Record after April 15, 2018, but not later than May 15, 2018, containing— (1) for the Committee on Appropriations, committee allocations for fiscal year 2019 for discretionary budget authority at the total level set forth in section 251(c)(6) of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended by this Act, and the outlays flowing therefrom, and committee allocations for fiscal year 2019 for current law mandatory budget authority and outlays, for the purpose of enforcing section 302 of the Congressional Budget Act of 1974; (2) for all committees other than the Committee on Appropriations, committee allocations for fiscal year 2019 and for the period of fiscal years 2019 through 2028 at the levels included in the most recent baseline of the Congressional Budget Office, as adjusted for the budgetary effects of any provision of law enacted during the period beginning on the date such baseline is issued and ending on the date of submission of such statement, for the purpose of enforcing section 302 of the Congressional Budget Act of 1974; and (3) aggregate spending levels for fiscal year 2019 and aggregate revenue levels for fiscal year 2019 and for the period of fiscal years 2019 through 2028, at the levels included in the most recent baseline of the Congressional Budget Office, as adjusted for the budgetary effects of any provision of law enacted during the period beginning on the date such baseline is issued and ending on the date of submission of such statement, for the purpose of enforcing section 311 of the Congressional Budget Act of 1974. (c) Additional Matter.—The statement referred to in subsection (b) may also include for fiscal year 2019, the matter contained in the provisions referred to in subsection (f)(1). (d) Fiscal Year 2019 Allocation to the Committee on Appropriations.—If the statement referred to in subsection (b) is not filed by May 15, 2018, then the matter referred to in subsection (b)(1) shall be submitted by the Chair of the Committee on the Budget for publication in the Congressional Record on the next day that the House of Representatives is in session. (e) Adjustments.—The chair of the Committee on the Budget of the House of Representatives may adjust the levels included in the statement referred to in subsection (b) to reflect the budgetary effects of any legislation enacted during the 115 th Congress that reduces the deficit or as otherwise necessary. (f) Application.—Upon submission of the statement referred to in subsection (b)— (1) all references in sections 5101 through 5112, sections 5201 through 5205, section 5301, and section 5401 of House Concurrent Resolution 71 (115 th Congress) to a fiscal year shall be considered for all purposes in the House to be references to the succeeding fiscal year; and (2) all references in the provisions referred to in paragraph (1) to allocations, aggregates, or other appropriate levels in "this concurrent resolution", "the most recently agreed to concurrent resolution on the budget", or "this resolution" shall be considered for all purposes in the House to be references to the allocations, aggregates, or other appropriate levels contained in the statement referred to in subsection (b), as adjusted. (g) Expiration.—Subsections (a) through (f) shall no longer apply if a concurrent resolution on the budget for fiscal year 2019 is agreed to by the Senate and House of Representatives. Appendix B. Senate Provisions of H.Con.Res. 71 That May Be Included in Senate Filing TITLE III—RESERVE FUNDS SEC. 3001. DEFICIT-NEUTRAL RESERVE FUND TO PROTECT FLEXIBLE AND AFFORDABLE HEALTH CARE FOR ALL. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution, and make adjustments to the pay-as-you-go ledger, for one or more bills, joint resolutions, amendments, amendments between the Houses, motions, or conference reports relating to repealing or replacing the Patient Protection and Affordable Care Act ( P.L. 111-148 ; 124 Stat. 119) and the Health Care and Education Reconciliation Act of 2010 ( P.L. 111-152 ; 124 Stat. 1029), by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over the period of the total of fiscal years 2018 through 2027. SEC. 3004. DEFICIT-NEUTRAL RESERVE FUND FOR EXTENDING THE STATE CHILDREN'S HEALTH INSURANCE PROGRAM. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution, and make adjustments to the pay-as-you-go ledger, for one or more bills, joint resolutions, amendments, amendments between the Houses, motions, or conference reports relating to an extension of the State Children's Health Insurance Program, by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over either the period of the total of fiscal years 2018 through 2022 or the period of the total of fiscal years 2018 through 2027. SEC. 3005. DEFICIT-NEUTRAL RESERVE FUND TO STRENGTHEN AMERICAN FAMILIES. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution, and make adjustments to the pay-as-you-go ledger, for one or more bills, joint resolutions, amendments, amendments between the Houses, motions, or conference reports relating to— (1) addressing the opioid and substance abuse crisis; (2) protecting and assisting victims of domestic abuse; (3) foster care, child care, marriage, and fatherhood programs; (4) making it easier to save for retirement; (5) reforming the American public housing system; (6) the Community Development Block Grant Program; or (7) extending expiring health care provisions, by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over either the period of the total of fiscal years 2018 through 2022 or the period of the total of fiscal years 2018 through 2027. SEC. 3006. DEFICIT-NEUTRAL RESERVE FUND TO PROMOTE INNOVATIVE EDUCATIONAL AND NUTRITIONAL MODELS AND SYSTEMS FOR AMERICAN STUDENTS. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution, and make adjustments to the pay-as-you-go ledger, for one or more bills, joint resolutions, amendments, amendments between the Houses, motions, or conference reports relating to— (1) amending the Higher Education Act of 1965 (20 U.S.C. 1001 et seq.); (2) ensuring State flexibility in education; (3) enhancing outcomes with Federal workforce development, job training, and reemployment programs; (4) the consolidation and streamlining of overlapping early learning and child care programs; (5) educational programs for individuals with disabilities; or (6) child nutrition programs, by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over either the period of the total of fiscal years 2018 through 2022 or the period of the total of fiscal years 2018 through 2027. SEC. 3007. DEFICIT-NEUTRAL RESERVE FUND TO IMPROVE THE AMERICAN BANKING SYSTEM. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution, and make adjustments to the pay-as-you-go ledger, for one or more bills, joint resolutions, amendments, amendments between the Houses, motions, or conference reports relating to the American banking system by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over either the period of the total of fiscal years 2018 through 2022 or the period of the total of fiscal years 2018 through 2027. SEC. 3008. DEFICIT-NEUTRAL RESERVE FUND TO PROMOTE AMERICAN AGRICULTURE, ENERGY, TRANSPORTATION, AND INFRASTRUCTURE IMPROVEMENTS. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution, and make adjustments to the pay-as-you-go ledger, for one or more bills, joint resolutions, amendments, amendments between the Houses, motions, or conference reports relating to— (1) the Farm Bill; (2) American energy policies; (3) the Nuclear Regulatory Commission; (4) North American energy development; (5) infrastructure, transportation, and water development; (6) the Federal Aviation Administration; (7) the National Flood Insurance Program; (8) State mineral royalty revenues; or (9) soda ash royalties, by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over either the period of the total of fiscal years 2018 through 2022 or the period of the total of fiscal years 2018 through 2027. SEC. 3009. DEFICIT-NEUTRAL RESERVE FUND TO RESTORE AMERICAN MILITARY POWER. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution, and make adjustments to the pay-as-you-go ledger, for one or more bills, joint resolutions, amendments, amendments between the Houses, motions, or conference reports relating to— (1) improving military readiness, including deferred Facilities Sustainment Restoration and Modernization; (2) military technological superiority; (3) structural defense reforms; or (4) strengthening cybersecurity efforts, by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over either the period of the total of fiscal years 2018 through 2022 or the period of the total of fiscal years 2018 through 2027. SEC. 3010. DEFICIT-NEUTRAL RESERVE FUND FOR VETERANS AND SERVICE MEMBERS. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution, and make adjustments to the pay-as-you-go ledger, for one or more bills, joint resolutions, amendments, amendments between the Houses, motions, or conference reports relating to improving the delivery of benefits and services to veterans and service members by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over either the period of the total of fiscal years 2018 through 2022 or the period of the total of fiscal years 2018 through 2027. SEC. 3011. DEFICIT-NEUTRAL RESERVE FUND FOR PUBLIC LANDS AND THE ENVIRONMENT. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution, and make adjustments to the pay-as-you-go ledger, for one or more bills, joint resolutions, amendments, amendments between the Houses, motions, or conference reports relating to— (1) the Endangered Species Act of 1973 (16 U.S.C. 1531 et seq.); (2) forest health and wildfire prevention and control; (3) resources for wildland firefighting for the Forest Service and Department of Interior; (4) the payments in lieu of taxes program; or (5) the secure rural schools and community self-determination program, by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over either the period of the total of fiscal years 2018 through 2022 or the period of the total of fiscal years 2018 through 2027. SEC. 3012. DEFICIT-NEUTRAL RESERVE FUND TO SECURE THE AMERICAN BORDER. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution, and make adjustments to the pay-as-you-go ledger, for one or more bills, joint resolutions, amendments, amendments between the Houses, motions, or conference reports relating to— (1) securing the border of the United States; (2) ending human trafficking; or (3) stopping the transportation of narcotics into the United States, by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over either the period of the total of fiscal years 2018 through 2022 or the period of the total of fiscal years 2018 through 2027. SEC. 3013. DEFICIT-NEUTRAL RESERVE FUND TO PROMOTE ECONOMIC GROWTH, THE PRIVATE SECTOR, AND TO ENHANCE JOB CREATION. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution, and make adjustments to the pay-as-you-go ledger, for one or more bills, joint resolutions, amendments, amendments between the Houses, motions, or conference reports relating to— (1) reducing costs to businesses and individuals stemming from Federal regulations; (2) increasing commerce and economic growth; or (3) enhancing job creation, by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over either the period of the total of fiscal years 2018 through 2022 or the period of the total of fiscal years 2018 through 2027. SEC. 3014. DEFICIT-NEUTRAL RESERVE FUND FOR LEGISLATION MODIFYING STATUTORY BUDGETARY CONTROLS. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution, and make adjustments to the pay-as-you-go ledger, for one or more bills, joint resolutions, amendments, amendments between the Houses, motions, or conference reports relating to modifying statutory budget controls, which may include adjustments to the discretionary spending limits and changes to the scope of sequestration as carried out by the Office of Management and Budget, such as for the Financial Accounting Standards Board, Public Company Accounting Oversight Board, Securities Investor Protection Corporation, and other similar entities, by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over the period of the total of fiscal years 2018 through 2027. SEC. 3015. DEFICIT-NEUTRAL RESERVE FUND TO PREVENT THE TAXPAYER BAILOUT OF PENSION PLANS. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution, and make adjustments to the pay-as-you-go ledger, for one or more bills, joint resolutions, amendments, amendments between the Houses, motions, or conference reports relating to the prevention of taxpayer bailout of pension plans, by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over either the period of the total of fiscal years 2018 through 2022 or the period of the total of fiscal years 2018 through 2027. SEC. 3016. DEFICIT-NEUTRAL RESERVE FUND RELATING TO IMPLEMENTING WORK REQUIREMENTS IN ALL MEANS-TESTED FEDERAL WELFARE PROGRAMS. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution, and make adjustments to the pay-as-you-go ledger, for one or more bills, joint resolutions, amendments, amendments between the Houses, motions, or conference reports relating to implementing work requirements in all means-tested Federal welfare programs by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over either the period of the total of fiscal years 2018 through 2022 or the period of the total of fiscal years 2018 through 2027. SEC. 3017. DEFICIT-NEUTRAL RESERVE FUND TO PROTECT MEDICARE AND REPEAL THE INDEPENDENT PAYMENT ADVISORY BOARD. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution, and make adjustments to the pay-as-you-go ledger, for one or more bills, joint resolutions, amendments, amendments between the Houses, motions, or conference reports relating to protecting the Medicare program under title XVIII of the Social Security Act (42 U.S.C. 1395 et seq.), which may include repealing the Independent Payment Advisory Board established under section 1899A of such Act (42 U.S.C. 1395kkk), by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over either the period of the total of fiscal years 2018 through 2022 or the period of the total of fiscal years 2018 through 2027. SEC. 3018. DEFICIT-NEUTRAL RESERVE FUND RELATING TO AFFORDABLE CHILD AND DEPENDENT CARE. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution, and make adjustments to the pay-as-you-go ledger, for one or more bills, joint resolutions, amendments, amendments between the Houses, motions, or conference reports relating to making the cost of child and dependent care more affordable and useful for American families by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over either the period of the total of fiscal years 2018 through 2022 or the period of the total of fiscal years 2018 through 2027. SEC. 3019. DEFICIT-NEUTRAL RESERVE FUND RELATING TO WORKER TRAINING PROGRAMS. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution, and make adjustments to the pay-as-you-go ledger, for one or more bills, joint resolutions, amendments, amendments between the Houses, motions, or conference reports relating to worker training programs, such as training programs that target workers that need advanced skills to progress in their current profession or apprenticeship or certificate programs that provide retraining for a new industry, by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over either the period of the total of fiscal years 2018 through 2022 or the period of the total of fiscal years 2018 through 2027. SEC. 3021. DEFICIT-NEUTRAL RESERVE FUND RELATING TO PROTECTING MEDICARE AND MEDICAID. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution, and make adjustments to the pay-as-you-go ledger, for one or more bills, joint resolutions, amendments, amendments between the Houses, motions, or conference reports relating to protecting the Medicaid program under title XIX of the Social Security Act (42 U.S.C. 1396 et seq.), which may include strengthening and improving Medicaid for the most vulnerable populations, and extending the life of the Federal Hospital Insurance Trust Fund by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over either the period of the total of fiscal years 2018 through 2022 or the period of the total of fiscal years 2018 through 2027. SEC. 3022. DEFICIT-NEUTRAL RESERVE FUND RELATING TO THE PROVISION OF TAX RELIEF FOR FAMILIES WITH CHILDREN. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution, and make adjustments to the pay-as-you-go ledger, for one or more bills, joint resolutions, amendments, amendments between the Houses, motions, or conference reports relating to changes in Federal tax laws, which may include lowering taxes on families with children, by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over the period of the total of fiscal years 2018 through 2027. SEC. 3023. DEFICIT-NEUTRAL RESERVE FUND RELATING TO THE PROVISION OF TAX RELIEF FOR SMALL BUSINESSES. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution, and make adjustments to the pay-as-you-go ledger, for one or more bills, joint resolutions, amendments, amendments between the Houses, motions, or conference reports relating to changes in Federal tax laws, which may include the provision of tax relief for small businesses, along with provisions to prevent upper-income taxpayers from sheltering income from taxation at the appropriate rate, by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over the period of the total of fiscal years 2018 through 2027. SEC. 3024. DEFICIT-NEUTRAL RESERVE FUND RELATING TO TAX RELIEF FOR HARD-WORKING MIDDLE-CLASS AMERICANS. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution, and make adjustments to the pay-as-you-go ledger, for one or more bills, joint resolutions, amendments, amendments between the Houses, motions, or conference reports relating to changes in Federal tax laws, which may include reducing federal deductions, such as the state and local tax deduction which disproportionally favors high-income individuals, to ensure relief for middle-income taxpayers, by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over either the period of the total of fiscal years 2018 through 2027. SEC. 3025. DEFICIT-NEUTRAL RESERVE FUND RELATING TO MAKING THE AMERICAN TAX SYSTEM SIMPLER AND FAIRER FOR ALL AMERICANS. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution, and make adjustments to the pay-as-you-go ledger, for one or more bills, joint resolutions, amendments, amendments between the Houses, motions, or conference reports relating to changes in Federal tax laws, which may include provisions to make the American tax system simpler and fairer for all Americans, by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over the period of the total of fiscal years 2018 through 2027. SEC. 3026. DEFICIT-NEUTRAL RESERVE FUND RELATING TO TAX CUTS FOR WORKING AMERICAN FAMILIES. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution, and make adjustments to the pay-as-you-go ledger, for one or more bills, joint resolutions, amendments, amendments between the Houses, motions, or conference reports relating to increasing per-child Federal tax relief, which may include amending the child tax credit, by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over either the period of the total of fiscal years 2018 through 2022 or the period of the total of fiscal years 2018 through 2027. SEC. 3027. DEFICIT-NEUTRAL RESERVE FUND RELATING TO THE PROVISION OF INCENTIVES FOR BUSINESSES TO INVEST IN AMERICA AND CREATE JOBS IN AMERICA. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution, and make adjustments to the pay-as-you-go ledger, for one or more bills, joint resolutions, amendments, amendments between the Houses, motions, or conference reports relating to changes in Federal tax laws, which may include international tax provisions that provide or enhance incentives for businesses to invest in America, generate American jobs, retain American jobs, and return jobs to America, by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over either the period of the total of fiscal years 2018 through 2022 or the period of the total of fiscal years 2018 through 2027. SEC. 3028. DEFICIT-NEUTRAL RESERVE FUND RELATING TO ELIMINATING TAX BREAKS FOR COMPANIES THAT SHIP JOBS TO FOREIGN COUNTRIES. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution, and make adjustments to the pay-as-you-go ledger, for one or more bills, joint resolutions, amendments, amendments between the Houses, motions, or conference reports relating to eliminating tax breaks for companies that outsource jobs to foreign countries, by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over either the period of the total of fiscal years 2018 through 2022 or the period of the total of fiscal years 2018 through 2027. SEC. 3029. DEFICIT-NEUTRAL RESERVE FUND RELATING TO PROVIDING FULL, PERMANENT, AND MANDATORY FUNDING FOR THE PAYMENT IN LIEU OF TAXES PROGRAM. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution, and make adjustments to the pay-as-you-go ledger, for one or more bills, joint resolutions, amendments, amendments between the Houses, motions, or conference reports relating to providing full, permanent, and mandatory funding for the payment in lieu of taxes program by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over either the period of the total of fiscal years 2018 through 2022 or the period of the total of fiscal years 2018 through 2027. SEC. 3030. DEFICIT-NEUTRAL RESERVE FUND RELATING TO TAX REFORM WHICH MAINTAINS THE PROGRESSIVITY OF THE TAX SYSTEM. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution, and make adjustments to the pay-as-you-go ledger, for one or more bills, joint resolutions, amendments, amendments between the Houses, motions, or conference reports relating to changes in Federal tax laws, which may include tax reform proposals to ensure that the reformed tax code parallels the existing tax code with respect to relative burdens and does not shift the tax burden from high-income to lower- and middle-income taxpayers, by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over the period of the total of fiscal years 2018 through 2027. SEC. 3031. DEFICIT-NEUTRAL RESERVE FUND RELATING TO SIGNIFICANTLY IMPROVING THE BUDGET PROCESS. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution, and make adjustments to the pay-as-you-go ledger, for one or more bills, joint resolutions, amendments, amendments between the Houses, motions, or conference reports relating to significantly improving the budget process by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over either the period of the total of fiscal years 2018 through 2022 or the period of the total of fiscal years 2018 through 2027. Appendix C. House Provisions of H.Con.Res. 71 That May Be Included in House Filing TITLE V—BUDGET PROCESS IN THE HOUSE OF REPRESENTATIVES Subtitle A—Budget Enforcement SEC. 5101. POINT OF ORDER AGAINST INCREASING LONG-TERM DIRECT SPENDING. (a) Point of Order- It shall not be in order in the House of Representatives to consider any bill or joint resolution, or amendment thereto or conference report thereon, that would cause a net increase in direct spending in excess of $2,500,000,000 in any of the 4 consecutive 10-fiscal year periods described in subsection (b). (b) Congressional Budget Office Analysis of Proposals- The Director of the Congressional Budget Office shall, to the extent practicable, prepare an estimate of whether a bill or joint resolution reported by a committee (other than the Committee on Appropriations), or amendment thereto or conference report thereon, would cause, relative to current law, a net increase in direct spending in the House of Representatives, in excess of $2,500,000,000 in any of the 4 consecutive 10-fiscal year periods beginning after the last fiscal year of this concurrent resolution. (c) Limitation- In the House of Representatives, the provisions of this section shall not apply to any bills or joint resolutions, or amendments thereto or conference reports thereon, for which the chair of the Committee on the Budget has made adjustments to the allocations, aggregates, or other budgetary levels in this concurrent resolution. (d) Determinations of Budget Levels- For purposes of this section, the levels of net increases in direct spending shall be determined on the basis of estimates provided by the chair of the Committee on the Budget of the House of Representatives. (e) Sunset- This section shall have no force or effect after September 30, 2018. SEC. 5102. ALLOCATION FOR OVERSEAS CONTINGENCY OPERATIONS/GLOBAL WAR ON TERRORISM. (a) Separate Allocation for Overseas Contingency Operations/Global War on Terrorism- In the House of Representatives, there shall be a separate allocation of new budget authority and outlays provided to the Committee on Appropriations for the purposes of Overseas Contingency Operations/Global War on Terrorism, which shall be deemed to be an allocation under section 302(a) of the Congressional Budget Act of 1974. Section 302(a)(3) of such Act shall not apply to such separate allocation. (b) Section 302 Allocations- The separate allocation referred to in subsection (a) shall be the exclusive allocation for Overseas Contingency Operations/Global War on Terrorism under section 302(b) of the Congressional Budget Act of 1974. The Committee on Appropriations of the House of Representatives may provide suballocations of such separate allocation under such section 302(b). (c) Application- For purposes of enforcing the separate allocation referred to in subsection (a) under section 302(f) of the Congressional Budget Act of 1974, the `first fiscal year' and the `total of fiscal years' shall be deemed to refer to fiscal year 2018. Section 302(c) of such Act shall not apply to such separate allocation. (d) Designations- New budget authority or outlays shall only be counted toward the allocation referred to in subsection (a) if designated pursuant to section 251(b)(2)(A)(ii) of the Balanced Budget and Emergency Deficit Control Act of 1985. (e) Adjustments- For purposes of subsection (a) for fiscal year 2018, no adjustment shall be made under section 314(a) of the Congressional Budget Act of 1974 if any adjustment would be made under section 251(b)(2)(A)(ii) of the Balanced Budget and Emergency Deficit Control Act of 1985. SEC. 5103. LIMITATION ON CHANGES IN CERTAIN MANDATORY PROGRAMS. (a) Definition- In this section, the term `change in mandatory programs' means a provision that— (1) would have been estimated as affecting direct spending or receipts under section 252 of the Balanced Budget and Emergency Deficit Control Act of 1985 (as in effect prior to September 30, 2002) if the provision were included in legislation other than appropriation Acts; and (2) results in a net decrease in budget authority in the budget year, but does not result in a net decrease in outlays over the total of the current year, the budget year, and all fiscal years covered under the most recently agreed to concurrent resolution on the budget. (b) Point of Order in the House of Representatives- (1) IN GENERAL- A provision in a bill or joint resolution making appropriations for a full fiscal year that proposes a change in mandatory programs that, if enacted, would cause the absolute value of the total budget authority of all such changes in mandatory programs enacted in relation to a full fiscal year to be more than the amount specified in paragraph (3), shall not be in order in the House of Representatives. (2) AMENDMENTS AND CONFERENCE REPORTS- It shall not be in order in the House of Representatives to consider an amendment to, or a conference report on, a bill or joint resolution making appropriations for a full fiscal year if such amendment thereto or conference report thereon proposes a change in mandatory programs that, if enacted, would cause the absolute value of the total budget authority of all such changes in mandatory programs enacted in relation to a full fiscal year to be more than the amount specified in paragraph (3). (3) AMOUNT- The amount specified in this paragraph is— (A) for fiscal year 2018, $19,100,000,000; (B) for fiscal year 2019, $17,000,000,000; and (C) for fiscal year 2020, $15,000,000,000. (c) Determination- For purposes of this section, budgetary levels shall be determined on the basis of estimates provided by the chair of the Committee on the Budget of the House of Representatives. SEC. 5104. LIMITATION ON ADVANCE APPROPRIATIONS. (a) In General- In the House of Representatives, except as provided for in subsection (b), any general appropriation bill or bill or joint resolution continuing appropriations, or amendment thereto or conference report thereon, may not provide advance appropriations. (b) Exceptions- An advance appropriation may be provided for programs, projects, activities, or accounts identified in the report or the joint explanatory statement of managers, as applicable, accompanying this concurrent resolution under the following headings: (1) GENERAL- `Accounts Identified for Advance Appropriations'. (2) VETERANS- `Veterans Accounts Identified for Advance Appropriations'. (c) Limitations- The aggregate level of advance appropriations shall not exceed the following: (1) GENERAL- $28,852,000,000 in new budget authority for all programs identified pursuant to subsection (b)(1). (2) VETERANS- $70,699,313,000 in new budget authority for programs in the Department of Veterans Affairs identified pursuant to subsection (b)(2). (d) Definition- In this section, the term `advance appropriation' means any new discretionary budget authority provided in a general appropriation bill or joint resolution continuing appropriations for fiscal year 2018, or any amendment thereto or conference report thereon, that first becomes available for the first fiscal year following fiscal year 2018. SEC. 5105. ESTIMATES OF DEBT SERVICE COSTS. In the House of Representatives, the chair of the Committee on the Budget may direct the Congressional Budget Office to include, in any estimate prepared under section 402 of the Congressional Budget Act of 1974 with respect to any bill or joint resolution, an estimate of any change in debt service costs resulting from carrying out such bill or resolution. Any estimate of debt service costs provided under this section shall be advisory and shall not be used for purposes of enforcement of such Act, the Rules of the House of Representatives, or this concurrent resolution. This section shall not apply to authorizations of programs funded by discretionary spending or to appropriation bills or joint resolutions, but shall apply to changes in the authorization level of appropriated entitlements. SEC. 5106. FAIR-VALUE CREDIT ESTIMATES. (a) All Credit Programs- Whenever the Director of the Congressional Budget Office provides an estimate of any measure that establishes or modifies any program providing loans or loan guarantees, the Director shall also, to the extent practicable, provide a fair-value estimate of such loan or loan guarantee program if requested by the chair of the Committee on the Budget of the House of Representatives. (b) Student Financial Assistance and Housing Programs- The Director of the Congressional Budget Office shall provide, to the extent practicable, a fair-value estimate as part of any estimate for any measure that establishes or modifies a loan or loan guarantee program for student financial assistance or housing (including residential mortgage). (c) Baseline Estimates- The Congressional Budget Office shall include estimates, on a fair-value and credit reform basis, of loan and loan guarantee programs for student financial assistance, housing (including residential mortgage), and such other major loan and loan guarantee programs, as practicable, in its The Budget and Economic Outlook: 2018 to 2027. (d) Enforcement in the House of Representatives- If the Director of the Congressional Budget Office provides an estimate pursuant to subsection (a) or (b), the chair of the Committee on the Budget of the House of Representatives may use such estimate to determine compliance with the Congressional Budget Act of 1974 and other budget enforcement requirements. SEC. 5107. ESTIMATES OF MACROECONOMIC EFFECTS OF MAJOR LEGISLATION. (a) CBO and JCT Estimates- During the 115 th Congress, any estimate of major legislation considered in the House of Representatives provided by the Congressional Budget Office under section 402 of the Congressional Budget Act of 1974 or by the Joint Committee on Taxation to the Congressional Budget Office under section 201(f) of such Act shall, to the extent practicable, incorporate the budgetary effects of changes in economic output, employment, capital stock, and other macroeconomic variables resulting from such major legislation. (b) Contents- Any estimate referred to in subsection (a) shall, to the extent practicable, include— (1) a qualitative assessment of the budgetary effects (including macroeconomic variables described in subsection (a)) of the major legislation in the 20-fiscal year period beginning after the last fiscal year of the most recently agreed to concurrent resolution on the budget that sets forth budgetary levels required under section 301 of the Congressional Budget Act of 1974; and (2) an identification of the critical assumptions and the source of data underlying that estimate. (c) Definitions- In this section: (1) MAJOR LEGISLATION- The term `major legislation' means a bill or joint resolution, or amendment thereto or conference report thereon— (A) for which an estimate is required to be prepared pursuant to section 402 of the Congressional Budget Act of 1974 (2 U.S.C. 653) and that causes a gross budgetary effect (before incorporating macroeconomic effects and not including timing shifts) in a fiscal year in the period of years of the most recently agreed to concurrent resolution on the budget equal to or greater than 0.25 percent of the current projected gross domestic product of the United States for that fiscal year; or (B) designated as such by— (i) the chair of the Committee on the Budget of the House of Representatives for all direct spending legislation; or (ii) the Member who is Chairman or Vice Chairman of the Joint Committee on Taxation for revenue legislation. (2) BUDGETARY EFFECTS- The term `budgetary effects' means changes in revenues, direct spending outlays, and deficits. (3) TIMING SHIFTS- The term `timing shifts' means— (A) provisions that cause a delay of the date on which outlays flowing from direct spending would otherwise occur from one fiscal year to the next fiscal year; or (B) provisions that cause an acceleration of the date on which revenues would otherwise occur from one fiscal year to the prior fiscal year. SEC. 5108. ADJUSTMENTS FOR IMPROVED CONTROL OF BUDGETARY RESOURCES. (a) Adjustments of Discretionary and Direct Spending Levels- In the House of Representatives, if a committee (other than the Committee on Appropriations) reports a bill or joint resolution, or an amendment thereto is offered or conference report thereon is submitted, providing for a decrease in direct spending (budget authority and outlays flowing therefrom) for any fiscal year and also provides for an authorization of appropriations for the same purpose, upon the enactment of such measure, the chair of the Committee on the Budget may decrease the allocation to the applicable authorizing committee that reports such measure and increase the allocation of discretionary spending (budget authority and outlays flowing therefrom) to the Committee on Appropriations for fiscal year 2018 by an amount equal to the new budget authority (and outlays flowing therefrom) provided for in a bill or joint resolution making appropriations for the same purpose. (b) Determinations- In the House of Representatives, for purposes of enforcing this concurrent resolution, the allocations and aggregate levels of new budget authority, outlays, direct spending, revenues, deficits, and surpluses for fiscal year 2018 and the total of fiscal years 2018 through 2027 shall be determined on the basis of estimates made by the chair of the Committee on the Budget and such chair may adjust the applicable levels in this concurrent resolution. SEC. 5109. SCORING RULE FOR ENERGY SAVINGS PERFORMANCE CONTRACTS. (a) In General- The Director of the Congressional Budget Office shall estimate provisions of any bill or joint resolution, or amendment thereto or conference report thereon, that provides the authority to enter into or modify any covered energy savings contract on a net present value basis (NPV). (b) NPV Calculations- The net present value of any covered energy savings contract shall be calculated as follows: (1) The discount rate shall reflect market risk. (2) The cash flows shall include, whether classified as mandatory or discretionary, payments to contractors under the terms of their contracts, payments to contractors for other services, and direct savings in energy and energy-related costs. (3) The stream of payments shall cover the period covered by the contracts but not to exceed 25 years. (c) Definition- As used in this section, the term `covered energy savings contract' means— (1) an energy savings performance contract authorized under section 801 of the National Energy Conservation Policy Act; or (2) a utility energy service contract, as described in the Office of Management and Budget Memorandum on Federal Use of Energy Savings Performance Contracting, dated July 25, 1998 (M-98-13), and the Office of Management and Budget Memorandum on the Federal Use of Energy Saving Performance Contracts and Utility Energy Service Contracts, dated September 28, 2015 (M-12-21), or any successor to either memorandum. (d) Enforcement in the House of Representatives- In the House of Representatives, if any net present value of any covered energy savings contract calculated under subsection (b) results in a net savings, then the budgetary effects of such contract shall not be counted for purposes of titles III and IV of the Congressional Budget Act of 1974, this concurrent resolution, or clause 10 of rule XXI of the Rules of the House of Representatives. (e) Classification of Spending- For purposes of budget enforcement, the estimated net present value of the budget authority provided by the measure, and outlays flowing therefrom, shall be classified as direct spending. (f) Sense of the House of Representatives- It is the sense of the House of Representatives that— (1) the Director of the Office of Management and Budget, in consultation with the Director of the Congressional Budget Office, should separately identify the cash flows under subsection (b)(2) and include such information in the President's annual budget submission under section 1105(a) of title 31, United States Code; and (2) the scoring method used in this section should not be used to score any contracts other than covered energy savings contracts. SEC. 5110. LIMITATION ON TRANSFERS FROM THE GENERAL FUND OF THE TREASURY TO THE HIGHWAY TRUST FUND. In the House of Representatives, for purposes of the Congressional Budget Act of 1974, the Balanced Budget and Emergency Deficit Control Act of 1985, and the rules or orders of the House of Representatives, a bill or joint resolution, or an amendment thereto or conference report thereon, that transfers funds from the general fund of the Treasury to the Highway Trust Fund shall be counted as new budget authority and outlays equal to the amount of the transfer in the fiscal year the transfer occurs. SEC. 5111. PROHIBITION ON USE OF FEDERAL RESERVE SURPLUSES AS AN OFFSET. In the House of Representatives, any provision of a bill or joint resolution, or amendment thereto or conference report thereon, that transfers any portion of the net surplus of the Federal Reserve System to the general fund of the Treasury shall not be counted for purposes of enforcing the Congressional Budget Act of 1974, this concurrent resolution, or clause 10 of rule XXI of the Rules of the House of Representatives. SEC. 5112. PROHIBITION ON USE OF GUARANTEE FEES AS AN OFFSET. In the House of Representatives, any provision of a bill or joint resolution, or amendment thereto or conference report thereon, that increases, or extends the increase of, any guarantee fees of the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac) shall not be counted for purposes of enforcing the Congressional Budget Act of 1974, this concurrent resolution, or clause 10 of rule XXI of the Rules of the House of Representatives. Subtitle B — Other Provisions SEC. 5201. BUDGETARY TREATMENT OF ADMINISTRATIVE EXPENSES. (a) In General- In the House of Representatives, notwithstanding section 302(a)(1) of the Congressional Budget Act of 1974, section 13301 of the Budget Enforcement Act of 1990, and section 2009a of title 39, United States Code, the report or the joint explanatory statement, as applicable, accompanying this concurrent resolution shall include in its allocation to the Committee on Appropriations under section 302(a) of the Congressional Budget Act of 1974 amounts for the discretionary administrative expenses of the Social Security Administration and the United States Postal Service. (b) Special Rule- In the House of Representatives, for purposes of enforcing section 302(f) of the Congressional Budget Act of 1974, estimates of the levels of total new budget authority and total outlays provided by a measure shall include any discretionary amounts described in subsection (a). SEC. 5202. APPLICATION AND EFFECT OF CHANGES IN ALLOCATIONS AND AGGREGATES. (a) Application- In the House of Representatives, any adjustments of the allocations, aggregates, and other budgetary levels made pursuant to this concurrent resolution shall— (1) apply while that measure is under consideration; (2) take effect upon the enactment of that measure; and (3) be published in the Congressional Record as soon as practicable. (b) Effect of Changed Allocations and Aggregates- Revised allocations and aggregates resulting from these adjustments shall be considered for the purposes of the Congressional Budget Act of 1974 as the allocations and aggregates contained in this concurrent resolution. (c) Budget Committee Determinations- For purposes of this concurrent resolution, the budgetary levels for a fiscal year or period of fiscal years shall be determined on the basis of estimates made by the chair of the Committee on the Budget of the House of Representatives. (d) Aggregates, Allocations and Application- In the House of Representatives, for purposes of this concurrent resolution and budget enforcement, the consideration of any bill or joint resolution, or amendment thereto or conference report thereon, for which the chair of the Committee on the Budget makes adjustments or revisions in the allocations, aggregates, and other budgetary levels of this concurrent resolution shall not be subject to the points of order set forth in clause 10 of rule XXI of the Rules of the House of Representatives or section 5101 of this concurrent resolution. (e) Other Adjustments- The chair of the Committee on the Budget of the House of Representatives may adjust other appropriate levels in this concurrent resolution depending on congressional action on pending reconciliation legislation. SEC. 5203. ADJUSTMENTS TO REFLECT CHANGES IN CONCEPTS AND DEFINITIONS. In the House of Representatives, the chair of the Committee on the Budget may adjust the appropriate aggregates, allocations, and other budgetary levels in this concurrent resolution for any change in budgetary concepts and definitions consistent with section 251(b)(1) of the Balanced Budget and Emergency Deficit Control Act of 1985. SEC. 5204. ADJUSTMENT FOR CHANGES IN THE BASELINE. In the House of Representatives, the chair of the Committee on the Budget may adjust the allocations, aggregates, reconciliation targets, and other appropriate budgetary levels in this concurrent resolution to reflect changes resulting from the Congressional Budget Office's update to its baseline for fiscal years 2018 through 2027. SEC. 5205. APPLICATION OF RULE REGARDING LIMITS ON DISCRETIONARY SPENDING. Section 314(f) of the Congressional Budget Act of 1974 shall not apply in the House of Representatives to any bill, joint resolution, or amendment that provides new budget authority for a fiscal year or to any conference report on any such bill or resolution if— (1) the enactment of that bill or resolution; (2) the adoption and enactment of that amendment; or (3) the enactment of that bill or resolution in the form recommended in that conference report, would not cause the 302(a) allocation to the Committee on Appropriations for fiscal year 2018 to be exceeded. Subtitle C—Adjustment Authority SEC. 5301. ADJUSTMENT AUTHORITY FOR AMENDMENTS TO STATUTORY CAPS . During the 115 th Congress, if a measure becomes law that amends the discretionary spending limits established under section 251(c) of the Balanced Budget and Emergency Deficit Control Act of 1985 (2 U.S.C. 901(c)), such as a measure increasing the limit for the revised security category for fiscal year 2018 to be $640,000,000,000, the chair of the Committee on the Budget of the House of Representatives may adjust the allocation called for under section 302(a) of the Congressional Budget Act of 1974 (2 U.S.C. 633(a)) to the appropriate committee or committees of the House of Representatives, and may adjust all other budgetary aggregates, allocations, levels, and limits contained in this resolution, as necessary, consistent with such measure. Subtitle D—Reserve Funds SEC. 5401. RESERVE FUND FOR INVESTMENTS IN NATIONAL INFRASTRUCTURE. In the House of Representatives, the chair of the Committee on the Budget may adjust the allocations, aggregates, and other appropriate levels in this concurrent resolution for any bill or joint resolution, or amendment thereto or conference report thereon, that invests in national infrastructure to the extent that such measure is deficit neutral for the total of fiscal years 2018 through 2027.
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The Bipartisan Budget Act of 2018 (BBA 2018, P.L. 115-123), enacted February 9, 2018, amended the statutory discretionary spending limits for FY2018 and FY2019. BBA 2018 comprised several other components as well, one of which was related to a congressional budget resolution for FY2019. These BBA 2018 "budget resolution" provisions (which may be referred to as a "deemer" or a budget resolution substitute) provide the House and Senate with enforceable levels of spending and revenue for FY2019 in ways that a "traditional" budget resolution would. While it is not unusual for Congress to employ such budget resolution substitutes, these substitutes differ from a "traditional" budget resolution in several ways. The idea of a "traditional" budget resolution means a budget resolution as defined by the Congressional Budget Act, which specifies the way that a budget resolution shall be developed and considered and what components it must include. Budget resolution substitutes, such as the one in the BBA 2018, are not developed or considered in the manner specified by the Congressional Budget Act, nor do they include all of the components required by the act. Further, traditional budget resolutions often reflect a budget plan that differs from current law, while substitutes such as the BBA 2018 provisions set budgetary levels that are a reflection of baseline levels of spending and revenue that would occur if existing law were left unchanged. Additionally, traditional budget resolutions often include provisions triggering the budget reconciliation process; substitute provisions do not. These provisions, however, do not preclude Congress from acting on a traditional budget resolution for FY2019. This means that Congress still has the option to consider a budget resolution for FY2019 even if it differs from the levels and components included in the BBA 2018 budget resolution provisions.
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B eginning in late 2005, the New York Times reported that the federal government had "monitored the international telephone calls and international e-mail messages of hundreds, perhaps thousands, of people in the United States without warrants." Subsequently, President George W. Bush acknowledged that, after the attacks of September 11, 2001, he had authorized the National Security Agency to conduct a Terrorist Surveillance Program (TSP) to "intercept int ernational communications into and out of the United States" by "persons linked to al Qaeda or related terrorist organizations" based upon his asserted "constitutional authority to conduct warrantless wartime electronic surveillance of the enemy." Now discontinued, the TSP appears to have been active from shortly after September 11, 2001, to January 2007. After the TSP activities were concluded in 2007, Congress enacted the Protect America Act (PAA, P.L. 110-55 ), which established a mechanism for the acquisition, via a joint certification by the Director of National Intelligence (DNI) and the Attorney General (AG), but without an individualized court order, of foreign intelligence information concerning a person reasonably believed to be outside the United States. This temporary authority ultimately expired after approximately six months, on February 16, 2008. Several months later, Congress enacted the Foreign Intelligence Surveillance Act (FISA) Amendments Act of 2008, which created separate procedures for targeting non-U.S. persons and U.S. persons reasonably believed to be outside the United States under a new Title VII of FISA. Title VII of FISA was reauthorized in late 2012; this authority now sunsets on December 31, 2017. Significant details about the use and implementation of the Section 702 of Title VII, which provides procedures for targeting non-U.S. persons, became known to the public following reports in the media beginning in summer 2013. According to a partially declassified 2011 opinion from the Foreign Intelligence Surveillance Court (FISC), the National Security Agency (NSA) collected 250 million Internet communications per year under Section 702. Of these communications, 91% were acquired "directly from Internet Service Providers," using a mechanism referred to as "PRISM collection." The other 9% were acquired through what NSA calls "upstream collection," meaning acquisition while Internet traffic is in transit from one unspecified location to another. Like its predecessor in the PAA, Section 702 permits the AG and the DNI to jointly authorize targeting of persons reasonably believed to be located outside the United States, but is limited to targeting non-U.S. persons. Once authorized, such acquisitions may last for periods of up to one year. Under Subsection 702(b) of FISA, such an acquisition is also subject to several limitations. Specifically, an acquisition may not intentionally target any person known at the time of acquisition to be located in the United States; may not intentionally target a person reasonably believed to be located outside the United States if the purpose of such acquisition is to target a particular, known person reasonably believed to be in the United States; may not intentionally target a U.S. person reasonably believed to be located outside the United States; may not intentionally acquire any communication as to which the sender and all intended recipients are known at the time of the acquisition to be located in the United States; and must be conducted in a manner consistent with the Fourth Amendment to the Constitution of the United States. Acquisitions under Section 702 are also geared towards electronic communications or electronically stored information. This is because the certification supporting the acquisition, discussed in the next section, requires the AG and DNI to attest that, among other things, the acquisition involves obtaining information from or with the assistance of an electronic communication service provider. This would appear to encompass acquisitions using methods such as wiretaps or intercepting digital communications, but may also include accessing stored communications or other data. Such a conclusion is also bolstered by the fact that the minimization procedures required to be developed under Section 702 reference the minimization standards applicable to physical searches under Title III of FISA. Section 702 requires the joint AG/DNI authorization to be predicated on either the existence of a court order approving of a joint certification submitted by the AG and DNI, or a determination by the two officials that exigent circumstances exist. The certification is not required to identify the individuals at whom such acquisitions would be directed. Rather, the certification must attest, in part, that targeting procedures are in place that have been approved, have been submitted for approval, or will be submitted with the certification for approval by the FISC, that are reasonably designed to ensure that an acquisition is limited to targeting persons reasonably believed to be located outside the United States, and to prevent the intentional acquisition of any communication where the sender and all intended recipients are known at the time of the acquisition to be located in the United States. The applicable targeting and minimization procedures are subject to judicial review by the FISC, but the court is not required to look beyond the assertions made in the certification. Generally, if the certification and targeting and minimization procedures meet the statutory requirements and are consistent with the Fourth Amendment, a FISC order approving them will be issued prior to implementation of the acquisition of the communications at issue. If the FISC finds deficiencies in the certification, targeting procedures, or minimization procedures, the court will issue an order directing the government to, at the government's election and to the extent required by the court's order, correct any such deficiency within 30 days, or cease the implementation of the authorization for which the certification was submitted. In the absence of a court order described above, the AG and DNI may also authorize the targeting of persons reasonably believed to be non-U.S. persons abroad if they determine that exigent circumstances exist which would cause the loss or delay of important national security intelligence. A certification supporting such acquisition is required to be submitted to the FISC as soon as practicable, but no later than seven days after the determination of exigency has been made. Collection of information is permitted during the period before a certification is submitted to the FISC. In 2015, Congress included an amendment to FISA in the USA FREEDOM Act ( P.L. 114-23 ), to facilitate the continued surveillance of a target that was believed to be abroad, but is later found to be within the United States. As noted above, Section 702 originally did not permit surveillance of persons reasonably believed to be in the United States at the time of acquisition. As amended by the USA FREEDOM Act, surveillance of a non-U.S. person may continue for 72 hours after the target is reasonably believed to be within the United States, if a lapse in surveillance of the target poses a threat of death or serious bodily harm. A traditional FISA order for electronic surveillance must be obtained to continue surveillance after that period. Upon enactment of Title VII, a number of organizations brought suit challenging the joint authorization procedure for surveillance of non-U.S. persons reasonably believed to be abroad. The suit alleged that this authority violated the Fourth Amendment's prohibition against unreasonable searches. In order to establish legal standing to challenge Title VII, the plaintiffs had argued that the financial costs they incurred in order to avoid their reasonable fear of being subject to surveillance constituted a legally cognizable injury. However, on February 26, 2013, in Clapper v. Amnesty International , the U.S. Supreme Court held that the plaintiffs had not suffered a sufficiently concrete injury to have legal standing to challenge Title VII. Because the Court had no jurisdiction to proceed to the merits of the plaintiffs' claims, it did not decide the merits of the plaintiffs' constitutional claim. In August 2013, the Obama Administration partially declassified several opinions of the FISC regarding collection activities under Section702. The first of these opinions, dated October 3, 2011, evaluated the targeting and minimization procedures proposed by the government to deal with new information regarding the scope of "upstream collection," in which communications are acquired from Internet traffic that is in transit from one unspecified location to another. Specifically, the government had recently discovered that its upstream collection activities had acquired unrelated international communications as well as wholly domestic communications due to technological limitations. After being presented with this new information, the FISC found the proposed minimization procedures to be deficient on statutory and constitutional grounds. With respect to the statutory requirements, the FISC noted that the government's proposed minimization procedures were focused "almost exclusively" on information that an analyst wished to use and not on the larger set of information that had been acquired. Consequently, communications that were known to be unrelated to a target, including those that were potentially wholly domestic, could be retained for up to five years so long as the government was not seeking to use that information. The court found that this had the effect of maximizing the retention of such information and was not consistent with FISA's mandate to minimize the retention of U.S. persons' information. The FISC also held that the proposed minimization procedures did not satisfy the Fourth Amendment. The FISC found that, under the facts before it, the balance required under the Fourth Amendment's reasonableness test did not favor the government, particularly in light of the statutory deficiencies. Following the FISC's determination that the Fourth Amendment had been violated, the government presented revised minimization procedures to the FISC, and the court approved those procedures on November 30, 2011. The revised minimization procedures addressed the court's concerns by requiring the segregation of those communications most likely to involve unrelated or wholly domestic communications; requiring special handling and markings for those communications which could not be segregated; and reducing the retention period of upstream collection from five years to two. With these modifications, the court found that the balancing test required under the Fourth Amendment supported the conclusion that the search was constitutionally permissible. While the Clapper Court dismissed the case on standing grounds, the Supreme Court did so in part relying on the fact that a criminal defendant could potentially have standing to challenge Section 702. At least five criminal defendants have been notified by the government that incriminating evidence was gathered pursuant to Section 702. Several of these defendants have moved to suppress such evidence, arguing that it was gathered unconstitutionally. The defendants in these cases raise Fourth Amendment challenges as well as alleging that Section 702 violates Article III of the Constitution, which limits the jurisdiction of federal courts to "cases" or "controversies." None of the courts to address these claims has ruled in favor of the defendants. Two cases involving criminal defendants are currently pending before the U.S. Courts of Appeals for the Second and Ninth Circuits, while a third is proceeding to trial in the U.S. District Court for the District of Colorado.
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After the attacks of September 11, 2001, President George W. Bush authorized the National Security Agency to conduct a Terrorist Surveillance Program (TSP) to "intercept international communications into and out of the United States" by "persons linked to al Qaeda or related terrorist organizations." After the TSP activities were concluded in 2007, Congress enacted the Protect America Act (PAA, P.L. 110-55 ), which established a mechanism for the acquisition, via a joint certification by the Director of National Intelligence (DNI) and the Attorney General (AG), but without an individualized court order, of foreign intelligence information concerning a person reasonably believed to be outside the United States. This temporary authority ultimately expired after approximately six months, on February 16, 2008. Several months later, Congress enacted the Foreign Intelligence Surveillance Act (FISA) Amendments Act of 2008 ( P.L. 110-261 ), which created separate procedures for targeting non-U.S. persons and U.S. persons reasonably believed to be outside the United States under a new Title VII of FISA. Title VII of FISA was reauthorized in late 2012 ( P.L. 112-238 ); this authority now sunsets on December 31, 2017. Significant details about the use and implementation of Section 702 of Title VII, which provides procedures for targeting non-U.S. persons who are abroad, became known to the public following reports in the media beginning in summer 2013. According to a partially declassified 2011 opinion from the Foreign Intelligence Surveillance Court (FISC), the National Security Agency (NSA) collected 250 million Internet communications per year under Section 702. Of these communications, 91% were acquired "directly from Internet Service Providers," using a mechanism referred to as "PRISM collection." The other 9% were acquired through what NSA calls "upstream collection," meaning acquisition while Internet traffic is in transit from one unspecified location to another. In 2015, Congress enacted the USA FREEDOM Act ( P.L. 114-23 ) to reauthorize and amend various portions of FISA. While most of the amendments dealt with portions of FISA that were unrelated to Section 702, the act did include authority to continue surveillance of a non-U.S. person for 72 hours after the target is reasonably believed to be within the United States, but only if a lapse in surveillance of the target would pose a threat of death or serious bodily harm. A traditional FISA order for electronic surveillance must be obtained to continue surveillance after that period.
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The Emergency Food Assistance Program (TEFAP; previously the Temporary Emergency Food Assistance Program) provides federally purchased commodities and a smaller amount of cash support to food banks, food pantries, soup kitchens, shelters, and other types of emergency feeding organizations serving low-income households and individuals. Commodities include fruits, vegetables, meats, and grains, among other foods. In addition to serving needy individuals, TEFAP's domestic commodity purchases support the agricultural economy by reducing supply on the market, thereby increasing food prices. TEFAP is administered by the U.S. Department of Agriculture's Food and Nutrition Service (USDA-FNS). TEFAP was established under the Emergency Food Assistance Act of 1983 in an effort to dispose of government-held agricultural surpluses and alleviate hunger in the wake of a recession and declining food stamp benefits. Since then, TEFAP has evolved into a permanent program with mandatory, annually appropriated funding that operates in all 50 states, the District of Columbia, and several U.S. territories. The program was most recently reauthorized by the 2014 farm bill ( P.L. 113-79 ) and has been included in farm bill reauthorization efforts in the 115 th Congress. At the federal level, TEFAP is administered by USDA-FNS in collaboration with USDA's purchasing agencies, the Agricultural Marketing Service (AMS) and Commodity Credit Corporation (CCC). At the state level, TEFAP is administered by a "state distributing agency" designated by the governor or state legislature: generally the state department of health and human services, agriculture, or education. Federal commodities and funds may flow through the state or directly to feeding organizations (called "recipient agencies") based on how the state agency structures the program. States will often task food banks with processing and distributing food to local feeding organizations. Food banks typically operate regional warehouses and distribute food to other organizations rather than to households directly. Figure 1 depicts the flow of commodities and funds through TEFAP. TEFAP is part of a larger web of food assistance programs. Some of these programs provide cash assistance while others primarily distribute food. TEFAP foods may reach individuals who do not qualify for other food assistance programs or supplement the assistance that individuals receive through other programs. With nearly $354 million in appropriated funding in FY2018, TEFAP is the largest source of federal support for emergency feeding organizations. Other related federal programs include the Federal Emergency Management Agency's (FEMA's) Emergency Food and Shelter Program, funded at $120 million in FY2018, which, among its other services for homeless individuals, provides food through shelters, food banks, and food pantries. In addition, USDA's Commodity Supplemental Food Program, funded at $238 million in FY2018, distributes monthly food packages to low-income elderly individuals through local organizations, which can include food banks and pantries. This report begins by describing the population using emergency food assistance. It goes on to discuss the TEFAP program, including its administration at the federal, state, and local levels, eligibility rules, and funding structure. The report concludes by summarizing TEFAP's role in disaster response and recent reauthorization efforts. Appendix A lists TEFAP expenditures from the program's inception in 1983 to present; Appendix B provides a brief legislative history of TEFAP; and Appendix C lists TEFAP funding by state. According to an analysis of Current Population Survey (CPS) data by USDA's Economic Research Service (ERS), an estimated 5.9 million households (4.7%) utilized food pantries (see Figure 2 ) and at least 726,000 households (0.6%) utilized soup kitchens in 2017. However, this is likely an underestimate of the population using emergency food assistance because the sample did not include certain households over 185% of poverty and the CPS does not fully capture households who are homeless or in tenuous housing arrangements. For comparison, a survey by Feeding America, a nonprofit membership and advocacy organization, estimated that approximately 15.5 million households accessed its network of feeding organizations in 2013 (the same year, ERS estimated that 6.9 million households used food pantries and soup kitchens). The Feeding America network represents a large segment of emergency feeding organizations nationwide. Data on the number of TEFAP recipients specifically are not available, in part because TEFAP commodities are mixed in with other commodities provided by emergency feeding organizations and because of "the transient nature of participation." Food insecurity is common among households using emergency feeding organizations. According to the ERS analysis, approximately 65% of households using food pantries and soup kitchens were food insecure in 2017, meaning that they had difficulty providing enough food for all of their members at times during the year due to a lack of resources. Roughly half of these households experienced very low food security, meaning that the food intake of some household members was reduced and normal eating patterns were disrupted due to limited resources. Nationally, the percentage of households experiencing food insecurity was 11.8% in 2017, down from a recent high of 14.9% in 2011. According to the ERS analysis, households using food pantries were more likely to have incomes below 185% of poverty compared to the general population (70% vs. 21%) and to include children (39% vs. 30%). Meanwhile, according to the 2014 Feeding America survey, individuals using meal programs (e.g., soup kitchens and shelters) were generally single-person households and were more likely to be homeless. In 2013, just over 70% of households using the Feeding America network of meal programs had a single member and nearly 34% were homeless or living in temporary housing. In addition, emergency feeding organizations may act as a safety net for food insecure households who are ineligible for or do not participate in other federal food assistance programs. For example, in the case of the Supplemental Nutrition Assistance Program (SNAP), households may have an income too high to qualify for assistance but still experience difficulty purchasing food, or they may fail to meet other program eligibility rules. Among households using feeding organizations affiliated with Feeding America's network, a little more than half (55%) reported receiving SNAP benefits in 2013. TEFAP is administered by USDA's Food and Nutrition Service (FNS), which is responsible for allocating aid to states (see " State Allocation Formula ") and coordinating the ordering, processing, and distribution of commodities. Specifically, FNS receives requests for certain quantities and types of commodities from state agencies, which place orders based on their entitlement allocation and in consultation with recipient agencies. FNS then collaborates closely with USDA's purchasing agencies—the Agricultural Marketing Service (AMS) and Commodity Credit Corporation (CCC)—to fulfill the orders. FNS also collaborates with AMS and CCC to purchase bonus commodities throughout the year that are not based on state requests but rather USDA's discretion to support different crops. Commodities are delivered to state distribution points, which may be operated by a state agency, private contractor, or recipient agency. According to a 50-state survey conducted by the Washington State Department of Agriculture in 2015, most states reported that commodities were sent to nonprofit-run warehouses (i.e., food banks). FNS also issues regulations and guidance and provides general oversight of states' TEFAP operations. FNS provides oversight by reviewing and approving state TEFAP plans, which are documents that outline each state's operation of TEFAP. States are required to submit amendments to the plan for approval "when necessary to reflect any changes in program operations or administration as described in the plan, or at the request of FNS, to the appropriate FNS Regional Office." TEFAP is administered at the state level by an agency designated by the governor "or other appropriate State executive authority" that enters into an agreement with FNS. As of 2015, states most commonly housed TEFAP in a health and human services department (18 states), agriculture department (13 states), or education department (8 states). State agencies administering TEFAP are responsible for creating eligibility criteria (see " Eligibility Rules for Individuals and Households "), selecting recipient agencies, distributing commodities and funds to recipient agencies, and overseeing recipient agencies. States also maintain state TEFAP plans, which contain program and eligibility rules. Federal regulations allow states to delegate a number of responsibilities to recipient agencies, if desired. States can (and often do) delegate the responsibility of warehousing and transporting commodities to one or more eligible recipient agencies, most often to food banks. They also frequently delegate the role of selecting and contracting with other recipient agencies; for example, enabling a food bank to contract with multiple food pantries. States cannot delegate their responsibility to set eligibility rules or oversee recipient agencies. States must review at least 25% of recipient agencies contracting directly with the state (e.g., food banks) at least once every four years, and at least one-tenth or 20 (whichever is fewer) of other recipient agencies each year. If the state finds deficiencies in the course of review, the state agency must submit a report with the findings to the recipient agency and ensure that corrective action is taken. Organizations that are eligible for TEFAP aid are referred to as "recipient agencies" in the Emergency Food Assistance Act. According to the statute, recipient agencies are public or nonprofit organizations that administer emergency feeding organizations; charitable institutions; summer camps or child nutrition programs; nutrition projects operating under the Older Americans Act of 1965; or disaster relief programs. The first category of organizations—emergency feeding organizations (EFOs)—receive priority under TEFAP statute and regulations and the majority of TEFAP aid. EFOs are defined as public or nonprofit organizations "providing nutrition assistance to relieve situations of emergency and distress through the provision of food to needy persons, including low-income and unemployed persons." They include food banks, food pantries, soup kitchens, and other organizations serving similar functions. Recipient agencies are responsible for serving and distributing TEFAP foods to individuals and households. As discussed above, they may also have additional responsibilities as delegated by the state agency; for example, food banks, which operate food warehouses, may be tasked with distributing food to subcontracting recipient agencies like food pantries and soup kitchens, which in turn distribute foods or serve prepared meals to low-income individuals and families. In addition, recipient agencies must adhere to program rules. For example, they must safely store food and comply with state and/or local food safety and health inspection requirements. Recipient agencies must also maintain records of the commodities they receive and a list of households receiving TEFAP foods for home consumption. There are also restrictions on the types of activities that can occur at distribution sites. Recipient agencies must ensure that any unrelated activities are conducted in a way that makes clear that the activity is not part of TEFAP and that receipt of TEFAP foods is not contingent on participation in the activity. Activities may not disrupt food distribution or meal service and may not be explicitly religious. In addition, recipient agencies may not engage in recruitment activities designed to persuade an individual to apply for SNAP benefits. Under broad federal guidelines, states set eligibility rules for individuals and households participating in TEFAP. Eligibility rules differ for organizations distributing commodities directly to households (e.g., food pantries) and organizations providing prepared meals (e.g., soup kitchens). States must develop income-based standards for households receiving foods directly, but cannot set such standards for individuals receiving prepared meals. However, organizations serving prepared meals must serve predominantly needy persons, and states "may establish a higher standard than 'predominantly' and may determine whether organizations meet the applicable standard by considering socioeconomic data of the area in which the organization is located, or from which it draws its clientele." Income eligibility rules for households receiving TEFAP foods directly vary by state. Many states limit income eligibility to household incomes at or below 185% of poverty. Some states also confer household eligibility based on participation in other federal and state programs ("categorical eligibility"). States may also create other eligibility rules for households' receipt of TEFAP foods, such as requiring identification or proof of residency within the state. However, according to federal regulations, length of residency cannot be a criterion. Federal assistance through TEFAP is primarily provided in the form of USDA-purchased domestic agricultural products ("USDA Foods"). A smaller amount of assistance is provided in the form of cash support for administrative and distribution costs. Roughly half of the funding for TEFAP's commodities is an appropriated entitlement ("entitlement" commodities), meaning that the authorizing law sets the level of spending but an annual appropriation is needed to provide funding. The other half of TEFAP's commodity funding is not included in the TEFAP appropriation and is instead provided by separate USDA budget authority. These funds are used by USDA for "bonus" commodity purchases for the program throughout the year. TEFAP's administrative funds are discretionary spending, requiring an annual appropriation. In FY2018, the enacted appropriation provided $289.5 million for entitlement commodities and $64.4 million for administrative costs. Appropriations for TEFAP's entitlement commodities were contained in the SNAP account and appropriations for administrative costs were contained in the Commodity Assistance Program (CAP) account. In FY2017 (the most recent year with complete data), USDA purchased and distributed $268.6 million worth of bonus commodities for TEFAP. Mandatory funding for TEFAP commodities is authorized by Section 27 of the Food and Nutrition Act (7 U.S.C. 2036). The act authorizes $250 million annually plus additional amounts each year in FY2015 and onward as a result of amendments made by the 2014 farm bill ( P.L. 113-79 ) . For FY2018 and subsequent years, the additional amounts are $15 million annually. Both amounts are adjusted for food price inflation. Based on statute, FY2018 appropriations provided $289.5 million for TEFAP's entitlement commodities (contained in the SNAP account) (see Table 1 ). Appropriations occasionally provide additional discretionary funding for commodities beyond the levels set in the Food and Nutrition Act. Most recently, $19 million was appropriated through a general provision in FY2017. Historically, appropriations laws have allowed states to convert a portion of their funds for entitlement commodities into administrative funds. In recent years, states were allowed to convert 10% of funds; FY2018 appropriations increased the proportion to 15%. States generally exercise this option; in FY2017, states converted $22.9 million out of a possible $29.7 million in eligible funds. States are also allowed to carry over entitlement commodity funds into the next fiscal year. Bonus commodities are purchased at USDA's discretion throughout the year using separate (non-TEFAP) USDA budget authority for that purpose. USDA may learn about these needs through its own commodity experts or be informed of surpluses or other economic problems by farm and industry organizations. The amount and type of bonus commodities that USDA purchases for TEFAP fluctuates from year to year, and depends largely on agricultural market conditions. In FY2017, USDA purchased $268.6 million in bonus commodities for TEFAP. The level of bonus commodities has fluctuated substantially over time (see Figure 3 ). USDA's purchases of bonus commodities stem from two accounts: "Section 32" and the Commodity Credit Corporation (CCC). Section 32 is a permanent appropriation that sets aside the equivalent of 30% of annual customs receipts to support the farm sector through the purchase of surplus commodities and a variety of other activities. The Section 32 appropriation has totaled nearly $10 billion annually in recent years, a small portion of which goes toward TEFAP commodities. USDA's Agricultural Marketing Service (AMS) makes Section 32 purchases. The CCC is a government-owned entity that finances authorized programs that support U.S. agriculture. Its operations are supported by USDA's Farm Service Agency. The CCC has permanent, indefinite authority to borrow up to $30 billion from the U.S. Treasury to finance its programs. In recent years, Section 32 has financed TEFAP commodities to a greater extent than the Commodity Credit Corporation. Unlike CCC support, which is normally limited to price-supported commodities (such as milk, grains, and sugar), Section 32 is less constrained in the types of commodities that may be provided, and can include meats, poultry, fruits, vegetables, and seafood. Within USDA, the Food and Nutrition Service (FNS) works closely with AMS and the CCC to determine what purchases are made for TEFAP. FNS also solicits input from state and local agencies. According to TEFAP's authorization of appropriations in the Food and Nutrition Act, USDA must, "to the extent practicable and appropriate, make purchases based on (1) agricultural market conditions; (2) preferences and needs of States and distributing agencies; and (3) preferences of recipients." USDA-purchased agricultural products ("USDA Foods") in TEFAP include a variety of products, such as meats, eggs, vegetables, soup, beans, nuts, peanut butter, cereal, pasta, milk, and juice. Most foods are nonperishable and ready for distribution when delivered to states, although some foods, such as some meat and dairy products, require refrigeration. States and recipient agencies can request entitlement commodities from a list of USDA Foods. USDA selects bonus foods based on market conditions. In FY2017, bonus foods included Alaska pollock, apples, applesauce, apple slices, beans, blueberries, cranberries, cranberry sauce, eggs, figs, grape juice, peaches, pears, plums, raisins, and turkey. According to a 2012 USDA study, TEFAP foods are relatively nutritious compared to foods in the average American diet. The study found that TEFAP entitlement and bonus foods delivered to states in FY2009 scored 88.9 points out of a possible 100 points on the Healthy Eating Index—a measure of compliance with federal dietary guidelines—compared to 57.5 points scored by the average American diet. Keeping in mind that TEFAP foods are generally meant to supplement diets, the study also found that these foods would supply 81% of fruits, 69% of vegetables, 98% of grains, 171% of protein, 36% of dairy, 84% of oils, and 39% of the maximum solid fats and added sugars recommended for a 2,000-calorie diet. TEFAP provides funds to cover state and recipient agency costs related to processing, storing, transporting, and distributing USDA-purchased commodities, as well as administrative costs related to determining eligibility, training staff, recordkeeping, and publishing announcements. Administrative funds can also be used to support states' food recovery efforts. The Emergency Food Assistance Act authorizes $100 million to be appropriated annually for administrative costs. In FY2018, appropriations provided $64.4 million in discretionary funding (contained in the Commodity Assistance Program [CAP] account), a slight increase over recent years (see Table 1 ). The act also authorizes up to $15 million to be appropriated for TEFAP infrastructure grants; however, funds have not been appropriated for these grants since FY2010. The Emergency Food Assistance Act specifies that administrative funds must be made available to states, which must in turn distribute at least 40% of the funds to emergency feeding organizations. However, states are required to match whatever administrative funds they keep. As a result, states typically send nearly all of these funds to emergency feeding organizations. States can convert any amount of their administrative funds to food funds, but this happens to a lesser extent than the conversion of food funds to administrative funds. In FY2017, states converted $260,250 of administrative funds to food funds. Figure 3 displays TEFAP's expenditures on administrative costs, entitlement commodities, and bonus commodities from the program's inception (FY1983) to FY2018 (see Appendix A for specific dollar amounts). Originally, bonus foods were the only type of commodities in TEFAP; the program served as a means for disposing of large stockpiles of government-held commodities. Beginning in FY1989, the value of bonus foods dropped substantially as federal acquisitions and stocks waned, and commodities purchased specifically for TEFAP became the majority of the commodities in the program according to requirements in law (see Appendix B , "Legislative History of TEFAP"). TEFAP expenditures increased in FY2009 and FY2010, largely as a result of additional funding for entitlement commodities and administrative costs provided by the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 ). The 2008 farm bill ( P.L. 110-246 ) also increased funding for TEFAP's entitlement commodities. Since FY2011, spending on bonus and entitlement commodities has fluctuated between approximately $500 million and $650 million (inflation-adjusted). TEFAP's entitlement commodity and administrative funds are allocated to states based on a statutory formula that takes into account poverty and unemployment rates. Specifically, USDA calculates each state's share of the total national number of households with incomes below the federal poverty level and each state's share of the total national number of unemployed individuals. A state's share of households in poverty is then multiplied by 60% and its share of unemployed individuals is multiplied by 40% to calculate the state's share of TEFAP commodities and funds. For example, if a state has 4% of all households in poverty and 2% of all unemployed individuals, it would receive (4% x 0.60 = 2.4%) + (2% x 0.40 = 0.8%) = 3.2% of TEFAP funds. As noted previously, states may carry over any extra food or administrative funds for one fiscal year (e.g., from FY2017 to FY2018). States must match any administrative funds that are not allocated to emergency feeding organizations (EFOs) or expended by the state on behalf of EFOs. In practice, most states use 90% to 100% of their administrative funds to support EFOs, resulting in a small state match requirement. Beyond the state match, 14 states reported supplying additional state funds "to support the TEFAP program either directly or indirectly" in the 2015 Washington State Department of Agriculture survey (discussed previously). There is a maintenance of effort requirement in TEFAP, meaning that states cannot reduce their own funding or commodity support for recipient agencies below the level that they were supporting such organizations at the program's inception or FY1988 (when the maintenance of effort went into effect)—whichever is later. States have the authority to distribute existing inventories of USDA Foods to disaster relief organizations when the President issues a disaster declaration. This includes foods from TEFAP inventories and other food assistance programs such as the National School Lunch Program. For example, foods intended for TEFAP were used for disaster response in Florida, Texas, and Puerto Rico following Hurricanes Irma, Harvey, and Maria in 2017. TEFAP foods used for disaster assistance are replenished by USDA, so the overall level of commodities in the program is not affected and program operations continue in the aftermath of a disaster. At times, Congress may appropriate additional funds for TEFAP for the purposes of disaster relief. Recently, the Bipartisan Budget Act of 2018 ( P.L. 115-123 ) provided $24 million in supplemental funding for TEFAP commodities and administrative funds to jurisdictions that received a major disaster or emergency declaration related to the consequences of Hurricanes Harvey, Irma, and Maria or wildfires in 2017. The House- and Senate-passed 2018 farm bills (two versions of H.R. 2 ) include TEFAP provisions. Both bills would extend TEFAP's $250 million (plus inflation adjustment) in mandatory funding for entitlement commodities through 2023. Both bills would also continue the additional mandatory funding for entitlement commodities provided by the 2014 farm bill—the House bill (§4032) to a greater extent than the Senate bill (§4115). In addition, both bills would authorize new aspects of TEFAP, taking similar but not identical approaches to incorporating new donated foods and reducing food waste. The House bill would establish a "Farm-to-Food-Bank Fund" where, of the TEFAP entitlement commodity funds provided, USDA would be required to distribute $20 million for states or food banks to procure excess fresh fruits and vegetables grown in the state or surrounding regions for distribution to recipient agencies. Meanwhile, the Senate bill would establish "Projects to Harvest, Process, and Package Donated Commodities." This would provide $4 million in mandatory funding for each of FY2019-FY2023 for states and recipient agencies to harvest, process, or package "commodities donated by agricultural producers, processors, or distributors for use by emergency feeding organizations." Federal funds may not exceed 50% of the cost of the projects. The Senate bill would also require state agencies to include, in their TEFAP state plans, a plan to provide emergency feeding organizations or recipient agencies with an opportunity to provide input on commodity preferences and needs. It would also require the Secretary to issue guidance outlining best practices to minimize food waste of commodities donated by non-USDA entities. Finally, the bill would reauthorize discretionary funding of $15 million annually for TEFAP infrastructure grants through FY2023. Appendix A. TEFAP Expenditures, FY1983-FY2017 Appendix B. Legislative History of TEFAP Legislative History, 1981 to 2001 1980s . TEFAP began in 1981-82 as a temporary expedient designed to dispose of stockpiles of government-held food commodities. Establishment of TEFAP occurred in the aftermath of noticeable reductions in the coverage of and benefits provided by federal food assistance programs (e.g., food stamps, school meal programs) legislated in 1981 and 1982, and in the midst of an economic recession and concern over hunger and homelessness. The Reagan Administration began distribution of excess federally held food commodities in 1981-1982. These commodities, often termed "bonus" commodities, were in excess of those needed to fulfill other domestic and international federal commitments to provide food commodities (e.g., to schools operating school meal programs). In 1983, Congress followed up with legislative authority that created what was known for more than a decade as the Temporary Emergency Food Assistance Program (TEFAP), as well as funding for grants to help with distribution costs. Establishment of TEFAP helped reduce federal commodity stocks (and storage costs associated with holding them), provided an alternative source of food assistance for low-income individuals, and supported an expanding network of emergency food aid providers that also drew food and other resources from many nongovernmental sources. In TEFAP's early years, the only significant federal expenditures involved were appropriations for the grants supporting providers' distribution costs; the bonus commodities that were provided were acquired under separate USDA programs to support the agricultural economy. However, when commodity holdings began to drop substantially in the late 1980s because of changes in agricultural policies and the economy, Congress established the practice of providing federal funds to buy food commodities specifically for donation through TEFAP (in addition to continuing support for cash grants for distribution costs). 1988-1990. In 1988, after the Administration indicated plans to phase out TEFAP because of the lack of commodity inventories, Congress mandated funding (starting at $120 million for FY1989) in the Hunger Prevention Act of 1988 to buy commodities for distribution through TEFAP, thereby "entitling" the program to a minimum level of support regardless of the level of federal commodity holdings. The law also created a separate mandatory program to buy commodities for soup kitchens and other organizations not receiving TEFAP commodities (mandating funding starting at $40 million for FY1989). While some soup kitchens and other entities could receive federal food donations through a small separate initiative to help charitable organizations and others could participate as local TEFAP providers, the separate program was established out of a concern that most commodities for emergency feeding were going to local agencies that distributed food packages directly to individuals and families (e.g., food pantries), rather than to shelters, soup kitchens, and other providers serving meals in congregate settings. Two years later, the 1990 omnibus farm bill made commodity and cash-grant funding authority for TEFAP and the soup kitchen program "discretionary"—that is, expenditures on commodities and distribution-cost grants were made dependent on annual appropriations decisions, not "mandated" by the authorizing law entitling the program to a specific minimum funding level. 1990s. Although the authorizing law for TEFAP, the Emergency Food Assistance Act (EFA) of 1983, has been amended a number of times and the word "Temporary" has been dropped from the program's official title, perhaps the most significant changes since 1988 were made in 1996. The 1996 farm bill ( P.L. 104-127 ) extended the discretionary authority to appropriate money for commodities and distribution-cost grants for TEFAP and soup kitchen programs through FY2002. But, more significantly, the subsequent 1996 welfare reform law (the Personal Responsibility and Work Opportunity Reconciliation Act; P.L. 104-193 ) changed how these federal efforts are structured and funded. The welfare reform law (1) consolidated TEFAP and the soup kitchen program in one statute (the EFA) so that states could get a single TEFAP grant of commodities and distribution-cost funds for all types of emergency feeding organizations and (2) mandated funding of $100 million a year (through FY2002) to purchase food commodities for the program. This was in addition to any commodities that might be bought with money appropriated under discretionary authority in the EFA and any bonus commodities that might be made available at USDA's discretion. This second change was intended to entitle the program to a minimum level of commodity support when regularly appropriated money is not made available to buy commodities or excess federal commodity holdings for TEFAP distribution are minimal or nonexistent. It was accomplished through an amendment to the Food Stamp Act (now, the Food and Nutrition Act) effectively setting aside $100 million a year in "entitlement" appropriations under the act to purchase TEFAP commodities. As a result, the majority of funding for TEFAP (i.e., for commodity purchases) typically is now made available under the aegis of the Food and Nutrition Act appropriation unless Congress chooses to appropriate additional money for commodities under authority provided in the EFA. The minority of funding—funds for administrative and distribution costs—is appropriated under the authority of the EFA. Appendix C. TEFAP Funding by State
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The Emergency Food Assistance Program (TEFAP) is a federal food distribution program that supports food banks, food pantries, soup kitchens, and other emergency feeding organizations serving low-income Americans. Federal assistance takes the form of federally purchased commodities—including fruits, vegetables, meats, and grains—and funding for administrative costs. Food aid and funds are distributed to states using a statutory formula that takes into account poverty and unemployment rates. TEFAP is administered by the U.S. Department of Agriculture's Food and Nutrition Service (USDA-FNS). TEFAP was established as the Temporary Emergency Food Assistance Program by the Emergency Food Assistance Act of 1983. The Emergency Food Assistance Act continues to govern program operations, while the Food and Nutrition Act provides mandatory funding authority for TEFAP commodities. Based on levels set in statute, appropriations provided $289.5 million in mandatory funding for TEFAP's "entitlement" commodities in FY2018. TEFAP also incorporates "bonus" commodities, which are distributed at USDA's discretion throughout the year to support different crops using separate budget authority. USDA purchased $268.6 million worth of bonus commodities for TEFAP in FY2017. A smaller amount of cash assistance ($64.4 million in FY2018) is appropriated to cover administrative and distribution costs under Emergency Food Assistance Act authority. These administrative funds are discretionary. USDA-FNS coordinates the purchasing of commodities and the allocation of commodities and administrative funds to states, and provides general program oversight. State agencies—often state departments of health and human services, agriculture, or education—determine program eligibility rules and allocations of aid to feeding organizations (called "recipient agencies"). States often task food banks, which operate regional warehouses, with distributing foods to other recipient agencies. TEFAP aid makes up a modest proportion of the food and funds available to emergency feeding organizations, which are reliant on private donations as well. TEFAP is the largest source of federal support for emergency feeding organizations. Other related food distribution programs focus on specific subpopulations; for example, the Federal Emergency Management Agency's (FEMA's) Emergency Food and Shelter Program distributes food to homeless individuals and USDA's Commodity Supplemental Food Program distributes food to low-income elderly individuals. TEFAP is typically amended and reauthorized through farm bills. Most recently, the 2014 farm bill (P.L. 113-79) extended and provided additional funding for TEFAP's entitlement commodities. Current 2018 farm bill proposals (two versions of H.R. 2) would reauthorize and continue additional funding for entitlement commodities (as of the date of this report). They also include different approaches to incorporating non-federally donated foods and reducing food waste. Recent program developments include TEFAP's use in disaster response and receipt of commodities from the 2018 trade aid package.
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The establishment of the United Nations "oil-for-food" program (OFFP) reflected a longstanding U.N. Security Council effort to alleviate human suffering in Iraq while pressing Iraq to comply with all relevant U.N. Security Council resolutions. The program was a temporary and limited exception to the international trade embargo imposed on Iraq by U.N. Security Council Resolution 661, adopted on August 6, 1990, after Iraq's invasion of Kuwait on August 2, 1990. U.N. Security Council Resolution 687 (April 3, 1991) provided for the international embargo on Iraq's exportation of oil to end once Iraq had fully complied with U.N. efforts to end its weapons of mass destruction (WMD) programs. The WMD inspections began in April 1991 but proceeded more slowly than expected, and an end to sanctions did not appear to be in sight by the mid-1990s. Without oil export revenues, Iraq was unable to import sufficient quantities of food and medical supplies, and, according to virtually all accepted indicators (infant and child mortality, caloric intake, and other indicators), living conditions deteriorated sharply during 1991-1995. The first version of an oil-for-food plan would have allowed Iraq to export $1.6 billion in oil every six months. It was adopted by the Council in 1991 in Resolutions 706 (August 15, 1991) and 712 (an implementing plan adopted September 19, 1991), but Iraq rejected it as too limited in scope and an infringement on Iraq's sovereignty. There was little movement on the issue during 1991-95, despite dramatic declines in Iraq's living standards. During this period Iraq continued to sell its oil under the terms of trade protocols with some of its neighbors in violation of the U.N. sanctions regime. These sales were known to members of the U.N. Sanctions Committee, including the United States. On April 15, 1995, the U.N. Security Council adopted Resolution 986, which took into account one of Iraq's concerns by allowing the export of $2 billion in oil every six months. Pressured by fears of unrest caused by the drop in living standards, Iraq accepted this proposal, and it and the United Nations signed a memorandum of understanding on the program on May 20, 1996 (document number S/1996/356). After several more months of negotiations on details, the first Iraqi oil exports under the OFFP began on December 10, 1996. After the first year of the program, the Secretary General determined that the program was not meeting the food and medical needs of the Iraqi people, and Resolution 1153 (February 20, 1998) raised the oil export ceiling to $5.256 billion per six-month phase. In an effort to provide Iraq an incentive to cooperate with a new program of U.N. WMD inspections, the U.N. Security Council, in Resolution 1284 (December 17, 1999), abolished the export limit entirely. From inception in December 1996 until the U.S.-led war that began March 19, 2003, the OFFP was progressively modified to try to remove obstacles to the delivery of civilian goods to Iraq. However, the program did not—and was not intended to—restore normal economic activity to Iraq or completely blunt the effect of international sanctions on Iraq during the rule of Saddam Hussein. Moreover, the program did not—and was not intended to—monitor Iraq's compliance with the wider trade embargo governed by Resolution 661. The U.N. Sanctions Committee administered the implementation of sanctions on Iraq and was responsible for ensuring that Iraq complied with all relevant U.N. sanctions, including the embargo on oil sales outside of the program, during the rule of Saddam Hussein. After the fall of the regime at the hands of U.S. forces on April 9, 2003, the United States achieved U.N. support for its proposal to phase the program out entirely and to allow Iraq to resume normal commercial interactions. For an outline of OFFP operations, see Appendix . In order to ensure that only humanitarian objectives were served, the OFFP placed substantial controls on approved Iraqi oil exports and humanitarian imports under its jurisdiction. Under the terms of the memorandum of understanding drafted to implement Resolution 986, Iraq's state-owned oil marketing company (State Oil Marketing Organization, SOMO) was empowered to negotiate contracts with international oil companies to sell Iraqi oil. Once finalized, the oil purchase contracts were reviewed by a panel of oil contract overseers reporting to the UN Sanctions Committee. The oil overseers reviewed Iraq's pricing proposals monthly. Under the program, Iraq was allowed to export only oil, not any other products. The oil sold under the OFFP's auspices was exported through an Iraq-Turkey pipeline and from Iraq's terminals in the Persian Gulf. According to Resolution 986, "the larger share" of these oil exports ran through the Turkish route. The proceeds from these sales were deposited directly, by the oil purchasers, into a U.N.-monitored escrow account held at the New York branch of France's Banque Nationale de Paris (BNP, now BNP-Paribas). Iraq's approved oil exports were monitored at the point of exportation by personnel from Saybolt Nederland BV, an energy services firm working under contract to the program. Under its contract, Saybolt was not asked or expected to ensure that Iraq was using only the approved export routes, or to police any other illicit exportation of oil, according to U.N. Secretary General reports on the program. In each six-month phase of the program, Iraq purchased goods and services directly from supplier firms, in accordance with an agreed distribution plan allocating anticipated revenues among categories of goods to be purchased in that phase. Prior to the major amendment to the program approved in May 2002, which is discussed below, the Sanctions Committee reviewed and had authority to approve contracts for the export of goods to Iraq. The Committee operated by consensus. Any Sanctions Committee member could place a "hold" on a contract for goods to be imported by Iraq, and the United States often placed holds on exports of dual use items (civilian items that could have military applications). In deciding whether to place a hold on a contract, the U.S. representative on the Sanctions Committee consulted with agencies of the U.S. government to determine whether Iraq could use the requested items for military purposes. Under the procedures adopted in Security Council Resolution 1409 (May 14, 2002) and placed into effect in July 2002, the U.N. weapons inspection unit (UNMOVIC, U.N. Monitoring, Verification, and Inspection Commission) reviewed export contracts to ensure that they did not contain items on a designated list of dual-use items known as the Goods Review List (GRL). If so, the Sanctions Committee then decided whether to approve that portion of the contract containing the GRL items in question. Under U.S. regulations written for the program, U.S. firms could buy Iraqi oil and sell goods to Iraq, including oil industry spare parts and equipment. Over the last few years, purchases of Iraqi oil by U.S. firms ranged between one-third to one-half of Iraq's pre-2003 war export volume of about 2.1 million barrels per day. In February 2003, just prior to the start of the war, U.S. imports of Iraqi oil tended toward the high end of that range, about 1 million barrels per day. The U.S. imports came primarily by purchases from intermediate energy trading firms rather than direct buys from Iraq. Once a contract was approved, funds from the escrow account were used to pay letters of credit for the purchased goods. The arriving supplies were monitored at their point of entry into Iraq by about 50 personnel from the Swiss firm Cotecna at four approved border crossings: Umm Qasr on the Persian Gulf; Trebil on the Iraqi-Jordanian border; Walid on the Iraqi-Syrian border; and Zakho on the Iraqi-Turkish border. In November 2002, a fifth border point, at Arar on the Saudi-Iraq border, was established, a few years after Saudi Arabia decided to re-open its border with Iraq. Cotecna and its predecessor, Lloyd's Register, did not inspect, monitor, or report on goods entering or leaving Iraq outside of the auspices of the OFFP and neither firm was empowered or expected to do so under the terms of Resolution 986 or the memorandum of understanding agreed to by the United Nations and the Iraqi government. Cotecna was not responsible for searching or authenticating other goods imported by Iraq through bilateral trade agreements with its neighbors or purchased with other Iraqi government funds, even if those goods entered Iraq through the approved OFFP border entry points mentioned above. Nor was Cotecna responsible for certifying what price was paid for the goods imported under the OFFP, although Cotecna says it offered that service to the Office of the Iraq Program but was turned down. In Baghdad-controlled Iraq, the Iraqi government distributed imports to the population through an extensive government rationing system that employed about 40,000 Iraqis. Distribution was monitored by about 158 U.N. workers from the World Food Program, the Food and Agriculture Organization, the World Health Organization, and UNICEF. The U.N. personnel visited ration centers, marketplaces, warehouses, and other installations to ensure that distribution was equitable and accorded with the targeted allocation plans submitted by Iraq for each six month phase. In Kurdish-controlled Iraq, about 65 U.N. workers, accompanied by about 130 U.N. security guards, performed the distribution function. Some goods bound for the Kurdish-controlled areas were combined with Baghdad's purchases in order to obtain more favorable prices in bulk. Under Security Council Resolution 1051 (March 27, 1996), exports to Iraq of dual-use items were supposed to be monitored by U.N. weapons inspectors at their point of entry and site of end use in Iraq. This import monitoring mechanism was altered during 1998-2002 when the U.N. weapons inspection regime was not in operation inside Iraq. Security Council Resolution 1284 (December 17, 1999) replaced UNSCOM with UNMOVIC, which was to perform that end-use monitoring function after reentering Iraq in November 2002, although UNMOVIC withdrew from Iraq on the eve of Operation Iraqi Freedom before beginning those monitoring activities. During the 1998-2002 hiatus in weapons inspections, end-use monitoring in Iraq was performed by some of the 158 U.N. employees who monitored the distribution of civilian goods coming into Iraq. However, these monitors were not trained weapons inspectors, and this caused the United States and Britain to closely scrutinize, and to place many holds on, exports of dual-use items to Iraq. The OFFP attempted to help Iraq meet its international obligations and ensure equitable distribution of imports to the Iraqi people. The revenues from Iraq's oil sales were distributed as follows: 25% was transferred to a U.N. Compensation Commission (UNCC) to pay reparations to victims of Iraq's invasion of Kuwait. Resolution 1284 (December 17, 1999) reduced the deduction percentage to the 25% level, as of December 2000, from the previous level of 30%. 59% was used to purchase humanitarian items for Baghdad-controlled Iraq. This account was increased from its previous level of 53% when the reparations deduction was reduced in December 2000. 13% was used to purchase supplies in the three Kurdish-inhabited provinces of northern Iraq. 3% paid for U.N. costs to administer the OFFP (2.2%), as well as UNMOVIC's operating costs (0.8%). 1% was allocated to reimburse U.N. member states that had previously provided funds to an escrow account set up by U.N. Security Council Resolution 778 (October 2, 1992). During the period before the OFFP began operating, that escrow account had received donations and the proceeds of unfrozen Iraqi assets, which were used to fund U.N. operations in Iraq, some humanitarian relief activities, and compensation to the victims of Iraq's invasion of Kuwait. U.N. Security Council Resolution 1284 was intended in part to improve the provision of relief for the Iraqi people and to offer Iraq an incentive to readmit U.N. weapons inspectors. The following highlights key provisions of it and related decisions: As noted previously, Resolution 1284 eliminated the limit on the amount of oil Iraq could export. The resolution began the process, continued in subsequent OFFP rollover resolutions, of easing restrictions on the flow of civilian goods to Iraq. It directed the Sanctions Committee to draw up lists of items, in several categories, that would no longer be subject to Sanctions Committee review, and therefore would not be vulnerable to "holds." The accelerated approval procedures for foodstuffs and educational goods began in March 2000, and continued with pharmaceuticals, medical supplies, medical equipment, and agricultural equipment (March 2000); water treatment and sanitation supplies (August 2000) goods for the housing sector (February 2001) and electricity supplies (May 2001). The resolution laid the groundwork for foreign investment to explore for and produce oil in Iraq, although the resolution made this investment contingent on full Iraqi cooperation with UNMOVIC. In 2000 and 2001, the Sanctions Committee approved drilling in existing fields by two Russian firms (Tatneft and Slavneft) and a Turkish firm (Turkish Petroleum Company), but exploration of new fields was still not permitted. Resolution 1284 created incentives for Iraq to cooperate with UNMOVIC by "express[ing] the intention," if Iraq is deemed to have "cooperated in all respects" with UNMOVIC, to suspend export and import sanctions for 120 days, renewable by the Security Council. The resolution implied that the Security Council would have to vote to implement the sanctions suspension. Resolution 1284 made some oil industry spare parts eligible for a streamlined approval process: contracts for such equipment were scrutinized by the same Sanctions Committee panel of oil overseers that reviewed Iraq's oil sales contracts, without requiring full Sanctions Committee review. U.N. Security Council Resolution 1293 (March 31, 2000) increased the value of oil industry spare parts that Iraq could import per oil-for-food phase to $600 million, from $300 million. This decision was taken in response to recommendations by the U.N. Secretary General that improving the humanitarian situation was contingent on the rehabilitation of Iraq's ability to export its oil. There is a consensus among U.N. officials and outside observers that the OFFP eased substantially, but did not eliminate, severe economic hardship in Iraq. The program, as well as some economic liberalization measures and illicit activity outside the program (discussed below), enabled Iraq to achieve 15% economic growth during 2000, according to the CIA's "World Factbook: 2001." In total, the program generated about $64.2 billion in revenues, with oil sales of approximately 3.4 billion barrels of oil to 248 companies. Of that amount, according to the U.N. Office of the Iraq Programme (the administering office for the program, headed by Benon Sevan), about $39 billion worth of humanitarian supplies and equipment were delivered to Iraq—both Baghdad controlled and Kurdish-controlled under the program (up to the November 21, 2003 the termination date). Of that amount, $6.1 billion was for the Kurdish areas; that amounted to 8.8% of total funds available, somewhat less than the 13% intended to be used for the Kurdish areas. (Iraq's oil exports were shut down during the U.S.-led war that began March 19, 2003, and did not resume again until well into the period of U.S. occupation.) Included in the import amounts were $1.6 billion worth of oil industry spare parts and equipment. The following represent the major accomplishments of the program in improving the living standards of the Iraqi people, taken mostly from a report by the U.N. Secretary General to the U.N. Security Council, dated November 12, 2002, a few months before the war to overthrow Saddam Hussein. According to the U.N. report, in Baghdad-controlled Iraq, Iraqis were receiving about 2,200 kilocalories of food per person per day - about 90% of the U.N. target caloric intake of 2,463 kilocalories per person per day. The full ration was achieved only during December 2000. The report noted that 60% of Iraq's families relied solely on the food ration under the program to meet all household needs. According to a November 19, 2003 U.N. fact sheet, the eve of the program's handover to U.S. occupation authorities, "malnutrition rates in 2002 in centre/south were half those of pre-program Iraq, among children under the age of five." The U.N. report said that there were "notable" achievements in the health sector, including an increase in major surgeries performed and a reduction in communicable diseases. This and previous U.N. reports on the program noted improvement in the diagnostic and other equipment in use in Iraq's hospitals. In the related area of water and sanitation, the U.N. fact sheet of November 19, 2003, said that the "deterioration of water facilities was halted" by the OFFP. The November 2002 U.N. report said the status of electricity provision had been "improving gradually," noting a more reliable supply of electricity to Iraqis than was the case previously. In mid-1999, UNICEF released its first country-wide survey of infant and maternal mortality in Iraq since 1991. The UNICEF survey team took a number of precautions to ensure that the survey results would not be altered or modified and UNICEF is confident that the survey information is accurate. It showed that infant mortality in the southern and central sections of Iraq (under the control of the Iraqi government) rose from 47.1 deaths per thousand live births during 1984-1989 to 107.9 deaths per thousand during 1994-1999. The under five-year-old mortality rate rose from 56 to 130.6 per thousand live births in the same time period. According to the report, this increase in mortality resulted in about 500,000 more deaths among children under five than would have been the case if child mortality trends noted prior to 1990 (imposition of sanctions) had continued. In northern Iraq, the mortality rate has declined over the same period: infant mortality dropped from 63.9 per thousand live births in 1984-1989 to 58.7 in 1994-1999 and under five-year-old mortality dropped from 80.2 per thousand live births to 71.8 per thousand. The U.N. report identified significant shortages of materials and equipment throughout the education sector, particularly school overcrowding. The report says that the distribution of 1.2 million school desks had met 60% of the need at primary and secondary schools whereas, prior to the inception of the program, students sat on bare floors. According to an earlier report (September 8, 2000), Iraq's literacy rate (53.7% of adults and 70.7% of the youth) "has remained fixed for a number of years." The accomplishments of the program did not end debate over how strictly to enforce some of the program's restrictions. The United States and Britain tended to place most of the blame for the program's shortcomings on Iraq, alleging that the Iraqi regime disregarded the needs of its people. U.N. administrators of the program criticized Iraq on similar grounds, but they also attributed program deficiencies to U.S. and British policy, which they said slowed or halted the flow of infrastructure equipment that was required to realize the program's benefits. The issue of contract "holds" on infrastructure equipment was one of the most contentious that the OFFP faced. Past U.N. reports on the program claimed that infrastructure equipment, such as trucks, communications gear, forklifts, electricity, and water treatment equipment, were crucial to the timely distribution and proper storage and functioning of foodstuffs and medical products. At the time of the adoption in May 2002 of aspects of the "smart sanctions" plan discussed below, the United States had placed almost $5 billion of goods on hold. In response to criticism of the holds, the United States asserted that 90% of all contracts were approved and that the holds had minimal impact. The United States maintained that all contracts needed to be scrutinized to ensure that no equipment would be used to rebuild WMD programs, especially during the time U.N. weapons inspectors were not in Iraq (December 1998 - November 2002) to monitor dual-use exports that were shipped there. U.N. reports did not accuse Iraq of purposely diverting imports from the program to the military or regime supporters, although some U.S. reports, such as a February 28, 1998 State Department fact sheet, made such allegations. At the start of the George W. Bush Administration, with no permanent end to international sanctions in sight due to the lack of U.N. weapons inspections, the debate over further modifications to the OFFP was the centerpiece of a broader debate over Iraq policy and sanctions. The debate intensified in May 2001 when the five permanent members of the U.N. Security Council began discussing the U.S. plan to adopt "smart sanctions" on Iraq. The smart sanctions plan represented an effort, articulated primarily by Secretary of State Colin Powell in early 2001, to rebuild a consensus to contain Iraq. When the Bush Administration came into office, Administration officials asserted that international sanctions enforcement was collapsing and that Iraq was using the relaxation to acquire prohibited goods and raise illicit revenue. The U.S. smart sanctions proposal centered on a trade-off in which restrictions on the flow of civilian goods to Iraq would be greatly eased and, in return, Iraq's illicit trade with its neighbors would be brought under the OFFP and its monitoring and control mechanisms. The net effect, according to the concept, would be to target sanctions only on limiting Iraq's strategic capabilities, and not on its civilian economy. The smart sanctions plan was intended to defuse criticism by several governments, including permanent members of the U.N. Security Council France, Russia, and China, that the United States was using international sanctions to promote the overthrow of the Iraqi government or to punish Iraq indefinitely for the invasion of Kuwait. However, differences between the permanent members over how to implement these measures prevented immediate agreement on the U.S. plan. The September 11, 2001 attacks and the war in Afghanistan brought the United States politically closer to Russia and, to a lesser extent, China, and the Security Council reached agreement to adopt some elements of the U.S. plan, as provided for in Security Council Resolution 1409 (May 14, 2002). The resolution created the Goods Review List (GRL), mentioned above, a list of dual use items that were subject to review by UNMOVIC before they could be exported to Iraq. Resolution 1447 (December 4, 2002) contained a pledge to add, within 30 days, certain items to the GRL, items that the United States said could be used by Iraq to counter a U.S. military offensive. The Security Council added 36 U.S.-suggested items to the GRL on December 30, 2002 (Resolution 1454). Enhanced border control provisions, a central element of the original U.S. smart sanctions plan, were not included in Resolution 1409, largely because of strong opposition by Iraq's neighbors to controls on illicit trade with Iraq. Iraq's neighbors maintained that enhanced border controls would harm their economies. The resolution did not contain U.S. proposals that would have restricted civilian flights to Iraq. It did not permit new foreign investment in Iraq's energy sector, a provision that had been sought by Russia, France, and China, whose energy companies had signed deals to explore for oil and gas in Iraq once sanctions were lifted. UNICEF, the World Food Program (WFP) the U.N. Development Program (UNDP), the European Community (ECHO), the International Committee of the Red Cross (ICRC), governments, and private relief organizations such as Catholic Relief Services and Save the Children provided additional relief to supplement the OFFP. UNICEF, ECHO, and WFP focus their humanitarian aid on southern and central Iraq rather than on the economically better off Kurdish north. There is no single source for information on pre-war humanitarian assistance to Iraq. A report of the Organization for Economic Cooperation and Development (OECD), which provides donor information for the years 1994 through 1998, indicated that Iraq received a total of $76.36 million in bilateral assistance in 1998. This did not include any funds provided by U.N. agencies but does include grants by the European Commission Humanitarian Aid department (ECHO). A Washington-based official of the European Commission said in June 2001 that the European Union gave over $200 million in aid to Iraq during 1991-2003. Although the OFFP did not open Iraq to free and unfettered international trade, firms of many countries participated in the program by buying Iraqi oil and selling civilian goods. Table 2 provides a list of countries whose firms exported more than $25 million worth of goods to Iraq in 1998, the latest full year for which international statistics were available. It is probable that almost all of the exports in these statistics represented OFFP related transactions, although it is possible that some transactions were conducted separately from the program, under pre-existing U.N. regulations that allowed Iraq to import certain civilian items using its own funds. The statistics did not cover illicit trade that, by nature, generally went unreported to statistics-keeping organizations. The program was suspended just before Operation Iraqi Freedom began on March 19, 2003; U.N. staff in Iraq departed. On March 28, 2003, as U.S. forces moved north toward Baghdad, the U.N. Security Council adopted Resolution 1472, restarting the program's operations, empowering the United Nations to take direct control of all aspects of the program, and directing the United Nations to set priorities on the delivery of already contracted supplies. The enhanced U.N. authority was later extended to June 3, 2003. On May 22, 2003, Resolution 1483 was adopted, lifting sanctions on Iraq and providing for the phasing out of the OFFP within six months. In accordance with the resolution, the program (new contract agreements) terminated on November 21, 2003, and was taken over by the U.S. occupation authority, the Coalition Provisional Authority (CPA). Since then, Iraq has sold its oil unfettered: oil revenues are no longer held in a U.N.-run escrow account, and the program's oil sales monitoring infrastructure is no longer in operation. The CPA, with the help of U.N. agencies and the World Food Program, administered the same food distribution network utilized by the OFFP. The CPA also continued to receive and distribute goods from the 3,000 contracts signed under the program (but not delivered by the time of the November 21, 2003 termination). Since the handover of sovereignty to an Iraqi interim government on June 28, 2004, Iraq's Ministry of Trade has managed the receipt and distribution of residual contracts. U.N. Security Council Resolution 1546 (June 8, 2004), which endorsed the handover of sovereignty, gave formal responsibility for final OFFP closeout to the Iraqi interim government. The Iraqi government is also continuing to distribute civilian necessities, procured under the OFFP and outside the program, to needy Iraqis. For new purchases of civilian goods, the government is using funds generated by oil sales. The Office of the Iraq Program, which ran the OFFP, has now closed. As of the start of the war in March 2003, the program's escrow account had over $10 billion remaining. The funds remained because Iraq's oil revenues grew faster than import contracts were signed. Of that, approximately $9 billion was transferred to Iraq's Development Fund for Iraq (DFI), and $216 million remained in U.N. accounts as of February 2005. Resolution 1483, referenced above, abolished the Iraq Sanctions Committee as of November 21, 2003. However, a subsequent Security Council resolution, 1518, set up a new Security Council Committee (the "1518" Committee), consisting of all members of the Council, to continue to locate financial assets held by members of the former regime. According to investigations conducted by U.S., U.N., and Iraqi officials, the regime of Saddam Hussein used two distinct illicit methods to generate funds following the imposition of sanctions on Iraq by the United Nations Security Council. First, Iraq illicitly sold oil to some neighboring countries from 1990 to 2003 in violation of U.N. sanctions that predated and remained outside of the auspices or control of the U.N. OFFP. Second, Iraq allegedly exploited loopholes in U.N. OFFP regulations to impose surcharges on buyers purchasing OFFP-approved oil shipments and to solicit kickbacks from suppliers of humanitarian and other civilian goods purchased with funds from the U.N. OFFP escrow account. Some of those illicit funds were used to procure military supplies and commodities banned under the U.N. sanctions regime. The primary concern of U.S. officials prior to the fall of the Saddam Hussein regime was that Iraq reportedly was using illicit revenues to buy prohibited military and WMD technology. Following the regime's fall in April 2003, allegations have emerged concerning the regime's purported use of its control over oil and humanitarian goods contracts to influence foreign officials, parties, and companies, and reward individuals and entities perceived to be supportive of Iraq's positions. The findings of subsequent investigations regarding these illicit fundraising and political activities are described in further detail below. Allegations of illicit oil sales and misuse of the U.N. OFFP surfaced in late 2003, reportedly based on documents found after the April 2003 fall of the former regime. On January 25, 2004, an independent Iraqi newspaper, Al Mada , published a list of 270 individuals and entities who allegedly benefitted from oil vouchers granted by the former regime; the list was purportedly obtained from records kept by the state-run oil marketing organization (SOMO). According to the Iraqi newspaper, those listed were given vouchers that could be exchanged for quantities of oil that could be sold legitimately through the OFFP (for fuller detail, see the section on oil vouchers, below). Some of the listed voucher recipients were alleged have sold the oil vouchers to third parties in exchange for profit. Others were considered to have supported the former Iraqi regime politically. Of the 270 entities named, the most notable figure was Benon Sevan, the executive director of the U.N. OFFP. Several other alleged recipients were political parties mostly in the former East bloc states, and some were sitting high-ranking officials, or their relatives, in various countries. Forty-six Russia-based entities were named, far more than from any other country, and the list included most of Russia's major energy firms. In statements and letters to various news organizations, several of those named in the Iraqi article, including Sevan, have categorically denied the allegations. Some have confirmed the allegations but claimed that the payments were legitimate commissions for oil deals brokered or donations for humanitarian work. Others said they were improperly named in the Iraqi newspaper because the paper sought to expose politicians that had been somewhat supportive of Saddam Hussein's regime. Some observers say that some of the allegations appear intended to highlight U.N. flaws and perhaps question the United Nations' advisory role in post-Saddam governance. Nevertheless, the voucher-related claims brought renewed scrutiny to the management of the U.N. OFFP and the efforts of Saddam Hussein's government to manipulate and undermine the program and the wider U.N. sanctions regime. Claims that the alleged voucher payments were granted in exchange for real or perceived favorable treatment of the Saddam Hussein regime by these entities or for political support for the lifting of sanctions on Iraq have attracted the most attention and were investigated by U.S. and U.N. appointed investigators, along with a range of other OFFP and non-program related issues. In response to new allegations concerning abuse and mismanagement of the U.N. OFFP, U.N. Secretary General Kofi Annan announced an "independent high level inquiry" into the allegations on March 20, 2004, headed by former chairman of the U.S. federal reserve Paul Volcker. Since March 2004, Volcker's Independent Inquiry Committee (IIC) has issued several reports regarding the OFFP, focused on allegations of mismanagement of the program by U.N. officials, possible corruption, and the mechanisms used by Saddam Hussein's government to raise illicit proceeds from oil sales inside and outside of the OFFP. The IIC's final reports estimate Iraq earned $12.8 billion in illicit revenue during 1990-2003 (See Table 3 ) of which $10.99 billion was earned from non-OFFP "trade protocols" with Jordan, Syria, Turkey, and Egypt (discussed below). The IIC reports estimate that $228.8 million was earned from surcharges on OFFP-approved oil sales and that $1.58 billion was earned from kickbacks on OFFP humanitarian supply contracts. The findings of the Committee's investigations are detailed below. Some critics of the IIC have argued that the Committee's investigations may have suffered because the IIC lacked legal subpoena power. Volcker reported varying degrees of cooperation from United Nations personnel, international companies, and governments, including the United States government, with his inquiry. The IIC closed on December 31, 2006. A staff has been appointed to assist with legal inquiries for a two-year period. Documents pertaining to the investigation have been transferred to the custody of the United Nations and are available to member states. On September 30, 2004, the special advisor to the Director of Central Intelligence issued a final report on the post-Saddam inspections and research of Iraq's WMD by the Iraq Survey Group (ISG). The special advisor, Charles Duelfer, who took over that assignment in early 2004 (replacing David Kay), served as chief WMD investigator within the ISG. The 1000+ page report, entitled the "Comprehensive Report of the Special Advisor to the Director of Central Intelligence on Iraq's Weapons of Mass Destruction," (commonly referred to as the "Duelfer report") contains major sections on how Iraq attempted to procure WMD-related equipment despite international sanctions, and the funding mechanisms the regime attempted to develop. Because Iraq apparently used illicitly earned revenue to fund purchases of WMD-useful equipment, the Duelfer report contains a large section on Iraq's illicit oil sales and allegations of abuses of the OFFP. The Duelfer report names numerous entities and individuals that had business dealings with Iraq, but notes that it was not the ISG's mandate to investigate allegations of illicit financial dealings and that some entities named were involved in legal trade with Iraq both within and outside the scope of the OFFP. The Duelfer report says much of its data is based on Iraqi documents and databases obtained from SOMO, the Iraqi Ministry of Oil, and interviews with some Iraqi officials in detention by U.S. forces. Some findings of the Duelfer report are described in detail below. In the Bush Administration, the Treasury Department and Customs Service are conducting investigations of these allegations, and several congressional committees (Permanent Subcommittee on Investigations of the Senate Committee on Homeland Security and Governmental Affairs, the House Government Reform Committee, the House International Relations Committee, and the Permanent Investigations Subcommittee of the House Appropriations Committee) have conducted inquiries and issued reports as well. Some committees have used subpoena powers to try to obtain records from BNP Paribas, and some of the other investigations have demanded records from several U.S. energy companies and other companies that participated in the OFFP. A separate investigation is being conducted by Iraq's "Board of Supreme Audit," with the assistance of independent firm Ernst and Young. The Iraqi head of the Board was killed in a car bomb in Iraq on July 1, 2004. In the wake of the IIC final report, authorities in several countries have begun looking into charges that their nationals participated in illicit financial arrangements with the regime of Saddam Hussein. The Australian government established a Royal Commission under the auspices of the Honorable Terrence Cole to investigate charges that an Australian grain distributor, AWB, made illegal payments to the Iraqi regime via a third party trucking company. The Cole Commission report concluded that AWB made such payments and attempted to disguise its transactions with the chosen Iraqi intermediary, a Jordanian company known as Alia. In South Africa, a similar committee known as the Donen Commission (named for its chairman Michael Donen) investigated the alleged participation of senior members of the African National Congress (ANC) in illicit oil-for-food transactions. Some South African entities challenged the commission's authority to compel witnesses to testify and answer potentially incriminating questions. South African Prime Minister Thabo Mbeki received the commission's final report on November 6, 2006, but has not announced specific findings or proceeded with further inquiries or prosecutions. Indian, German, and French authorities have launched investigations of entities named in the IIC report. The United Kingdom's Serious Fraud Office has not announced any investigation plans. Russian authorities reportedly have declined to investigate the specific claims made in the IIC report based on the documents provided by the Volcker committee. According to the IIC report, Saddam Hussein's regime earned $11 billion from illicit oil sales that began before the OFFP started and remained outside of the scope or authority of the U.N. OFFP and in violation of U.N. sanctions on Iraq. The regime's illicit oil sales were conducted on the basis of "trade protocols" between Iraq and individual governments or on the basis of "private sector export" agreements between Iraqi authorities and private individuals and entities. The importation of civilian goods under Iraq's trade protocols with its neighbors was not necessarily prohibited by U.N. sanctions, and, under U.S. sanctions, Iraq was allowed to import additional goods, separate from the OFFP, using its own non-U.N. escrow account revenues. All Iraqi oil sales outside of the auspices of the U.N. OFFP were prohibited by U.N. sanctions. Governments, individuals, and commercial entities engaged in buying and selling Iraqi oil outside the auspices of the OFFP did so in violation of the U.N. sanctions regime. The United States and other members of the U.N. Sanctions Committee took note of Iraq's illicit oil sales to some of its neighbors but, for a number of reasons, chose not to take direct action to halt the sales or punish states or entities engaged in them prior to the onset of Operation Iraqi Freedom in March 2003. The IIC's final report on the management of the OFFP links this inaction to what it describes as the "primacy of political preference over even handed enforcement of sanctions against Iraq and its neighboring countries." The IIC report describes many examples of this phenomenon and singles out two cases as particularly noteworthy: "the United States tolerance for trade with Jordan and Turkey (but not Syria)" and "Russia's and France's reluctance to redress smuggling activity between Iraq and Syria." After the 1991 Persian Gulf war, Jordan notified the U.N. Security Council that it was importing Iraqi oil at below-market prices under the terms of official trade protocols negotiated annually between Jordanian and Iraqi officials. According to Jordanian officials, Iraqi oil was imported in exchange for civilian goods and write-downs of Iraq's debt to Jordan. According to the IIC, Jordan made "repeated" but unsuccessful requests to gain approval for the trade through legitimate U.N. channels. The United States supported the Sanctions Committee decision to "take note of" the Jordanian purchases - neither approving them nor deeming them a violation. The United States and other Sanctions Committee members considered Jordan's economy to be dependent on discounted Iraqi oil and sought to preserve Jordan's support for the OFFP, the non-oil related U.N. sanctions regime, and the Middle East peace process. The Clinton and Bush Administrations annually waived unilateral U.S. sanctions on Jordan that could have been imposed because of Jordan's illicit trade with Iraq. According to the Duelfer report, Iraq's trade protocol with Jordan "ensured the [Saddam Hussein] regime's financial survival" until the creation of the U.N. OFFP in late 1996. The IIC's final report estimates that Iraq earned a total of $6 billion from the Jordanian trade protocol: $2.6 billion from 1990 to 1996, when the OFFP was created, and $3.4 billion during the program's duration until 2003. In October 2000, Jordan cancelled an agreement with Lloyd's Registry, in force since 1993, for the firm to inspect Iraq-bound cargo in Jordan's port of Aqaba. This inspection agreement covered goods other than those imported under the OFFP; goods imported under the program continued to be monitored by Cotecna at all points of entry, including the Iraq-Jordanian border. In late 2000, according to several press reports, Iraq began exporting oil through an Iraq-Syria pipeline, closed since 1982 but subsequently repaired. According to two GAO studies, Iraq exported 180,000 - 250,000 barrels per day through this route in March 2002, and exports through Syria were at similar levels as of the start of the 2003 war. The oil exports were based on a trade protocol, under which, Syria paid Iraq about half the world market price for oil; refined the imported Iraqi oil for domestic use; and exported previously-reserved Syrian oil at world market prices. According to the Duelfer report, the Iraq-Syrian trade protocol served as "Iraq's primary illicit income source" from early 2000 to March 2003. The IIC final report estimates the value of Iraq's oil sales to Syria at $3.1 billion. The United Nations did not formally approve this export route, and the United States argued that the trade was illegitimate and contrary to pledges made to the Bush Administration in early 2001. Many experts believe the United States did not forcefully press Syria to cease its oil importation from Iraq in order to enlist Syria's support in the global war on terrorism and the U.S. effort to build international support for confronting Iraq. According to the IIC, Syria's membership on the U.N. Security Council in 2002 and its corresponding membership on the Iraq Sanctions Committee allowed Syria to "block any inquiry by the Committee" into the illegal imports because of the Committee's consensus voting rule. France and Russia also opposed tough Committee action against Syria. According to a 2002 GAO study, Iraq exported the equivalent of 40,000 - 80,000 barrels per day of oil through Turkey in March 2002 in another "trade protocol" negotiated at regular intervals. The exportation was in the form of possibly as many as 1000 Turkish trucks per day carrying Iraqi oil products (not crude oil) through the Iraqi Kurdish areas into Turkey in spare fuel tanks. The Turkish government taxed and regulated the illicit imports. As in the case of Jordan, the Clinton and Bush Administrations annually waived unilateral U.S. sanctions on Turkey that could be imposed because of this illicit trade. Turkey and others unsuccessfully attempted to formalize the Turkish trade protocol through legitimate channels. The IIC final report estimates that Iraq earned $806.7 million through its trade protocol with Turkey. Some reports suggest that commerce between Iraq and Turkey slowed to a crawl, if not halted entirely, in February 2003 in anticipation of the U.S.-led war against Iraq. A 2002 GAO study estimates that Iraq was exporting illicitly about 30,000 - 40,000 barrels per day through the Persian Gulf in March 2002. This exportation was apparently conducted with cooperation from Iran. Of the funds generated through this export channel, about one-half went to Iraq, one-quarter to smugglers and middlemen, and one-quarter to Iran's Revolutionary Guard for "protection fees" to allow the shipments to hug its coast and avoid capture. Many believe that exports through the Gulf were higher during 1998-2000, but they fell because Iraq was diverting oil to the Syrian route, where there were fewer middlemen to pay. The IIC final report credits U.S. naval presence in the Persian Gulf and Iran's cooperation with ultimately limiting smuggling via the Gulf route. Current allegations regarding the mismanagement and abuse of the U.N. OFFP fit into two broad categories: (1) allegations of mismanagement of the contracts and administration of the OFFP by contractors and U.N. staff, and (2) abuse of the U.N. program through vouchers, surcharges, and kickbacks by the regime of Saddam Hussein. Linking the two categories are allegations that contractors and U.N. staff, including OIP executive director Benon Sevan, personally solicited and received, on behalf of themselves or associates, oil vouchers or bribes from Iraqi authorities while administering their official program duties. With regard to the allegations of U.N. and contractor mismanagement, investigations of the OFFP's operations have revealed flaws and shortcomings in the awarding, management, and auditing of program contracts. With regard to the allegations of abuse of the U.N. program by the regime of Saddam Hussein, investigations have revealed evidence that Iraq raised illicit funds through surcharges on OFFP oil shipments and kickbacks on U.N. approved commercial and humanitarian good contracts. The IIC's final report estimates that Iraq earned $1.8 billion in illicit funds using these methods. Investigations also have uncovered evidence that the former Iraqi government created a secret oil voucher system to allocate oil that was approved for sale under the OFFP to politically sympathetic individuals and entities. According to former regime officials, Iraq used the oil voucher system to encourage foreign individuals and entities to support Iraq politically in international fora. According to the IIC's February 2005 interim report, "the selection process for each of the three United Nations contractors selected in 1996 (namely Banque Nationale de Paris [BNP], Saybolt Eastern Hemisphere BV, and Lloyd's Register Inspection Ltd.) did not conform to established financial and competitive bidding rules." The report cites a number of administrative and political factors which combined to undermine the transparency and competitiveness of the contract bidding and awards process. The report states that in 1996 then-U.N. Secretary General Boutros Boutros-Ghali personally intervened in the selection of BNP, and a Steering Committee made up of "some of the United Nations' most senior managers" acquiesced in the frustration of competitive bidding in the case of Saybolt and "prejudiced and preempted the competitive process" in the case of Lloyd's Register. The IIC investigation reviewed what role, if any, Kojo Annan, the son of U.N. Secretary General Kofi Annan, may have played in influencing the U.N.'s decision to award the OFFP goods authentication contract to Cotecna Inspection Services S.A. in late 1998. According to Cotecna executives, Kojo Annan worked as an employee and consultant focused on Cotecna's business in Nigeria and Ghana from late 1995 to the end of 1998. From the end of 1998 to February 2004, Cotecna paid Kojo Annan $2,500 monthly under the terms of a "non-competition" agreement that forbade Annan from working with Cotecna's competitors in West Africa. Cotecna executives deny that Kojo Annan played any role in influencing the awarding of the contract, and point out that Cotecna won an Iraq-related U.N. inspection contract in 1992 before Kojo Annan was a Cotecna employee and lost the original OFFP authentication contract to Lloyd's Register in 1996 when Kojo Annan worked for Cotecna. Kojo Annan also has denied the allegations publicly and has discussed them with IIC and U.S. Senate investigators. Annan released a statement in February 2005 denying that he was "involved with any negotiations or lobbying of the United Nations with regard to the oil-for-food program inspection contract." The IIC final report found "no credible evidence" that U.N. Secretary General Kofi Annan "influenced or attempted to influence" the selection of Cotecna for the OFFP inspection contract. However, the IIC report found that Secretary General Annan did not conduct an adequate inquiry following reports of his son's continued employment by Cotecna and public allegations of prior wrongdoing by senior Cotecna executives. The report states that such an independent inquiry may have revealed information that could have resolved outstanding questions and conflict of interest concerns. In addition, according to the IIC, Kojo Annan "intentionally deceived" his father regarding his continuing financial relationship with Cotecna, and Kojo Annan "failed to cooperate fully" with the some aspects of the IIC's investigations. The IIC also has stated that Cotecna executives have made "false statements to the public, the United Nations, and the [Independent Inquiry] Committee." Cotecna executives and Kojo Annan have contested the IIC's findings through letters from their respective lawyers. The letters are included in the annex of the March 2005 IIC interim report. In April 2005, two IIC investigators—Robert Parton and Miranda Duncan—resigned, reportedly in protest over the final content of the IIC report on Secretary General Annan's role in the OFFP scandal. Prior to his resignation, Parton reportedly wrote draft versions of the report that were more critical of the Secretary General than the final IIC report that was ultimately released. Parton was subpoenaed by the House Committee on International Relations, the Senate Permanent Subcommittee on Investigations, and the House Committee on Government Reform. Federal court rulings delayed Parton's compliance with the subpoenas while IIC representatives, Parton's lawyers, and congressional counsel negotiated a settlement. The House Committee on International Relations reviewed the documents and published some of them in a report issued in December 2005. The published excerpts include minutes from meetings of principal IIC figures in which some members debate evidence and questions regarding Secretary General Annan and his role in the awarding of the Cotecna contract. In February 2005, the Senate Permanent Subcommittee on Investigations (Committee on Homeland Security and Governmental Affairs) released documents from Iraq's SOMO that appeared to indicate payments from Iraqi officials to a Saybolt employee who held responsibility for certifying oil shipments at Mina Al Bakr during the period when two alleged incidents of oil shipment "topping off" took place. The employee, a Portuguese national named Armando Carlos Oliveira, reportedly received payments totaling $105,819 for the falsification of shipping documents that facilitated the loading of excess oil on board a vessel named Essex in May and August 2001. Saybolt executives reportedly investigated the bribery allegation and informed the Senate subcommittee of their progress. At a February 15, 2005 hearing, a Saybolt representative assured the Senate subcommittee that the company would "closely examine" the new documents and, "take all appropriate action." According to Senator Norm Coleman, Saybolt was "very cooperative" with the Senate subcommittee. The IIC's final report confirms the findings of the Senate Subcommittee that Mr. Oliveira accepted a bribe and allowed the illicit oil loading. A GAO review of U.N. OFFP audits revealed "deficiencies in the management and internal controls of the OFFP." U.N. audit reports reviewed by GAO included findings that "suggested a lack of oversight and accountability by the offices and entities audited," including primary OFFP contractors Lloyd's Register, Saybolt, and Cotecna. The findings reportedly include instances of inadequate contract documentation, procurement problems, and contractor overcharging. According to the IIC's February 2005 interim report, the resources available to the Internal Audit Division (IAD) of the U.N.'s Office of Internal Oversight Services were "inadequate," and IAD was forced to solicit funds from the management staff of the OFFP to support some of its oversight activities. These funding and authority limitations prevented the staff of the IAD from examining "key elements of the oil and humanitarian contracts, including price and quality of goods" which the IIC argues may have "uncovered or confirmed the various kickback schemes" used by the regime of Saddam Hussein. Citing similar difficulties, a March 2005 GAO report concluded, "constraints on the internal auditors' scope and authority prevented the auditors from examining and reporting widely on problems in the OFFP." According to the IIC report, Iraq illicitly earned $1.8 billion through surcharges on OFFP-approved oil sales and kickbacks on OFFP humanitarian and commercial goods contracts from June 2000 until March 2003. Iraqi officials reportedly demanded a 25-30 cent surcharge from buyers on each OFFP-approved barrel of oil beginning in the eighth phase of the OFFP (June 2000). SOMO records indicate that these surcharges were placed on 1.117 billion barrels of oil from June 2000 to March 2003, creating surcharge contracts valued at $265.3 million. However, Iraqi authorities were only able to collect $228.8 million in surcharges, and Iraq's SOMO reportedly terminated oil contracts with some buyers because of the buyers' unwillingness or inability to pay the demanded surcharges. A total of 248 companies purchased oil from Iraq under the OFFP; according to the IIC final report, 139 of them paid surcharges to Iraq on their oil contracts. Iraqi authorities instituted a similar kickback scheme on humanitarian and commercial goods contracts approved by the OFFP. Iraq generally demanded a 10 percent kickback from suppliers on the value of OFFP goods contracts, earning an estimated $1.583 billion from late 2000 until March 2003. The kickback scheme was rooted in complex arrangements whereby Iraqi authorities would sign contracts with cooperative suppliers for first quality goods and accept delivery of poorer quality goods without notifying OFFP officials of the discrepancy. The resulting profits to the cooperating suppliers were returned to Iraqi authorities after the suppliers allegedly subtracted small fees for themselves. The Duelfer report characterizes the kickback scheme as "particularly nefarious" in that it meant that, in many cases, the Iraqi people were supplied with "second-quality, sometimes useless, humanitarian goods." Iraq (Baghdad-controlled) purchased goods from 3,614 companies under the OFFP; according to the IIC final report, 2,253 of them paid kickbacks to Iraq on their supply contracts or deliberately delivered second-quality humanitarian goods. The oil sales surcharge issue was widely reported during 2001 and 2002, and the Security Council was aware of the allegations and moved to address them. Some members of the Sanctions Committee sought to complicate Iraq's ability to impose surcharges on its oil buyers—the surcharges constituted illicit revenue and were prohibited. For example, the Sanctions Committee had evaluated but not adopted another idea: to limit Iraq's oil buyers to major international oil firms, rather than smaller oil traders that were willing to pay Iraq the surcharge. A March 2001 press report listed companies that were purchasing Iraqi oil; many were small companies from countries that sought to do business with Iraq or were sympathetic to easing sanctions on Iraq. U.S. major oil companies were said to have bought Iraqi oil shipments from these small traders. However, according to U.S. officials, some U.N. member states, reputed to be the same countries seeking to ease sanctions on Iraq, did not immediately agree to these proposed mechanisms. In September 2001, the Security Council reached agreement to move to a pricing formula called "retroactive pricing," in which the oil was priced after sale. This significantly reduced Iraq's oil sales by about 25%, although the United Nations noted a rebound to previous levels (about 2 million barrels per day) as of September 2002. Iraq sometimes unilaterally interrupted the sale of oil to protest Security Council policy or to challenge the United States and its allies. For example, Iraq suspended its OFFP oil sales for the month of April 2002 in protest against Israel's military incursion into the West Bank. Under the terms of the memorandum of understanding between the United Nations and Iraq that implemented Security Council Resolution 986, the Iraqi government was granted the power to choose the entities to which it would sell OFFP-approved oil and from which it would purchase OFFP-approved commercial and humanitarian goods. According to the IIC's final report, Iraq took advantage of this power by creating a clandestine oil allocation or "voucher" system, through which the Iraqi government granted allocations of OFFP-approved Iraqi oil to individuals and entities it deemed "to be influential in their respective countries and who espoused pro-Iraq views or organized anti-sanctions activities." The Duelfer report and the IIC report state that Saddam Hussein personally involved himself in the selection of oil buyers and good providers participating in the U.N. OFFP. The Duelfer and IIC reports address allegations similar to those contained in the Al Mada publication mentioned above. According to the IIC report, Iraq allocated oil vouchers based on a total of 4.53 billion barrels of oil, but only 3.43 billion barrels of oil were actually lifted. The Duelfer report groups allocation recipients into three categories: (1) traditional oil companies that owned refineries; (2) personalities and parties, including "Benon Sevan...and numerous individuals including Russian, Yugoslav, Ukrainian, and French citizens;" and (3) "The Russian state," with specific recipients identified. There is considerable overlap between those named in the Al Mada article and those named in the Duelfer and IIC reports, most notably OFFP executive director Benon Sevan. Some experts believe that some allocation recipients were able to arrange for the lifting of their oil allocations, and oil surcharges apparently served as their profit on the transaction. The IIC and Duelfer reports state that some oil contracts were never actually lifted and that those who were assigned allocations based on those oil contracts might never have received any funds. Reports issued by the Senate Permanent Subcommittee on Investigations in May 2005 allege that several prominent international political figures received and traded in oil vouchers from the Saddam Hussein regime. The reports claim that Russian official Vladimir Zhirinovsky "was granted lucrative allocations of oil" by the Iraqi regime and that Houston-based U.S. firm "Bayoil knowingly acted as a conduit between Saddam Hussein and Vladimir Zhirinovsky" by purchasing the oil and paying surcharges to Iraqi authorities. An indictment filed against Bayoil executives in April 2004 alleges that the company "knowingly paid" surcharges to Iraq and manipulated oil market data provided to U.N. officials. The Senate subcommittee reports also allege that members of the Russian Presidential Council, former French Minister of the Interior Charles Pasqua, and British Member of Parliament George Galloway participated in and profited from Iraq's oil voucher program. Each of the named parties has denied the allegations. Galloway vigorously denied receiving oil vouchers in testimony before the Senate Permanent Subcommittee on Investigations on May 17, 2005. Pasqua has denied the allegations and French authorities continue to investigate charges that he and other French nationals accepted and traded oil allocations from the Saddam Hussein regime. Benon Sevan served as the Executive Director of the Office of Iraq Program at the United Nations from 1997 to 2003, and was the senior official responsible for the administration of the U.N. OFFP. According to the IIC, Sevan participated in the Iraqi government's oil allocation scheme and profited from the sale of Iraqi oil via a third party: African Middle East Petroleum Co. Ltd [AMEP]. The IIC's February 2005 interim report stated that Sevan, "while employed as Executive Director of OIP, solicited and received on behalf of AMEP several million barrels of allocations of oil from 1998 to 2001." The interim report concluded that "Mr. Sevan's solicitation on behalf of AMEP and AMEP's resulting purchases of oil presented a grave and continuing conflict of interest, were ethically improper, and seriously undermined the integrity of the United Nations." The IIC's final report echoes these conclusions, stating that "Mr. Sevan compromised his position by secretly soliciting and financially benefitting from Iraqi oil allocations." U.N. Secretary General Kofi Annan expressed "shock" at the IIC's findings and waived Sevan's diplomatic immunity. Sevan has denied the charges publicly through statements by his lawyers. He resigned his U.N. position in February 2005 and remains in Cyprus. In January 2007, Sevan was indicted in New York on bribery and conspiracy to commit wire fraud charges. Following the passage of the Iraq Sanctions Act of 1990 [ P.L. 101-513 ], U.S. law stipulated that any country violating U.N. sanctions against Iraq should be denied U.S. foreign assistance unless the President certified to the Congress that U.S. assistance was "in the national interest." In spite of public evidence that Jordan and Turkey were purchasing Iraqi oil in violation of the U.N. sanctions regime, subsequent Administrations issued presidential waivers to Congress justifying the continued provision of U.S. foreign assistance to each country from FY1994 through FY2003. According to the IIC's final report, Iraq's illicit oil sales to Turkey and Jordan provided Saddam Hussein's regime with $6.74 billion in revenue. Memoranda of justification issued by the State Department to the Senate Committee on Foreign Relations contain detailed explanations of the importance of U.S. foreign assistance to Jordan and Turkey, its utility as a means of supporting bilateral relationships with those countries, and the importance of those bilateral relationships to other U.S. foreign policy priorities. The memoranda did not contain estimates of the value of the illicit oil sales to Iraq or estimates of the possible uses of illicit revenue from the sales by Saddam Hussein's regime. Given contemporaneous U.S. concerns about Iraq's efforts to reconstitute its WMD programs and its alleged support for international terrorism, inclusion of estimates of the proceeds of Iraq's oil sales in the memoranda of justification may have provided Members with a more complete understanding of the possible costs of continuing to provide bilateral U.S. assistance to countries that were openly violating the U.N. sanctions regime. In considering steps to reform congressional oversight of U.S. sanctions policy, Members may consider including more specific reporting requirements to accompany Presidential waiver authority provisions so that the possible costs of choosing to waive sanction provisions are described as completely as the possible benefits of continued U.S. foreign assistance to various recipients. Bills addressing allegations of oil-for-food program abuse and the IIC investigation were introduced in the 109 th Congress: S. 291 , the United Nations Oil-for-Food Accountability Act of 2005, would have mandated percentage reductions (10% in FY2006 and 20% in FY2007) in U.S. contributions to the United Nations unless the President certified U.N. cooperation (providing requested documents, waiving immunity from U.S. prosecution for U.N. officials) with U.S. inquiries into the oil-for-food allegations. Companion legislation was introduced in the House ( H.R. 1092 ). H.R. 4369 would have withheld $100 million in U.S. contributions to the United Nations for each fiscal year FY2007-FY2009 until the Secretary of State certified that the unedited and uncensored archives and files of the IIC were transferred to a non-UN entity and made accessible to the public (including U.S. authorities) for at least five years. The United Nations Reform Act of 2005 ( H.R. 2745 ) would have linked future U.S. financial contributions to the United Nations to the creation of an Independent Oversight Board (IOB) at the United Nations. The bill subsequently would have directed the IOB to review the IIC's findings, determine the completeness of the IIC investigation, and, if necessary, identify areas for further investigation. The House passed H.R. 2745 on June 17, 2006 (Roll no. 282). Companion legislation was introduced in the Senate ( S. 1394 ).
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The "oil-for-food" program (OFFP) was the centerpiece of a long-standing U.N. Security Council effort to alleviate human suffering in Iraq while maintaining key elements of the 1991 Gulf war-related sanctions regime. In order to ensure that Iraq remained contained and that only humanitarian needs were served by the program, the program imposed controls on Iraqi oil exports and humanitarian imports. All Iraqi oil revenues legally earned under the program were held in a U.N.-controlled escrow account and were not accessible to the regime of Saddam Hussein. The program was in operation from December 1996 until March 2003. Observers generally agree that the program substantially eased, but did not eliminate, human suffering in Iraq. Concerns about the program's early difficulties prompted criticism of the United States; critics asserted that the U.S. strategy was to maintain sanctions on Iraq indefinitely as a means of weakening Saddam Hussein's grip on power. At the same time, growing regional and international sympathy for the Iraqi people resulted in a pronounced relaxation of regional enforcement—or even open defiance—of the Iraq sanctions. The United States and other members of the United Nations Security Council were aware of billions of dollars in oil sales by Iraq to its neighbors in violation of the U.N. sanctions regime and outside of the OFFP, but did not take action to punish states engaged in illicit oil trading with Saddam Hussein's regime. Successive Administrations issued annual waivers to Congress exempting Turkey and Jordan from unilateral U.S. sanctions for their violations of the U.N. oil embargo on Iraq. Until 2002, the United States argued that continued U.N. sanctions were critical to preventing Iraq from acquiring equipment that could be used to reconstitute banned weapons of mass destruction (WMD) programs. In 2002, the Bush Administration asserted that sanctions were eroding, and the Administration decided that the overthrow of that regime had become necessary. The program terminated following the fall of Saddam Hussein's regime, the assumption of sovereignty by an interim Iraqi government on June 28, 2004, and the lifting of Saddam-era U.N. sanctions. However, after the fall of the regime, there were new allegations of mismanagement and abuse of the program, including allegations that Saddam Hussein's regime manipulated the program to influence U.N. officials, contractors, and politicians and businessmen in numerous countries. New attention also has been focused on Iraq's oil sales to neighboring countries outside the control or monitoring of the U.N. OFFP. Several investigations revealed evidence of corruption and mismanagement on the part of some U.N. officials and contractors involved with the OFFP, and called into question the lack of action on the part of U.N. Sanctions Committee members, including the United States, to halt Iraq's profitable oil sales outside of the program over a ten year period. This product will be updated as warranted by major developments. See also CRS Report RL31339, Iraq: Post-Saddam Governance and Security.
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According to a U.S. Census Bureau report, in 2012, approximately 64% of individuals in the United States were covered by a form of private health insurance provided either through an employer or a union, or purchased by an individual from a private company. While states traditionally have been the principal regulators of health insurance, since the 1970s the federal government has become increasingly involved. The Patient Protection and Affordable Care Act (ACA), as amended, greatly expanded federal regulation of health insurance by adding a number of health insurance market reforms designed to increase access to private health insurance for individuals and enhance the quality of health care. Among many other things, ACA sets new minimum standards for private health insurance coverage, including an extension of dependent coverage to age 26; the elimination of preexisting condition exclusions; a bar on lifetime and certain annual benefit limits; coverage of certain essential health benefits; a prohibition on health insurance rescissions except under limited circumstances; and coverage of preventive health services without cost sharing. These requirements may apply to group health plans, broadly defined as plans established or maintained by an employer that provides medical care. Group health plans can be insured (i.e., purchased from an insurance carrier) or self-insured (funded directly by the employer). ACA's requirements may also apply to "health insurance issuers," health insurers that issue a policy or contract to provide group or individual health insurance coverage. This coverage may be sold both inside and outside of state health insurance exchanges (i.e., "marketplaces"). In large part, Title I of ACA does not expressly contain enforcement tools, such as judicial review or civil monetary penalties, which may be imposed for violating these new private health insurance requirements. However, since ACA amends three preexisting statutes—the Employee Retirement Income Security Act (ERISA), the Public Health Service Act (PHSA), and the Internal Revenue Code (IRC)—enforcement under federal law may be carried out through mechanisms in those statutes. This report examines these selected federal mechanisms. In order to examine how ACA's private health insurance requirements will be enforced, it is helpful to understand the basic landscape of federal private health insurance regulation. Traditionally, health insurance matters were primarily regulated at the state, rather than the federal, level. Accordingly, states can and do regulate health insurance and insurers comprehensively. These requirements vary from state to state, but many states require insurers, for example, to be financially solvent and to pay claims promptly, and to mandate certain benefits (i.e., require health insurers to cover services provided by certain medical specialties or cover treatments for specific diseases). Congress explicitly recognized the role of the states in the regulation of insurance with the passage of the McCarran-Ferguson Act of 1945. This law was passed in response to the Supreme Court's ruling in United States v. South-Eastern Underwriters , in which the Court affirmed the federal government's right to regulate the competitive practices of insurers under the Commerce Clause of the U.S. Constitution. The intent of the McCarran-Ferguson Act was to grant states the explicit authority to regulate insurance in light of this decision. Section 2(a) of the act states, "The business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business." However, under the act, Congress also reserved to itself the right to enact federal statutes that specifically relate to "the business of insurance." Pursuant to this right, Congress has passed legislation which regulates insurance in particular instances. For example, in the 1970s, Congress passed ERISA to regulate private-sector employee benefit plans. While ERISA was primarily enacted to regulate pension plans, certain provisions of the act applied to welfare benefit plans, including those that provide medical, surgical, and other health benefits. Following passage of the act, like other non-pension plans governed by ERISA, these health plans were subject to fiduciary standards, reporting and disclosure requirements, and procedures for appealing a denied claim for benefits. In 1996, Congress passed the Health Insurance Portability and Accountability Act (HIPAA), which established certain minimum national standards for private health insurance. The basic intent of HIPAA's health insurance provisions was to reduce the possibility that individuals and certain employers would lose existing health plan coverage, and to help individuals to maintain coverage when changing jobs or purchasing coverage on their own. Under HIPAA, group health plans and health insurance issuers that provided group health coverage were subject to limitations on the period of time that an individual could be excluded from coverage because of a preexisting condition. The act also prohibited plans and issuers in the group health insurance market from discriminating against individuals in terms of eligibility for coverage, enrollment, premiums, or other contributions based on certain health-related factors, such as medical history or disability. The group health coverage requirements of HIPAA were set out as substantively similar provisions in three federal statutes: ERISA, the PHSA, and the IRC. These three statutes apply to different types of private health insurance coverage and contain different types of enforcement mechanisms. Following enactment of HIPAA, Congress enacted other statutes that mirrored the three-statute regulatory model. These include the Newborns' and Mothers' Health Protection Act, which sets standards for benefits provided to mothers and newborns following childbirth; the Mental Health Parity Act of 1996, providing for parity between medical/surgical benefits and mental health benefits; the Women's Health and Cancer Rights Act, requiring group health plans providing mastectomy coverage to cover prosthetic devices and reconstructive surgery; and Michelle's Law, which extends the ability of dependents to remain on their parents' plan for a limited period of time during a medical leave from full-time student status. These federal insurance standards created by HIPAA and subsequent acts were intended to act as a federal "floor," while preserving the states' role in regulating health insurance. ERISA and the PHSA specify that the federal health insurance requirements as applied to health insurance issuers do not supersede state law, except to the extent that a state law "prevents the application" of a federal requirement. Thus, states are allowed to regulate health insurance more comprehensively than federal law, so long as these requirements do not conflict with federal standards. As noted above, ACA significantly amended and expanded upon these federal health insurance standards, adding several new requirements for group health plans and health insurance issuers in the group and individual markets. These provisions were added to the PHSA and incorporated by reference into ERISA and the IRC. Accordingly, the enforcement mechanisms of these three laws may be applied. As noted above, Title XXVII of the PHSA, Part 7 of ERISA, and Chapter 100 of the IRC generally apply federal health insurance standards to different types of private-sector health coverage. Further, the Secretaries of HHS, Labor, and the Treasury have shared interpretive and enforcement authority under these sections of the three statutes. In general, and discussed in more detail below, Title XXVII of the Public Health Service Act, administered by the Department of Health and Human Services, applies to health insurance issuers providing individual and group health coverage, and self-insured governmental plans. Part 7 of ERISA is administered by the Department of Labor and regulates health coverage provided by employers in the private sector. ERISA applies to insured and self-insured group health plans, as well as insurance issuers providing group health coverage. However, ERISA does not generally apply to governmental or church plans. The IRC, as administered by the Department of Treasury, covers employment-based group health plans, including church plans, but does not apply to health insurance issuers. The enforcement mechanisms are different under each of the three statutes. In general, the private health insurance requirements of Title XXVII of the Public Health Service Act apply to health insurance issuers in the group and individual markets and to self-funded non-federal governmental group plans. With respect to health insurance issuers, states are the primary enforcers of the private health insurance requirements. If the Secretary determines that a state has failed to substantially enforce a provision of Title XXVII of the PHSA with respect to health insurance issuers in the state, the Secretary is responsible for enforcing these provisions. While the statute does not specify what a state needs to do in order to be considered "substantially enforcing" the requirements of the PHSA, regulations outline the procedure to be followed by HHS in making a determination as to whether federal enforcement is needed. According to the Centers for Medicare and Medicaid Services (CMS), while the vast majority of states are enforcing ACA's health insurance market reforms, some have indicated that they lack authority to enforce or are otherwise not taking enforcement actions. The Secretary may impose a civil monetary penalty on insurance issuers that fail to comply with the PHSA requirements. The maximum penalty imposed under the PHSA is $100 per day for each individual with respect to which such a failure occurs. Similar to the IRC (discussed below), certain minimum penalty amounts may apply to a plan or employer if the violation is not corrected within a specified period, or if a violation is considered to be more than de minimis. In determining the amount of the penalty, the Secretary must take into account the entity's previous record of compliance with the PHSA provisions. In addition, a penalty may not be imposed for a violation if it is established to the Secretary's satisfaction that none of the entities knew (or if exercising reasonable diligence would have known) that the violation existed. If the violation was due to reasonable cause and not willful neglect, a penalty would not be imposed if the violation were corrected within 30 days of discovery. Entities found to violate the PHSA requirements may challenge the penalty in a hearing subject to a decision by an administrative law judge. Following this administrative hearing, entities may file an action for judicial review. Health insurance issuers may also sell coverage to qualified individuals and small employers through exchanges that are established in each state. Exchanges are set up either by the state itself as a "state-based exchange" or by the Secretary of Health and Human Services (HHS) as a "federally-facilitated exchange. Each exchange must, among other things, facilitate the purchase of "qualified" health plans that are offered by health insurance issuers. The health insurance market reforms included in the PHSA apply to the insurance coverage sold in an exchange by these issuers. Additionally, the enforcement structure of the PHSA applies to health insurance exchanges, and so states have the primary role in enforcing exchange standards. With respect to governmental plans, the Secretary of Health and Human Services is the primary enforcer of the PHSA requirements. Prior to ACA, state and local governments could elect to exempt their plans from certain requirements of the PHSA, subject to certain exceptions. However, this election is not applicable to the provisions added to the PHSA by ACA, and thus these plans are subject to ACA's federal health insurance standards. The provisions of ACA were incorporated by reference into Part VII of ERISA. The Secretary of Labor may take enforcement action against group health plans of employers that violate ERISA, but may not enforce ERISA's requirements against health insurance issuers. In addition, Section 502(a) of ERISA authorizes various civil actions that may be brought by a participant or beneficiary of a plan against group health plans and health insurance issuers. This section also provides for and limits the remedies (i.e., relief) available to a successful plaintiff. The Supreme Court has found that Section 502(a) contains "exclusive" federal remedies, and it preempts state or common law causes of action that may provide for more generous remedies than those available under ERISA. The preemption of these state law claims has been controversial, as it can significantly affect a plaintiff's opportunity to recover damages under state law. Since ACA did not amend Section 502 of ERISA, presumably the section authorizes review of claims arising out of a violation of the incorporated ACA provisions. Among the claims that may be brought under Section 502(a) of ERISA, Section 502(a)(1)(B) authorizes a plaintiff (i.e., a participant or a beneficiary in an ERISA plan) to bring an action against the plan to recover benefits under the terms of the plan, or to enforce or clarify the plaintiff's rights under the terms of the plan. Under this section, if a plaintiff's claim for benefits is improperly denied, the plaintiff may sue to recover the unpaid benefit. A plaintiff may also seek a declaration to preserve a right to future benefits or an injunction to prevent a future denial of benefits. In terms of monetary remedies, Section 502(a)(1)(B) provides that a successful plaintiff may only receive the benefits the plaintiff would have been entitled to under the terms of the plan. Compensatory or punitive damages are not available under this subsection. In general, the group health provisions in Chapter 100 of the Internal Revenue Code apply to all group health plans (including church plans), but they do not apply to governmental plans and health insurance issuers. Under the IRC, the group health plan requirements are enforced through the imposition of an excise tax. For single-employer plans, employers are generally responsible for paying this excise tax. Under multiemployer plans, the tax is imposed on the plan. A group health plan that fails to comply with the pertinent requirements in the IRC may be subject to a tax of $100 for each day in the noncompliance period with respect to each individual to whom such failure relates. However, if failures are not corrected before a notice of examination for tax liability is sent to the employer, and these failures occur or continue during the period under examination, the penalty will not be less than $2,500. Where violations are considered to be more than de minimis, the amount will not be less than $15,000. Limitations on a tax may be applicable under certain circumstances (e.g., if the person otherwise liable for such tax did not know or if exercising reasonable diligence would not have known that such violation existed). Since the provisions of ACA are incorporated by reference into Chapter 100 of the IRC, and Section 4980D of the IRC imposes a tax on any failure of a group health plan to meet the requirements of the chapter, group health plans subject to the Internal Revenue Code could be subject to the excise tax for violations of the ACA provisions. The following table summarizes applicability and enforcement mechanisms of the PHSA, ERISA, and the IRC.
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The Patient Protection and Affordable Care Act (ACA), as amended, greatly expanded the scope of federal regulation over health insurance provided through employment-based group health plans, as well as coverage sold in the individual insurance market. Federal health insurance standards created by ACA require an extension of dependent coverage to age 26 if such coverage is offered; the elimination of preexisting condition exclusions; coverage of certain essential health benefits; a bar on lifetime or annual limits on the dollar value of certain benefits; a prohibition on health insurance rescissions except under limited circumstances; and coverage of preventive health services without cost-sharing, among many other things. While some of these changes took effect in 2010, others begin in 2014. In large part, ACA does not explicitly include any means for enforcing these health insurance requirements. However, these requirements were added to Title XXVII of the Public Health Service Act (PHSA), and incorporated by reference into Part 7 of the Employee Retirement Income Security Act (ERISA) and Chapter 100 of the Internal Revenue Code (IRC). Accordingly, if these ACA provisions are not followed, enforcement may be carried out through mechanisms (such as judicial review and other penalties) that existed prior to ACA in these three federal statutes. The PHSA, ERISA, and the IRC apply to different types of health coverage and contain different types of enforcement mechanisms. In general, the private health insurance requirements of Title XXVII of the PHSA apply to health insurers offering group and individual health coverage, as well as health plans offered to government employees. With respect to health insurers, the PHSA allows states to be the primary enforcers of the federal private health insurance requirements, but the Secretary of Health and Human Services (HHS) assumes this responsibility if it is determined that a state has failed to "substantially enforce" the federal provisions. Pursuant to this enforcement structure, states are primarily responsible for enforcing federal health insurance requirements both inside and outside of health insurance exchanges. ERISA generally applies to group health coverage provided by private-sector employers. Section 502(a) of ERISA authorizes various civil actions that may be brought by a participant or beneficiary of a plan against both group health plans and health insurers. Chapter 100 of the IRC applies to group health coverage, and the Department of Treasury can enforce the health plan requirements through the imposition of an excise tax. This report examines these provisions in ERISA, the PHSA, and the IRC that may be used to enforce the ACA health insurance market reforms.
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In MedImmune v. Genentech , the U.S. Supreme Court held that, at least in instances where the licensor-patentee has implicitly or explicitly threatened to sue for patent infringement if the licensee did not pay the demanded royalties, a patent licensee need not terminate or breach its license agreement before it may bring suit to obtain a declaratory judgment that the underlying patent is invalid, unenforceable, or not infringed. The U.S. Court of Appeals for the Federal Circuit had previously adopted a procedural rule that a licensee must stop paying royalties (and thereby materially breach the agreement) before bringing suit to challenge the validity or scope of the licensed patent. The MedImmune decision thus repudiates the Federal Circuit's rule that had resulted in federal courts dismissing such declaratory judgment actions for lack of subject matter jurisdiction. Because the Patent Act expressly provides that "patents shall have the attributes of personal property," patent holders may sell their patent rights in a legal transfer called an "assignment." Alternatively, patent holders may grant others a "license" to exercise one of the five statutory patent rights. A license is not a transfer of ownership of the patent, but rather is the patent holder's permission to another entity to use the invention in a limited way, typically in exchange for periodic royalty payments during the term of the patent. A patent holder may grant to a licensee the right to practice the invention through a contract (typically known as a patent licensing agreement). The terms of the licensing agreement, however, may include conditions upon the grant of rights—for example, restricting the licensee from making the invention but allowing that party to sell it. A licensee that performs an act that exceeds the scope of the license (through a violation of the limitations and conditions of the grant of rights) or refuses to comply with the terms of the license agreement (such as by refusing to pay the required royalties) is potentially liable to the patent holder for breach of contract as well as for patent infringement. Over the term of a patent license agreement, a licensee may wish to challenge the validity of the underlying patent because he or she discovers information suggesting that the patent had been improvidently granted by the U.S. Patent and Trademark Office (for example, if the new information demonstrates that a patent had been issued for an invention that actually fails to meet all of the statutory standards for patentability—novelty, utility, and nonobviousness). By challenging the validity of the underlying patent, the licensee could avoid paying royalties or freely pursue other activities that had previously appeared to come within the scope of the patent. However, prior to 1969, an equitable doctrine known as "licensee estoppel" prevented a patent licensee from denying the validity of the licensed patent; this doctrine was developed by courts that were interested in supporting general principles of contract law, which normally do not permit buyers to repudiate their promises to purchase goods when they become unhappy with the contract made with the sellers, at least without some form of compensation to the other party. In 1969, the Supreme Court overruled the licensee estoppel doctrine by announcing in Lear, Inc. v. Adkins that a license agreement does not bar the licensee from challenging the validity of a patent. The Court explained that "the important public interest in permitting full and free competition in the use of ideas which are in reality a part of the public domain" trumps "the technical requirements of contract doctrine." Furthermore, other policy considerations weigh in favor of abrogating licensee estoppel: "Licensees may often be the only individuals with enough economic incentive to challenge the patentability of an inventor's discovery. If they are muzzled, the public may continually be required to pay tribute to would-be monopolists without need or justification." Under Article III of the U.S. Constitution, the jurisdiction of federal courts is limited to actual, ongoing cases and controversies. The Declaratory Judgment Act, codified at 28 U.S.C. § 2201, authorizes a federal court to issue a judgment declaring the legal rights of any interested party seeking such declaration, "whether or not further relief is or could be sought," in a "case of actual controversy within its jurisdiction." The U.S. Supreme Court has held that an action for declaratory relief qualifies as a "case or controversy" under Article III; furthermore, it has explained: "[T]he question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." The Court has also stressed that Article III requires that the dispute at issue "must be definite and concrete, touching the legal relations of parties having adverse legal interests"; and that "[i]t must be a real and substantial controversy admitting of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts." However, the Supreme Court has previously opined that "the difference between an abstract question and a 'controversy' contemplated by the Declaratory Judgment Act is necessarily one of degree, and it would be difficult, if it would be possible, to fashion a precise test for determining in every case whether there is such a controversy." The U.S. Court of Appeals for the Federal Circuit (Federal Circuit) had attempted to articulate such a test. The Federal Circuit developed a two-part test to determine whether there was an "actual controversy" in a declaratory judgment action for patent non-infringement or invalidity: There must be both (1) an explicit threat or other action by the patentee, which creates a reasonable apprehension on the part of the declaratory judgment plaintiff that it will face an infringement suit, and (2) present activity which could constitute infringement or concrete steps taken with the intent to conduct such activity. In the Lear case discussed above, the licensee had refused to continue paying royalties and thus was sued by the licensor-patentee for breach of contract. The lower courts in that case had applied the licensee estoppel doctrine to prevent the licensee from raising patent invalidity as a defense to the lawsuit; as previously discussed, the Supreme Court overruled those courts and expressly repudiated the licensee estoppel doctrine. In 2004, the Federal Circuit, in Gen-Probe Inc. v. Vysis, Inc ., opined that the Lear doctrine "does not grant every licensee in every circumstance the right to challenge the validity of the licensed patent." The appellate court in Gen-Probe explained: [A] licensee ... cannot invoke the protection of the Lear doctrine until it (i) actually ceases payment of royalties, and (ii) provides notice to the licensor that the reason for ceasing payment of royalties is because it has deemed the relevant claims to be invalid. This language posits that a licensee must, at a minimum, stop paying royalties (and thereby materially breach the agreement) before bringing suit to challenge the validity or scope of the licensed patent. The question that the U.S. Supreme Court faced in MedImmune v. Genentech was whether a patent licensee in good standing (meaning that the licensee is complying fully with the license terms, meeting royalty payment obligations, and cannot be sued by the licensor-patentee) must terminate or breach its license agreement before it can bring a declaratory judgment action to challenge a demand to pay royalties, on the grounds that the underlying patent is invalid, unenforceable, or not infringed. MedImmune, Inc. is a pharmaceutical company that manufactures a drug, Synagis, used to prevent respiratory tract disease in infants and young children. A year before the U.S. Food and Drug Administration approved Synagis for marketing to consumers, MedImmune had entered into a patent license agreement with the biotechnology company Genentech in 1997, concerning an existing Genentech patent relating to the production of "chimeric antibodies" (the Cabilly I patent) and also a then-pending patent application for "the coexpression of immunoglobulin chains in recombinant host cells." MedImmune agreed to pay royalties on sales of any "licensed products" that it may make or sell which would infringe the claims of either of the patents, if not for the license agreement. In December 2001, Genentech was awarded a patent on the "coexpression" application that was the subject of the licensing agreement (Cabilly II patent). Genentech sent MedImmune a letter, asserting that the Synagis drug came within the scope of the new Cabilly II patent, and that therefore it was a "licensed product" for which royalties are owed under the 1997 license agreement. MedImmune, however, believed the Cabilly II patent invalid and unenforceable or, alternatively, that Synagis did not infringe the patent's claims. Despite this assessment, MedImmune paid the royalties "under protest," because it considered Genentech's letter a threat to sue for patent infringement if it failed to comply with the demands therein. As this drug accounted for more than 80% of the company's revenue from sales since 1999, MedImmune was unwilling to risk the consequences of losing a patent infringement suit, which included being enjoined from selling Synagis. MedImmune initiated a declaratory judgment action against Genentech, seeking a declaration that the patent was invalid and unenforceable. Genentech filed a defense motion pursuant to Federal Rules of Civil Procedure 12(b)(1), asserting that the federal courts lacked Article III jurisdiction over the claim because no "actual controversy" existed between the parties. The U.S. District Court for the Central District of California granted Genentech's motion, dismissing the case for lack of subject matter jurisdiction. The district court explained that it was obliged to dismiss the case due to the controlling precedent of the Federal Circuit's Gen-Probe Inc. v. Vysis, Inc. decision in 2004, which had held that "a patent licensee in good standing cannot establish an Article III case or controversy with regard to validity, enforceability, or scope of the patent because the license agreement 'obliterates any reasonable apprehension' that the licensee will be sued for infringement." Because MedImmune continued to pay royalties under the license agreement and did not otherwise breach it, it was a licensee in good standing and was not under threat or in reasonable apprehension of suit, the court reasoned. On appeal, MedImmune conceded that it was free of apprehension of suit, and that it continued to pay royalties only to avoid the consequences of a successful patent infringement suit by Genentech. However, MedImmune asserted that the Lear case provided it with "the absolute right to challenge the validity or enforceability of the patent, whether or not it breaches the license and whether or not it can be sued by the patentee," and appealed for Gen-Probe to be overruled. In response, Genentech argued that the facts of the case did not support invocation of Lear (which had dealt with licensee estoppel), but rather that the threshold question for the dispute concerned Article III jurisdiction under the Declaratory Judgment Act. The Federal Circuit agreed with Genentech and affirmed the district court's judgment, relying on its earlier Gen-Probe decision in determining that there was a lack of a justiciable controversy. The appellate court rejected the applicability of Lear because in that case, the licensee had ceased royalty payments, thus breaching the license, and was then sued by the patentee. In contrast, the Federal Circuit explained, here such "breach was assiduously avoided. Thus this case does not raise the question of whether patent invalidity is available as a defense to suit against a defaulting licensee—the licensee estoppel that was laid to rest in Lear —for there is no defaulting licensee and no possibility of suit." The Supreme Court granted certiorari on February 21, 2006, to review the MedImmune case, in order to answer the following question: Does Article III's grant of jurisdiction of "all Cases ... arising under ... the Laws of the United States," implemented in the "actual controversy" requirement of the Declaratory Judgment Act, 28 U.S.C. § 2201(a), require a patent licensee to refuse to pay royalties and commit material breach of the license agreement before suing to declare the patent invalid, unenforceable or not infringed? On January 9, 2007, the Supreme Court reversed the Federal Circuit's judgment in an 8-1 decision, and remanded the case to the district court. The Court held that a patent licensee is not required to repudiate its license agreement before seeking a declaratory judgment in federal court that the underlying patent is invalid, unenforceable, or not infringed. Writing for the majority, Justice Antonin Scalia first explained that the Article III "case or controversy" requirement would have been satisfied if MedImmune had refused to make royalty payments. At issue here, however, was whether a case or controversy still existed when MedImmune's compliance with the license terms eliminated the immediate threat of injury from a patent infringement lawsuit. Justice Scalia offered a comparison to a situation where the government threatens legal action, in which there is no requirement that "a plaintiff [] expose himself to liability before bringing suit to challenge the basis for the threat—for example, the constitutionality of a law threatened to be enforced." In such a case, he noted, courts have not found Article III jurisdiction to be lacking despite the fact that the plaintiff's own action (or inaction) in failing to violate the law eliminates the imminent threat of prosecution. Although a private party, rather than the government, threatened the enforcement action in MedImmune , this distinction does not make a significant legal difference that would eliminate jurisdiction, Justice Scalia argued. He identified an earlier Supreme Court decision, Altvater v. Freeman , that had a substantially similar fact pattern as MedImmune. In Altvater, the patentees had filed suit against their licensees to enforce territorial restrictions in the license. The licensees then filed a counterclaim for declaratory judgment that the underlying patents were invalid. However, the licensees continued to pay royalties "under protest," although it was being required to do so under an injunction decree that the patentees had obtained in an earlier case. Yet Justice Scalia explained that the absence of an injunction in MedImmune does not distinguish the case from Altvater because if the Altvater licensee had stopped paying the royalties in defiance of the injunction, the licensee would have risked being liable for actual and treble damages in a patent infringement lawsuit. The Altvater Court had held [C]ertainly the requirements of [a] case or controversy are met where payment of a claim is demanded as of right and where payment is made, but where the involuntary or coercive nature of the exaction preserves the right to recover the sums paid or to challenge the legality of the claim. Here, Genentech had demanded that MedImmune make royalty payments under the licensing agreement and apparently threatened to bring a patent infringement lawsuit to enjoin sales of MedImmune's Synagis drug if royalties were not paid. MedImmune's payment of royalties under such "coercive" circumstances does not eliminate jurisdiction of a court to entertain a declaratory judgment action, Justice Scalia stated. He opined, "The rule that a plaintiff must destroy a large building, bet the farm, or (as here) risk treble damages and the loss of 80 percent of its business, before seeking a declaration of its actively contested legal rights finds no support in Article III." Justice Scalia cautioned that the Supreme Court's decision in this case is limited to the procedural issue of whether federal courts have subject matter jurisdiction over these types of declaratory judgment actions brought by nonrepudiating licensees; the Court declined, however, to express an opinion on the merits of the arguments made by the licensor-patentee for denying declaratory relief to the licensee. In its briefs filed with the Court, Genentech had appealed to a common-law doctrine that a party to a contract cannot challenge its validity while simultaneously continuing to reap its benefits. Furthermore, Genentech had argued that the license agreement itself precluded the suit, because [w]hen a licensee enters such an agreement ... it essentially purchases an insurance policy, immunizing it from suits for infringement so long as it continues to pay royalties and does not challenge the covered patents. Permitting it to challenge the validity of the patent without terminating or breaking the agreement alters the deal, allowing the licensee to continue enjoying its immunity while bringing a suit, the elimination of which was part of the patentee's quid pro quo. Justice Scalia observed, however, that these two points raised by Genentech went to the merits of the case, and not to the question of whether Article III jurisdiction is available over MedImmune's declaratory judgment action. Finally, noting that the Declaratory Judgment Act provides that a court " may declare the rights and other legal relations of any interested party," Justice Scalia decided to "leave the equitable, prudential, and policy arguments in favor of such a discretionary dismissal for the lower courts' consideration on remand." Similarly left for consideration on remand are any merits-based arguments for denial of declaratory relief in the case. In lone dissent, Justice Clarence Thomas maintained that a patent licensee in good standing must breach its license prior to challenging the validity of the underlying patent. He stated, "[T]he declaratory judgment procedure cannot be used to obtain advanced rulings on matters that would be addressed in a future case of actual controversy." In his view, MedImmune's suit was an attempt to seek a ruling on hypothetical or conjectural matters, and thus federal courts lacked Article III jurisdiction over its claims. Since MedImmune was decided, the Federal Circuit has acknowledged that the first prong of its "two-part test" for declaratory judgment jurisdiction, the "reasonable apprehension of suit" prong, is no longer valid because it contradicts Supreme Court precedent as explained by the MedImmune Court. MedImmune, however, left open several unresolved questions whose impact on the patent law remain to be seen; lower courts' interpretations of the decision will be instructive, and the Supreme Court may well revisit the issues it declined to address in MedImmune during a future case. For example, the Lear Court had ruled that a repudiating licensee need not comply with its contract and continue paying royalties until the patent is held invalid by a court. However, the MedImmune Court "express[ed] no opinion" on whether a nonrepudiating licensee is relieved of its contract obligations during the suit challenging the patent's validity. Therefore, the applicability of the licensee estoppel doctrine to this situation is an open question after MedImmune. Also, the MedImmune Court had emphasized that district courts still have statutory discretionary authority to decline to hear declaratory judgment actions; it will be up to licensors-patentees to craft "equitable, prudential, and policy arguments" to successfully persuade the district court to exercise that discretion. Finally, the MedImmune Court did not consider the enforceability of drafting a provision in a license agreement that obliged a licensee not to challenge the validity of the underlying patent unless he or she breached the license. Other ramifications of MedImmune on the patent law are significant. First, the ruling may spark an increase in patent litigation activity, as more patent licensees may find it easier to bring declaratory judgment actions to challenge the patent's validity—without having to terminate or breach their license agreements before doing so. Second, the decision promises to play a role in drafting and negotiating the terms of patent licensing agreements, as licensors-patentees may be interested in having licensees agree to the inclusion of "no challenge" clauses. It is also likely that the decision may have an impact beyond patent law, as it may be applicable to licensing and contract law matters that do not involve intellectual property.
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According to earlier precedent of the U.S. Court of Appeals for the Federal Circuit, a suit filed by a patent licensee in good standing, seeking to declare the underlying patent invalid, unenforceable, or not infringed, is non-justiciable under the Declaratory Judgment Act because there is no actual controversy between the licensee and licensor. The Federal Circuit had asserted that a license agreement eliminates any "reasonable apprehension" that the nonrepudiating licensee will be sued for infringement and thus federal courts must dismiss such declaratory judgment actions for lack of subject matter jurisdiction under Article III of the U.S. Constitution. In MedImmune v. Genentech (549 U.S. __, No. 05-608, decided January 9, 2007), the U.S. Supreme Court rejected the jurisdictional rule adopted by the Federal Circuit, holding to the contrary that a patent licensee need not materially breach its license agreement (for example, by ceasing royalty payments to the patent holder) before it may bring suit to obtain a judgment that the underlying patent is invalid, unenforceable, or not infringed, in situations where the licensor-patentee has implicitly or explicitly threatened to sue for patent infringement if the licensee did not pay the demanded royalties. Payment of royalties under such "coercive" circumstances does not eliminate the jurisdiction of the federal courts to entertain declaratory judgment actions from patent licensees in good standing, the Court explained. Notably, this decision is limited to the procedural issue of whether federal courts have subject matter jurisdiction over these types of claims; the Supreme Court declined to express an opinion on the merits of the arguments made by the licensor-patentee in the case for denying declaratory relief to the licensee. This report provides a summary and analysis of the Supreme Court's opinion in MedImmune and discusses its potential ramifications on patent law.
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Medicare is a federal insurance program that pays for covered health services for most persons 65 years of age and older and for most permanently disabled individuals under the age of 65. Part A of the program, the Hospital Insurance program, covers hospital services, up to 100 days of post-hospital skilled nursing facility services, post-institutional home health visits, and hospice services. Part B, the Supplementary Medical Insurance program, covers a broad range of medical services including physician services, laboratory services, durable medical equipment, and outpatient hospital services. Part B also covers some home health visits. Part C (also known as Medicare Advantage, or MA) provides private plan options, such as managed care, for beneficiaries who are enrolled in both Parts A and B. Part D provides optional outpatient prescription drug coverage. In general, the total payment received by a provider for covered services provided to a Medicare beneficiary is composed of two parts: a program payment from Medicare plus any beneficiary cost-sharing that is required. (The required beneficiary out-of-pocket payment may be paid by other insurance, if any.) Medicare has established specific rules governing its program payments for all covered services as well as for beneficiary cost sharing as described below. Medicare has established specific rules governing payment for covered services. For example, the program pays for most acute inpatient and outpatient hospital services, skilled nursing facility services, and home health care under a prospective payment system (PPS) established for the particular service; under PPS, a predetermined rate is paid for each unit of service such as a hospital discharge or payment classification group. Payments for physician services, clinical laboratory services, and certain durable medical equipment covered under Part B are made on the basis of fee schedules. Certain other services are paid on the basis of reasonable costs or reasonable charges. In general, the program provides for annual updates of the program payments to reflect inflation and other factors. In some cases, these updates are linked to the consumer price index for all urban consumers (CPI-U) or to a provider-specific market basket (MB) index which measures the change in the price of goods and services purchased by the provider to produce a unit of output. However, updates to the physician fee schedule are determined by a statutory formula, known as the sustainable growth rate (SGR) system, which links annual updates to how cumulative actual expenditures compare with a cumulative expenditures target. In addition to premiums, there are two aspects of beneficiary payments to providers: required cost-sharing amounts (coinsurance, copayments, or deductibles) and the amounts that beneficiaries may be billed over and above Medicare's recognized payment amounts for certain services. Almost all persons age 65 and over are automatically entitled to premium-free Medicare Part A, as they, or their spouse, have at least 40 quarters of Medicare covered employment. For Part A, coinsurance and deductible amounts are established annually; these payments include deductibles and coinsurance for hospital services, coinsurance for skilled nursing facilities (SNFs), no cost sharing for home health services, and nominal cost sharing for hospice care. For Part B, beneficiaries are generally responsible for monthly premiums, which range from $104.90 to $335.70 in 2013 (depending on the beneficiary's income), a $147 deductible in 2013 (updated annually by the increase in the Part B premium), and a coinsurance payment of 20% of the established Medicare payment amounts. For Part C, cost sharing is determined by the private plans. Through 2005, the total of premiums for basic Medicare benefits and cost sharing (deductibles, coinsurance, and co-payments) charged to a Part C enrollee could not exceed actuarially determined levels of cost sharing for those same benefits under original Medicare. This meant that plans could not charge a premium for Medicare-covered benefits without reducing cost-sharing amounts. Beginning in 2006, the constraint on a plan's ability to charge a premium for basic Medicare benefits was lifted. The bidding mechanism established by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) allows plans to charge a premium to cover basic Medicare benefits if the costs to the plan exceed the maximum amount the Centers for Medicare & Medicaid Services (CMS) will pay for Medicare-covered benefits. The MMA eliminated the explicit inverse relationship between cost sharing for basic Medicare benefits and a premium for basic Medicare benefits. Aggregate enrollee cost sharing under Part C is now only constrained by the actuarial value of cost sharing under original Medicare. However, also beginning in 2006, the Secretary has expanded authority to negotiate or reject a bid from a managed care organization in order to ensure that the bid reasonably reflects the plan's revenue requirements. The base beneficiary premium under part D for 2013 is $31.17 per month; however, actual premiums vary by plan and are increased for beneficiaries with incomes above specified thresholds, similar to Part B premiums. Part D cost sharing includes a deductible, co-payments, and catastrophic limits on out-of-pocket spending. For most services, there are rules on amounts beneficiaries may be billed over and above Medicare's recognized payment amounts. Under Part A, providers agree to accept Medicare's payment as payment in full and cannot bill a beneficiary amounts in excess of the coinsurance and deductibles. Under Part B, providers and practitioners are subject to limits on the amounts they can bill beneficiaries for covered services depending on their participation status in the Medicare program. A participating physician agrees to accept the approved fee schedule amount as payment in full (assignment) for all services delivered to Medicare beneficiaries, of which 80% is paid by the Medicare program and the beneficiary is responsible for the 20% coinsurance plus any unmet deductible. Physicians who do not agree to accept assignment on all Medicare claims in a given year are referred to as nonparticipating physicians . Nonparticipating physicians may or may not accept assignment for a given service. If they do not, they may charge beneficiaries more than the fee schedule amount on nonassigned claims; for physicians, these balance billing charges are subject to certain limits. Assignment is mandatory for some providers, such as nurse practitioners, physician assistants, and clinical laboratories; these providers can only bill the beneficiary the 20% coinsurance and any unmet deductible. For other Part B services, such as durable medical equipment, assignment is optional; providers may bill beneficiaries for amounts above Medicare's recognized payment level and may do so without limit. Because of its rapid growth, both in terms of aggregate dollars and as a share of the federal budget, the Medicare program has been a major focus of legislative attention, as outlined below. With a few exceptions, savings in program spending have been achieved largely through reductions in the updates to provider payments, primarily hospitals, physicians, and MA plans. However, even when payments are frozen (as has been the case in some years with payments to acute care hospitals, inpatient rehabilitation facilities, long term care hospitals, and with the physician fee schedule), Medicare spending continues to increase each year as the number of beneficiaries increases, and the number and complexity of services becomes greater. The Patient Protection and Affordable Care Act ( P.L. 111-148 as amended, ACA), is estimated to achieve substantial program savings through, permanent reductions in the maximum amount paid to MA plans, and reductions in the annual updates to Medicare's fee-for-service (FFS) providers (other than physicians' services), among other provisions. The anticipated savings from payment changes to FFS providers is substantially due to the application of a productivity adjustment. (Productivity, in general, is a measure of output produced relative to the amount of work required to produce it.) The ACA productivity adjustment marks a departure from most previous legislative actions to reduce Medicare program spending in two specific respects. First, it is a permanent, rather than time-limited, adjustment to (non-physician) payment updates. Second, in general, it specifies that the adjustment allows for negative payment updates and as such, payment rates for a year may be less than for a preceding year. At the time of passage, the ACA was estimated to achieve net Medicare savings of approximately $430 billion over the 10-year budget window (FY2010-FY2019), based on a CRS analysis of the Congressional Budget Office estimates for provisions affecting the Medicare program. Though the ACA payment changes to Medicare providers and plans is expected to slow the growth in Medicare spending and extend the solvency of the Hospital Insurance (Part A) Trust Fund, some have suggested that such a policy may not be sustainable in the long run, "without unprecedented improvements in health care provider productivity." Once the impact of the provider payment changes from the ACA is known, Congress may wish to revisit the issue of the productivity adjustments to determine whether rates are much higher or much lower than originally estimated. As in the case of physician payment updates, it is unclear whether Congress will allow providers to be paid less than in a previous year under this new provision. In addition, the ACA created an Independent Payment Advisory Board (IPAB), and charged it with developing proposals to "reduce the per capita rate of growth in Medicare" if spending goes above targets specified in the statute. IPAB is prohibited from recommending changes that would reduce payments to certain providers before 2020 and is also prohibited from recommending changes in premiums, benefits, eligibility, and taxes or other changes that would result in rationing. Unlike other agencies that advise Congress, IPAB's recommendations are to be automatically implemented unless Congress acts. Congress can alter the Board's proposals, within limitations, or discontinue the automatic implementation of proposals. The Board is to be appointed by the President in consultation with congressional leadership and with the advice and consent of the Senate. It is to submit its first set of recommendations to the President and to Congress, if required, by January 15, 2014. However, the CBO has projected that the IPAB trigger may not be activated in the near future. Provisions in the Budget Control Act of 2011 ( P.L. 112-25 , BCA) impact Medicare payments in 2013. The BCA established a Joint Select Committee on Deficit Reduction and tasked it with providing to Congress by November 23, 2011 recommendations on ways to reduce the deficit over the subsequent 10 years. When the Committee did not provide the recommendations, this triggered a government-wide sequestration process to reduce Federal spending beginning in 2013. Payments for most Medicare benefits will be subject to a maximum 2% reduction each year from March 2013 through 2021. Starting April 1, 2013, for payments made to providers and suppliers under Medicare Parts A and B, the percentage reduction applies to individual payments for items and services provided. In the case of Medicare Parts C and D, reductions are made to the monthly payments made to the private plans that administer these parts of the program. Certain parts of Medicare, however, are exempt from sequestration. These include (1) the Part D low-income subsidies; (2) the Part D catastrophic subsidy; and (3) Qualified Individual (QI) premiums. Outlays for certain Medicare administrative expenditures (non-benefit spending) are not subject to the 2% limit. Provider-specific sequestration adjustments are not reflected in the tables that follow because they are temporary adjustments to payment systems. In addition, the Temporary Payroll Tax Cut Continuation Act of 2011 (TPTCCA, P.L. 112-78 ), the Middle Class Tax Relief and Job Creation Act of 2012 (MCTRJCA, P.L. 112-96 ), and the American Taxpayer Relief Act of 2012 ( P.L. 112-240 ) extended certain time-limited payment adjustments to specified Medicare providers. This report provides a guide to Medicare payment rules by type of benefit. The information is presented through a series of tables, each representing a provider type, such as physicians, or Medicare Advantage plans. The first column in each table lists the type of payments that may be received by the provider (e.g., the separate operating and capital payments paid to short-term general hospitals under the prospective payment system as described in Medicare Payment Policies ( Table 1 ), or lists subcategories of providers under the general provider category (such as the different types of non-physician providers that are all listed in Table 7 ). The second column of each table discusses the general policy for determining payments while column three describes how the general payment amounts are updated, or adjusted each year (e.g., amounts may be updated by a measure of inflation, economy-wide productivity, or statutorily specified reductions to updates). The final column presents the most recent update amounts. A complete list of acronyms used in this report is included the Appendix . This report is updated to reflect the most recent legislative changes to the program and payment updates available through January 2013. The following table includes health care acronyms used in this report. It also includes acronyms for laws that have amended Medicare since 1997.
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Medicare is a federal insurance program that pays for covered health services for most persons 65 years of age and older and for most permanently disabled individuals under the age of 65. Part A of the program, the Hospital Insurance program, covers hospital, post-hospital, and hospice services. Part B, the Supplementary Medical Insurance program, is optional and covers a broad range of complementary medical services including physician, laboratory, outpatient hospital services, and durable medical equipment. Part C provides private plan options for beneficiaries enrolled in both Parts A and B. Part D is an optional outpatient prescription drug program. Medicare has established specific rules for payment of covered benefits. Some, such as physician services and most durable medical equipment, are based on fee schedules. A fee schedule is a list of Medicare payments for specific items and services, which are calculated according to statutorily specified formula and take into account the actual amount of care provided. Many services, including inpatient and outpatient hospital care, are paid under different prospective payment systems (PPSs). A prospective payment system is a method of paying hospitals, or other providers, amounts or rates of payment that are established in advance for a defined period and are generally based on an episode of care, regardless of the actual amount of care used. Other payments are based, in part, on a provider's bid (an estimate of the cost of providing a service) relative to a benchmark (the maximum amount Medicare will pay). Bids and benchmarks are used to determine payments in Medicare Parts C and D. Payments for some items of durable medical equipment in specified locations are also based on the bids of competing providers. In general, the program provides for annual updates to these payment amounts. The program also has rules regarding the amount of cost sharing, if any, that beneficiaries can be billed in excess of Medicare's recognized payment levels. Unlike other services, Medicare's outpatient prescription drug benefit can be obtained only through private plans. Further, while all Part D plans must meet certain minimum requirements, they differ in terms of benefit design, formulary drugs, premiums, and cost-sharing amounts. Medicare payment policies and potential changes to these policies are of continuing interest to Congress. The Medicare program has been a major focus of deficit reduction legislation since 1980. In each Congress since the 105th Congress, laws have been passed to both increase, but more often slow, the rate of growth of payments to Medicare providers and private plans. Perhaps of particular interest in the 113rd Congress is the update to the Medicare physician fee schedule. The method for updating the physician fee schedule amount, known as the sustainable growth rate (SGR), would have resulted in negative updates for physician payments in recent years, except that Congress has stepped in to stop the updates. Physician payment rates, which would have fallen 26.5% in the absence of congressional action, are frozen through December 31, 2013. Under current law, Medicare physician fee schedule payments are to be reduced by 24.4% beginning January 2014. This report provides an overview of Medicare payment rules by type of service, outlines current payment policies, and summarizes the basic rules for payment updates. In addition to the payment information provided in the tables of this report, Medicare is subject to a maximum 2% payment reduction due to sequestration. This report will be updated twice a year to reflect recent fiscal year and calendar year changes, and will be updated to reflect the details of how the 2% reduction in payments will be applied.
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Anti-poverty interventions that provide resources to local communities, based on the characteristics of those communities, have been of interest to Congress. One such policy, dubbed the "10-20-30 rule," was implemented in the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5 ). Title I, Section 105 of ARRA required the Secretary of Agriculture to allocate at least 10% of funds from three rural development program accounts to persistent poverty counties; that is, to counties that have had poverty rates of 20% or more for the past 30 years, as measured by the 1980, 1990, and 2000 decennial censuses. One notable characteristic of this rule is that it did not increase spending for the rural development programs addressed in ARRA, but rather targeted existing funds differently. Given Congress's interest both in addressing poverty and being mindful about levels of federal spending, several bills had been introduced in the 114 th Congress that sought to apply the 10-20-30 rule to other programs and in other executive departments. This report explains why targeting funds to persistent poverty counties might be of interest, how "persistent poverty" is defined and measured, and how different interpretations of the definition and different data source selections could yield different lists of counties identified as persistently poor. This report does not compare the 10-20-30 rule's advantages and disadvantages against other policy options, nor does it examine the range of programs or policy goals for which the 10-20-30 rule might be an appropriate policy tool. Research has suggested that areas for which the poverty rate (the percentage of the population that is below poverty) reaches 20% experience systemic problems that are more acute than in lower-poverty areas. The poverty rate of 20% as a critical point has been discussed in academic literature as relevant for examining social characteristics of high-poverty versus low-poverty areas. For instance, property values in high-poverty areas do not yield as high a return on investment as in low-poverty areas, and that low return provides a financial disincentive for property owners to spend money on maintaining and improving property. The ill effects of high poverty rates have been documented both for urban and rural areas. Therefore, policy interventions at the community level, and not only at the individual or family level, could be of interest to Congress. Poverty rates are computed by the Census Bureau for the nation, states, and smaller geographic areas such as counties. The official definition of poverty in the United States is based on the money income of families and unrelated individuals. Income from each family member (if family members are present) is added together and compared against a dollar amount called a poverty threshold, which represents a level of economic hardship and varies according to the size and characteristics of the family (ranging from one person to nine persons or more). Families (or unrelated individuals) whose income is less than their respective poverty threshold are considered to be in poverty. Every person in a family has the same poverty status. Thus, it is possible to compute a poverty rate based on counts of persons (dividing the number of persons below poverty within a county by the county's total population, and multiplying by 100 to express as a percentage). Poverty rates are computed using data from household surveys. Currently, the only data sources that provide poverty estimates for all U.S. counties are the American Community Survey (ACS) and the Small Area Income and Poverty Estimates program (SAIPE). Before the mid-1990s, the only poverty data available at the county level came from the Decennial Census of Population and Housing, which was only collected once every 10 years, and used to be the only source of estimates that could determine whether a county had persistently high poverty rates (ARRA referred explicitly to decennial census poverty estimates for that purpose). However, after Census 2000 the decennial census no longer collects income information, and as a result cannot be used to compute poverty estimates. Therefore, to determine whether an area is persistently poor in a time span that ends after 2000, it must first be decided whether ACS or SAIPE poverty estimates will be used for the later part of that time span. The ACS and the SAIPE program serve different purposes. The ACS was developed to provide continuous measurement of a wide range of topics similar to that formerly provided by the decennial census long form, available down to the local community level. ACS data for all counties are available annually, but are based on responses over the previous five-year time span (e.g., 2011-2015). The SAIPE program was developed specifically for estimating poverty at the county level for school-age children and for the overall population, for use in funding allocations for the Elementary and Secondary Education Act. SAIPE data are also available annually, and reflect one calendar year, not five. However, unlike the ACS, SAIPE does not provide estimates for a wide array of topics. For further details about the data sources for county poverty estimates, see the Appendix . Because poverty estimates can be obtained from multiple data sources, the Census Bureau has provided guidance on the most suitable data source to use for various purposes. SAIPE poverty estimates are recommended when estimates are needed at the county level, especially for counties with small populations, and when additional demographic and economic detail is not needed at that level. When additional detail is required, such as for county-level poverty estimates by race and Hispanic origin, detailed age groups (aside from the elementary and secondary school-age population), housing characteristics, or education level, the ACS is the recommended data source. For counties (and school districts) of small population size, SAIPE data have an advantage over ACS data in that the SAIPE model uses administrative data to help reduce the uncertainty of the estimates. However, ACS estimates are available for a wider array of geographic levels, such as ZIP code tabulation areas, census tracts (sub-county areas of roughly 1,200 to 8,000 people), cities and towns, and greater metropolitan areas. While the ACS has greater flexibility in the topics measured and the geographic areas provided, it can only provide estimates in five-year ranges for the smallest geographic areas. Five years of survey responses are needed to obtain a sample large enough to produce meaningful estimates for populations below 65,000 persons. In this sense the SAIPE data, because they are based on a single year, are more current than the data of the ACS. The distinction has to do with the reference period of the data—both data sources release data on an annual basis; the ACS estimates for small areas are based on the prior five years, not the prior year alone. Poverty status is not defined for persons in institutions, such as nursing homes or prisons, nor for persons residing in military barracks. These populations are excluded from totals when computing poverty statistics. Furthermore, the homeless population is not counted explicitly in poverty statistics. The ACS is a household survey, thus homeless individuals who are not in shelters are not counted. SAIPE estimates are partially based on Supplemental Nutrition Assistance Program (SNAP) administrative data and tax data, so the part of the homeless population that either filed tax returns or received SNAP benefits might be reflected in the estimates, but only implicitly. Poverty status also is not defined for persons living in college dormitories. However, students who live in off-campus housing are included. Because college students tend to have lower money income (which does not include school loans) than average, counties that have large populations of students living off-campus may exhibit higher poverty rates than one might expect given other economic measures for the area, such as the unemployment rate. Given the ways that the populations above either are or are not reflected in poverty statistics, it may be worthwhile to consider whether counties that have large numbers of people in those populations would receive an equitable allocation of funds. Other economic measures may be of use, depending on the type of program for which funds are being targeted. The 10-20-30 rule was developed to identify counties with persistently high poverty rates. Therefore, using that rule by itself would not allow flexibility to target counties that have recently fallen on hard times, such as counties that had a large manufacturing plant close within the past three years. Other interventions besides the 10-20-30 rule may be more appropriate for counties that have had a recent spike in the poverty rate. In ARRA, persistent poverty counties were defined as "any county that has had 20 percent or more of its population living in poverty over the past 30 years, as measured by the 1980, 1990, and 2000 decennial censuses." Poverty rates published by the Census Bureau are typically reported to one decimal place. The numeral used in the ARRA language was the whole number 20. Thus, for any collection of poverty data, there are two reasonable approaches to compiling a list of persistent poverty counties: using poverty rates of at least 20.0% in all three years, or using poverty rates that round up to the whole number 20% or greater in all three years (i.e., poverty rates of 19.5% or more in all three years). The former approach is more restrictive and results in a shorter list of counties; the latter approach is more inclusive. Table 1 illustrates the number of counties identified as persistent poverty counties using the 1990 and 2000 decennial censuses, and various ACS and SAIPE datasets for the last data point, under both rounding schemes. The rounding method and data source selection can have a large impact on the number of counties listed. Approximately 30 more counties appear in SAIPE-based lists compared to ACS-based lists using the same rounding method. Compared to using 20.0% as the cutoff (rounded to one decimal place), rounding up to 20% from 19.5% adds approximately 50 counties to the lists based on ACS five-year data, and approximately 60 counties to the lists based on SAIPE data. Taking both the data source and the rounding method together, the list of persistent poverty counties could vary by roughly 80 to 100 counties in a given year depending on the method used. The list of persistent poverty counties below ( Table 2 ) is based on data from the 1990 Census, Census 2000, and the 2015 SAIPE estimates, and included counties with poverty rates of 19.5% or greater (that is, counties with poverty rates that were at least 20% with rounding applied to the whole number). These same counties are mapped in Figure 1 . Decennial Census of Population and Housing, "Long Form" Poverty estimates are computed using data from household surveys, which are based on a sample of households. In order to obtain meaningful estimates for any geographic area, the sample has to include enough responses from that area so that selecting a different sample of households from that area would not likely result in a dramatically different estimate. If estimates for smaller geographic areas are desired, a larger sample size is needed. A national-level survey, for instance, could produce reliable estimates for the United States without obtaining any responses from many counties, particularly counties with small populations. In order to produce estimates for all 3,143 county areas in the nation, however, not only are responses needed from every county, but those responses have to be plentiful enough from each county so that the estimates are meaningful (i.e., their margins of error are not unhelpfully wide). Before the mid-1990s, the only data source with a sample size large enough to provide meaningful estimates at the county level (and for other small geographic areas) was the decennial census. The other household surveys available prior to that time did not have a sample size large enough to produce meaningful estimates for small areas such as counties. Income questions were asked on the census long form, which was sent to one-sixth of all U.S. households; the rest received the census short form, which did not ask about income. While technically still a sample, one-sixth of all households was a large enough sample to provide poverty estimates for every county in the nation, and even for smaller areas such as small towns. The long form was discontinued after Census 2000, and therefore poverty data are no longer available from the decennial census. Beginning in the mid-1990s, however, two additional data sources were developed to ensure that poverty estimates for small areas such as counties would still be available: the American Community Survey (ACS), and the Small Area Income and Poverty Estimates program (SAIPE). American Community Survey (ACS) The ACS replaced the decennial census long form. It was developed to accommodate the needs of local government officials and other stakeholders who needed detailed information on small communities on a more frequent basis than once every 10 years. To that end, the ACS questionnaire was designed to reflect the same topics asked in the census long form. In order to produce meaningful estimates for small communities, however, the ACS needs to collect a number of responses comparable to what was collected in the decennial census. In order to collect that many responses while providing information more currently than once every 10 years, the ACS collects information from respondents continuously, in every month, as opposed to at one time of the year, and responses over time are pooled to provide estimates at varying geographic levels. To obtain estimates for geographic areas of 65,000 or more persons, one year's worth of responses are pooled—these are the ACS one-year estimates. For the smallest geographic levels, which include the complete set of U.S. counties, five years of monthly responses are needed: these are the ACS five-year estimates. Even though data collection is ongoing, the publication of the data takes place only once every year, both for the one-year estimates and the estimates that represent the previous five-year span. Small Area Income and Poverty Estimates (SAIPE) The SAIPE program was developed in the 1990s in order to provide state and local government officials with poverty estimates for local areas in between the decennial census years. In the Improving America's Schools Act of 1994 (IASA, P.L. 103-382 ), which amended the Elementary and Secondary Education Act of 1965 (ESEA), Congress recognized that providing funding for children in disadvantaged communities created a need for poverty data for those communities that were more current than the once-a-decade census. In the IASA, Congress provided for the development and evaluation of the SAIPE program for its use in Title I-A funding allocations. SAIPE estimates are model-based, meaning they use a mathematical procedure to compute estimates using both survey data (ACS one-year data) and administrative data (from tax returns and numbers of participants in the Supplemental Nutrition Assistance Program, or SNAP). The modeling procedure produces estimates with less variability than estimates computed from survey data alone, especially for counties with small populations. Guidance from the U.S. Census Bureau, "Which Data Source to Use" The CPS ASEC provides the most timely and accurate national data on income and is the source of official national poverty estimates, hence it is the preferred source for national analysis. Because of its large sample size, the ACS is preferred for subnational data on income and poverty by detailed demographic characteristics. The Census Bureau recommends using the ACS for 1-year estimates of income and poverty at the state level. Users looking for consistent, state-level trends before 2006 should use CPS ASEC 2-year averages. For substate areas, like counties, users should consider their specific needs when picking the appropriate data source. The SAIPE program produces overall poverty and household income 1-year estimates with standard errors usually smaller than direct survey estimates. Users looking to compare estimates of the number and percentage of people in poverty for counties or school districts or the median household income for counties should use SAIPE, especially if the population is less than 65,000. Users who need other characteristics such as poverty among Hispanics or median earnings, should use the ACS, where and when available. The SIPP is the only Census Bureau source of longitudinal poverty data. It provides national estimates and since the 2004 Panel, provides reliable state-level estimates for select states. As SIPP collects monthly income over 3 or 4 year panels, it is also a source of poverty estimates for time periods more or less than one year, including monthly poverty rates. The chart below summarizes the recommendations at various geographic levels:
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Anti-poverty interventions that provide resources to local communities, based on the characteristics of those communities, have been of interest to Congress. One such policy, dubbed the "10-20-30 rule," was implemented in the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5). Title I, Section 105 of ARRA required the Secretary of Agriculture to allocate at least 10% of funds from three rural development program accounts to persistent poverty counties; that is, to counties that have had poverty rates of 20% or more for the past 30 years, as measured by the 1980, 1990, and 2000 decennial censuses. One notable characteristic of this rule is that it did not increase spending for the rural development programs addressed in ARRA, but rather targeted existing funds differently. Research has suggested that areas for which the poverty rate (the percentage of the population that is below poverty) reaches 20% experience systemic problems that are more acute than in lower-poverty areas. Therefore, policy interventions at the community level (such as applying the 10-20-30 rule to other programs besides those cited in ARRA), and not only at the individual or family level, could continue to be of interest to Congress. Poverty rates are computed using data from household surveys. Currently, the only data sources that provide poverty estimates for all U.S. counties are the American Community Survey (ACS) and the Small Area Income and Poverty Estimates program (SAIPE); before the mid-1990s, the decennial census was the only source of county poverty estimates. Therefore, to determine whether an area is "persistently" poor in a time span that ends after the year 2000, it must first be decided whether ACS or SAIPE poverty estimates will be used for the later part of that time span. Lists of persistent poverty counties may differ by roughly 80 to 100 counties in a particular year, depending on the data source selected to compile the list and the rounding method used for the poverty rate estimates. When determining the method to be used to compile a list of persistent poverty counties, the following may be relevant to consider: Characteristics of interest: SAIPE is suited for poverty or median income alone; ACS for other topics in addition to poverty and income. Geographic areas of interest: SAIPE is recommended for counties and school districts only; ACS produces estimates for other small geographic areas as well. Reference period of estimate: SAIPE for one year; ACS for a five-year span. Rounding method for poverty rates: rounding to 20.0% (one decimal place) yields a shorter list than rounding to 20% (whole number). Poverty status is not defined for all persons: foster children (unrelated individuals under age 15), institutionalized persons, and residents of college dormitories are excluded; the homeless are not targeted by household surveys; and areas with large numbers of students living off-campus may have high poverty rates.
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The scientific, economic, and political questions surrounding climate change have long been with us. This report focuses instead on a relative newcomer: the legal debate. Though the first court decision related to climate change appeared 19 years ago, the quantity of such litigation has mushroomed in recent years. One observer counts 118 lawsuits and petitions for government action filed on climate change issues through the end of 2008—41 lawsuits filed in 2007 alone. Representatives of some suing organizations and states acknowledge that a prime cause for this litigation surge is the inaction of Congress and the executive branch during the George W. Bush Administration with regard to mandatory constraints on greenhouse gas (GHG) emissions, and their perception that litigation might help to prompt such action. Early signs are that the pace of new filings during the Obama Administration may be tapering off. The principal court cases, decided and pending, arise in eight contexts—a number that continues to grow. First and most important is the Clean Air Act (CAA). In April, 2007, the Supreme Court held in Massachusetts v. EPA that the U.S. Environmental Protection Agency (EPA) has authority under the CAA to regulate greenhouse gas emissions from new motor vehicles. The second context for climate change litigation is the federal wildlife statutes, raising the issue of whether statutes like the Endangered Species Act can be used to limit GHG emissions based on their contribution to climate-climate-related alterations of wildlife habitat. Third is the federal energy statutes, such as the Energy Policy and Conservation Act and Outer Continental Shelf Lands Act, which also raise questions as to whether climate change impacts must be considered in their spheres. The fourth context for litigation is federal information statutes such as the National Environmental Policy Act, exploring the extent to which they can be used to compel government analysis of and dissemination of information about climate change. Fifth is common law tort theories such as nuisance and whether they be used successfully by state and private plaintiffs to force cutbacks in GHG emissions, or payment of damages? Sixth is federal preemption of state regulation of GHG emissions. This category breaks down into efforts by states and environmentalists to reverse EPA's refusal to waive Clean Air Act preemption, and auto industry efforts to impose preemption under non-Clean Air Act theories, such as the "CAFE standards" under the Energy Policy and Conservation Act. Seventh, chiefly with respect to coal-fired power plants, is state utilities laws. And eighth is whether general liability insurance policies cover harms and liabilities caused by climate change. Sections I through VIII of this report address these eight areas of litigation in turn. Most known cases, decided and pending, are mentioned—omitted cases are those that raise climate change issues in only the most marginal way or only implicitly, and some state cases. Looking beyond the domestic lawsuits, Section IX surveys international law arguments that might be used to induce GHG emission reductions from the United States and other countries that are major GHG emitters, and the few international law claims filed against the United States to date. Finally, Section X offers overall comments. Aware that prospects for Senate approval of the Kyoto Protocol were dubious, some Members of Congress became concerned in the late 1990s that the Clinton Administration EPA might seek to regulate GHG emissions in the absence of approval, under either of two claimed authorities. One authority would derive from an argument that even prior to ratification, the Protocol provided some sort of legal basis for emissions restrictions, perhaps citing past treaties signed by the United States that were provisionally implemented prior to going into effect. This possibility provoked a series of enactments barring EPA's use of appropriated funds to implement the Kyoto Protocol in the absence of approval and ratification. The rest of this section deals with the second claim of possible authority: regulating GHG emissions independently of the Protocol, under the CAA. This authority has now been confirmed by the Supreme Court, at least as to mobile sources; nonetheless, this report retains from earlier versions the historical evolution of the issue. In 1998, an EPA General Counsel memorandum concluded that CO 2 satisfies the CAA definition of "air pollutant," but that this conclusion is only the first step. Before EPA can regulate CO 2 emissions, the memorandum went on, it must further conclude that CO 2 meets criteria in other CAA provisions requiring the agency to determine that the substance poses harm to public health, welfare, or the environment. This next step EPA declined to take. At a House hearing in 1999, a panel of legal experts argued the question of EPA's authority to regulate CO 2 under the CAA. A new EPA General Counsel endorsed his predecessor's analysis in the 1998 memorandum, but just as his predecessor, stressed that the EPA's legal analysis was "largely theoretical" since "EPA currently has no plans to regulate carbon dioxide...." This hands-off position was prompted in part by strong congressional opposition based on uncertainties as to the economic impact of regulating a pollutant as widespread as CO 2 . In addition, some in Congress argued that CAA implementation of a CO 2 standard was barred by the aforementioned enactments (appropriation riders) prohibiting implementation of the Kyoto Protocol. The EPA General Counsel opinion that "air pollutant" includes GHGs held sway until 2003, when that office reversed itself in the context of a petition asking the agency to regulate GHG emissions from mobile sources. This story picks up below ("Mobile Sources of GHG Emissions"). The earliest lawsuit in this category, now dismissed, sought to have EPA promulgate national ambient air quality standards for CO 2 . In Massachusetts v. Whitman , filed in 2003, three Northeast states (MA, CT, ME) sought to force EPA to list CO 2 as a "criteria pollutant" under the CAA. They argued that on various occasions, EPA had indicated its belief that CO 2 emissions contribute to climate change. These EPA statements constituted, in the words of CAA section 108, a "judgment [that GHG emissions] cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare" and "result[] from numerous or diverse mobile or stationary sources." These prerequisites being satisfied, the suit argued, section 108 requires EPA to add CO 2 to its list of "criteria pollutants," then proceed under section 109 to develop national ambient air quality standards for CO 2 . On September 3, 2003, a few days after EPA's denial of a petition asking the agency to regulate GHG emissions from motor vehicles, the plaintiff states voluntarily dismissed this suit, reportedly so as to transfer their energies to a suit challenging the petition denial (leading to the Supreme Court's Massachusetts v. EPA decision). The remaining suits in this category are all active today. Each one seeks EPA regulation of GHG emissions through new source performance standards (NSPSs) under the CAA. In most of these cases, regulation of GHGs is not the primary issue. Nonetheless, it should be noted that they will be litigated in the shadow of the Supreme Court ruling in Massachusetts v. EPA holding that EPA has authority under the CAA to regulate GHGs from mobile sources. The burning question is how that ruling will affect EPA regulation of stationary-source GHG emissions. The first NSPS suit was New York v. EPA , an effort to compel EPA to issue a NSPS for CO 2 from steam generating units. New York began with an EPA proposal to revise its NSPSs for electric utility and other steam-generating units. Some commenters on the proposed rule argued that EPA must, in addition to the revisions proposed, set NSPSs for GHGs emitted from steam generating units. The commenters pointed to CAA section 111's command that EPA promulgate NSPSs to address emissions from new stationary sources that "cause[], or contribute[] significantly to, air pollution which may reasonably be anticipated to endanger public health or welfare." In promulgating its final rule in February, 2006, however, EPA rejected this demand, saying (it being pre- Massachusetts v. EPA ) that the agency lacked authority to set NSPSs for GHGs. Review of the final rule was sought in the D.C. Circuit. In 2006, the court severed the portion of the case dealing with regulation of GHGs, titling it New York v. EPA . In 2007, a few months after the Supreme Court decision in Massachusetts v. EPA , this severed case was remanded to EPA for further proceedings in light of that decision (this section infra ) . Two other NSPS suits concern oil and natural gas—the production side in one suit; the refining side in the other. As to production, plaintiffs in WildEarth Guardians v. Johnson , No. 1:09 CV 00089 (D.D.C. filed January 14, 2009), invoke the CAA citizen suit provision to force EPA performance of alleged nondiscretionary duties under both the NSPS and National Emission Standards for Hazardous Air Pollutants provisions of the act. The complaint notes CO 2 , and particularly methane, as GHG pollutants of concern. Since neither of these pollutants is listed as a hazardous air pollutant, it may be surmised that the sole portion of the lawsuit pertinent to climate change is the NSPS claim. That claim alleges EPA's failure to review and revise the NSPS for the Crude Oil and Natural Gas Production category since 1985, despite the CAA requirement that NSPSs be reviewed, and if appropriate revised, every eight years. As for oil and gas refining, New York and 11 other states (CA, CT, DE, ME, MA, NH, NM, OR, RI, VT, and WA) filed a petition for review in 2008 challenging EPA's revisions that year of its existing NSPS for petroleum refineries. Petitioners' argument in New York v. EPA , No. 08-1279 (D.C. Cir. filed August 25, 2008), is that EPA acted arbitrarily and capriciously in failing to determine whether GHGs from petroleum refineries endanger public health and welfare and by failing to promulgate NSPSs for GHG emissions in the refinery rule. Petitioners cite CAA section 111(b)'s requirement that EPA make an endangerment determination, establish NSPS for a source category that contributes significantly to such endangerment, and revise the NSPS at least every eight years. This lawsuit has been consolidated with several others, including Environmental Integrity Project v. EPA (No. 08-1281), and is now styled American Petroleum Institute v. EPA (No. 08-1277). On December 15, 2008, the D.C. Circuit granted a motion to hold the case in abeyance while EPA considers various petitions for administrative reconsideration of the rule. The most recent NSPS suit, Environmental Integrity Project v. U.S. EPA , No. 1:09-CV 00218 (D.D.C. filed February 4, 2009), seeks to compel EPA to perform its nondiscretionary duty to review, and if necessary revise, its NSPS for nitric acid plants, including for nitrous oxide (N 2 O), a powerful GHG.. The standard, plaintiffs allege, has not been reviewed since 1984, notwithstanding the CAA requirement that NSPSs be reviewed and if appropriate revised every eight years. Rather than seeking general rulemaking directly, as above, the following legal efforts seek to impose CO 2 emission limits in actions against specific proposed facilities—mostly coal-fired power plants. Plainly, of course, the effect of rulings in actions against specific sources can signify a de facto general rule as well. The efforts described here are part of a broader campaign by certain environmental groups to block, or at least limit the GHG emissions of, new coal-fired power plants generally. In Northwest Environmental Defense Center v. Owens Corning Corp ., environmental groups invoke the CAA citizen suit provision to enforce the act's "new source review" requirement as to GHG emissions. They contend that Owens Corning is constructing a manufacturing plant in Oregon with the potential to emit more than 250 tons per year of harmful gases, without having obtained the required CAA permit. The principal such gas is HCFC-142b, which plaintiffs contend is a potent GHG. In a preliminary ruling, the court held that plaintiffs have standing, notwithstanding that the climate change impacts of the plant's GHG emissions would be "indirect." Anticipating the Supreme Court's rationale for granting standing in Massachusetts v. EPA , the court found that standing was not precluded by the fact that the injury to plaintiffs would be shared with many others, nor because the relief sought would not lead to a complete elimination of climate change impacts. Several proceedings, chiefly brought by the Sierra Club, have involved administrative appeals to EPA's Environmental Appeals Board of "new source review" permits in Prevention of Significant Deterioration (PSD) areas. In each case, the issue has been whether a permit issued for construction of a new "major emitting facility" (or major modification of an existing facility) in a PSD area must require "best available control technology" (BACT) for CO 2 emissions from that source. The CAA requires such new facilities (or major modifications) to install BACT for "each pollutant subject to regulation under this Act." Thus, the pivotal question has been when —upon the occurrence of what event—do CO 2 and other GHG emissions become "subject to regulation" under the CAA. In the first proceeding, In re Christian County Generation, LLC, PSD Appeal No. 07-01, 13 E.A.D. ____ (January 28, 2008), Sierra Club objected to the issuance of a PSD permit by a state agency for construction of a coal-fired electric power plant. The Board denied the petition because Sierra Club had not raised its argument during the public comment period on the draft permit. The second and most publicized case, In re Deseret Power Electric Cooperative , PSD Appeal No. 07-03, 14 E.A.D. _____ (November 13, 2008), involved a PSD permit issued by EPA Region 8 to allow construction of a new waste-coal-fired utility generating unit at an existing power plant located near Bonanza, Utah. The Board rejected Sierra Club's contention that "subject to regulation" has a plain meaning compelling Region 8 to impose a CO 2 BACT limit in the PSD permit. Sierra Club had pointed to EPA's 1993 amendment of its regulations requiring monitoring and reporting of CO 2 emissions, as directed by section 821 of the 1990 CAA Amendments. At the same time, the Board rejected the Region's argument that it was limited by an historical agency interpretation to read "subject to regulation" as meaning "subject to a statutory or regulatory provision that requires actual control of emissions of that pollutant." Since EPA has yet to issue a CAA regulation requiring actual control of CO 2 emissions, Region 8 argued, BACT for CO 2 is not required. Hence, the Board remanded the permit to the Region for it to reconsider whether to impose a CO 2 BACT limit. The Board recognized, however, that given the significance of the issue, it would be best if the Agency, rather than one of its regional offices, defined "subject to regulation under this Act." This the EPA Administrator did a month later. In a memorandum issued December 18, 2008, he declared EPA's "definitive interpretation" of its regulation defining which pollutants trigger new source review in PSD areas. Reprising Region 8's argument in Deseret Power , the Administrator said that this regulation "exclude[s] pollutants for which EPA regulations only require monitoring or reporting but ... include[s] each pollutant subject to either a provision in the Clean Air Act or regulation adopted by EPA under the Clean Air Act that requires actual control of emissions of that pollutant." To reiterate, this position excludes CO 2 until EPA promulgates a regulation covering CO 2 emissions. Sierra Club petitioned for review of the December 18 memorandum, which was granted by the newly arrived Obama Administration on February 17, 2009. In the third EAB appeal, In re Northern Michigan University (Ripley Heating Plant) , PSD Appeal No. 08-02, 14 E.A.D. ______ (February 18, 2009), Sierra Club challenges a permit issued by the Michigan Department of Environmental Quality to the university, allowing it to construct a new circulating fluidized bed boiler at the heating plant. Sierra Club's argument was the same as in Deseret , and the Board ruled identically—that is, it directed the Michigan agency, guided by Deseret , to consider whether "pollutant subject to regulation" requires application of a BACT limit to CO 2 emissions. The Board's decision makes no mention of the Administrator's December, 2008 memo or EPA's grant of review thereof in 2009. In yet another EAB appeal of a PSD permit, In re Desert Rock Energy Co., LLC , PSD Appeal No. 08-03 (consolidated with others), challenge was brought by several environmental groups and New Mexico. The EPA Region 9 permit allows construction of a new 1,500-megawatt coal-fired power plant within the Navajo Indian Reservation in New Mexico. In January, 2009, however, Region 9 withdrew for additional analysis the portion of its permit decision on whether to impose CO 2 limitations, leading the EAB on January 22, 2009, to stay further consideration of the issue. Turning from administrative appeals, at least two state courts have been called on to decide whether BACT must be applied to CO 2 in PSD areas. One has ruled. In Friends of the Chattahoochee, Inc. v. Couch , No. 2008CV146398 (Ga. Super. Ct. June 30, 2008), the court vacated and remanded a state ALJ decision upholding a state-issued PSD permit for construction of a 1,200-megawatt coal-fired power plant, proposed by Longleaf Energy Associates, LLC. Even putting aside the argument that after Massachusetts v. EPA , CO 2 is "subject to regulation" because it falls within the CAA's definition of "air pollutant," the court had no doubt that CO 2 was "subject to regulation" based on the act's mandating of CO 2 monitoring and "many other examples of Clean Air Act regulations that address CO 2 ." The BACT requirement, said the court, is not limited to pollutants for which there is a separate, general numerical limitation, such as a national ambient air quality standard under the CAA. The other state court action is pending. In Montana Environmental Information Center v. Montana Department of Environmental Quality , No. DDV 08-820 (Mont. D. Ct. filed June 27, 2008), challenge is made to a state-issued PSD permit for a proposed 250-megawatt coal-fired power plant to be known as the Highwood Generating Station. Consistent with the federal CAA, Montana's PSD regulations require that any new major stationary source apply BACT for each pollutant "subject to regulation" under the CAA (and the state CAA). Petitioners argue that the permit should have applied BACT to the proposed plant's CO 2 emissions, since in light of Massachusetts v. EPA and CAA requirements for monitoring and reporting of CO 2 emissions, CO 2 is "subject to regulation" under the federal and state acts. In 1999, 19 organizations petitioned EPA to regulate emissions of GHGs (CO 2 , methane, nitrous oxide, and hydrofluorocarbons) from new motor vehicles. The rulemaking petition cited the agency's alleged mandatory duty to do so under CAA section 202(a)(1). That section directs the EPA Administrator to prescribe emission standards for "any air pollutant" from new 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." In 2003, EPA denied the section 202 petition. Much of the agency's rationale followed a new General Counsel memorandum, issued the same day. Contrary to its Clinton Administration precursor, this new OGC memorandum concluded that the CAA does not grant EPA authority to regulate CO 2 and other GHG emissions for their climate change impacts. EPA's denial of the section 202 petition prompted a suit in the D.C. Circuit by twelve states (CA, CT, IL, MA, ME, NJ, NM, NY, OR, RI, VT, WA) and others. Opposing the challenge, besides EPA, were ten state intervenors (AK, ID, KS, MI, ND, NE, OH, SD, TX, UT), plus several automobile- and truck-related trade groups. In 2005, a split panel in Massachusetts v. EPA rejected the suit, and the Supreme Court granted certiorari. In Massachusetts v. EPA , the Supreme Court ruled 5-4 for petitioners on all three issues in the case. First, Massachusetts, the majority held, had standing to bring the claim. Second, EPA has authority to regulate motor vehicle GHGs under section 202, since "air pollutant" includes GHG emissions. And third, the phrase "in his judgment" in section 202 does not allow EPA to exercise discretion against regulating based on policy considerations. The ruling in favor of petitioners was forecast early in the majority opinion by its opening sentences: "A well-documented rise in global temperatures has coincided with a significant increase in the concentration of carbon dioxide in the atmosphere. Respected scientists believe the two trends are related." (Nor did the dissenters dispute this.) Most of the decision is devoted to the first issue, standing. The Court found that petitioners had two factors in their favor. First, the CAA specifically authorizes challenges to agency action unlawfully withheld, such as here. A litigant to whom Congress has accorded such a procedural right, said the Court, "can assert that right without meeting all the normal standards for redressability and immediacy" —two prerequisites of the standing test. Second, the Court found it "of considerable relevance" that the petitioner injury on which it focused—Massachusetts's loss of shore land from global-warming-induced sea level rise—was that of a sovereign state. States are "not normal litigants for the purposes of invoking federal jurisdiction," said the Court, noting their quasi-sovereign duty to preserve their territory. Having described petitioners' favored position in establishing standing, it was surprising that the Court then undertook a traditional standing analysis. As to the first prong of the standing test—whether plaintiff has demonstrated actual or imminent "injury in fact" of a concrete and particularized nature—the Court homed in on Massachusetts's status as owner of much of the shore land being lost to sea level rise. That this injury may be widely shared with other coastal states does not disqualify this injury, said the Court; it is nonetheless concrete. The second prong of the standing test is causation, requiring that the injury of which the plaintiff complains is fairly traceable to the defendant. EPA did not dispute the existence of a causal relationship between GHG emissions and climate change. It did argue, however, that any reduction in GHG emissions achieved through the current litigation would be too small a portion of worldwide GHG emissions to make a cognizable difference in climate change. In a ruling that may be of benefit to environmental plaintiffs in many contexts, the Court held that even an agency's refusal to take a "small incremental step" that would result in only a modest reduction in worldwide GHG emissions, is enough for standing purposes. The third and final prong of the standing test is redressability, demanding that the remedy sought by the plaintiff is one that is likely to redress his/her injury. Here, the remedy sought was EPA regulation of GHG emissions from new motor vehicles. The Court found that this remedy satisfied redressability because while it would not by itself reverse climate change, it would nonetheless slow or reduce such change. Nor, given the "enormity" of the potential effects of climate change, was it relevant to the Court that the full effectiveness of the remedy would be delayed until existing cars and trucks on the road were largely replaced by new ones. In contrast with the Court's lengthy discourse on standing, its handling of the CAA issues in the case is quite brief. On the authority question, the Court said that the CAA's broad definition of "air pollutant" simply cannot be squared with EPA's view that GHGs are not included. The Court rejected EPA's argument that federal laws enacted following enactment of this definition—laws emphasizing interagency collaboration and research—suggest that Congress meant to curtail EPA's power to use mandatory regulations in addressing air pollutants. Nor was the Court impressed with EPA's argument that "air pollutant" in the CAA could not include vehicle GHG emissions because EPA standards for such emissions could be satisfied only by improving fuel economy, a goal assigned to the Department of Transportation under a different statute (the Energy Policy and Conservation Act ). Finally, on the discretion issue, the majority concluded that "in his judgment" refers only to whether an air pollutant "may reasonably be anticipated to endanger public health or welfare." Thus, said the Court, EPA can avoid taking further action in response to the section 202 petition "only if it determines that greenhouse gases do not contribute to climate change or if it provides some reasonable explanation as to why it cannot or will not exercise its discretion." It rejected EPA's stated policy reasons for refusing to regulate GHG emissions, such as its claim that voluntary executive branch programs already provide an effective response to climate change and that unilateral EPA regulation of vehicle GHG emissions could weaken U.S. efforts to persuade developing countries to reduce the GHG intensity of their economies. Such reasons "have nothing to do with whether greenhouse gas emissions contribute to climate change." In short, said the Court, the only question is whether sufficient information exists to make an endangerment finding under section 202. Accordingly, the Supreme Court reversed the D.C. Circuit opinion and remanded the case to that court for further proceedings. On September 14, 2007, the D.C. Circuit vacated EPA's denial of the section 202 petition and remanded the matter to the agency. (Further developments are described in the following "Aftermath" section.) A four-justice dissent by Chief Justice Roberts in Massachusetts v. EPA disputed the majority's holding of standing. A dissent by Justice Scalia for the same four justices argued that agency policy preferences may appropriately be considered as part of EPA's decision whether to issue a "judgment," conceding that the judgment, if made , must be limited to whether vehicle GHG emissions cause endangerment. Justice Scalia also disputed the majority's holding that "air pollutant" in section 202 includes GHGs. The Court's decision left EPA with three options: make a finding that motor vehicle GHG emissions may "endanger public health or welfare" and issue emissions standards; make a finding that such emissions do not satisfy that prerequisite; or decide that climate change science is so uncertain as to preclude making a finding either way (or cite some other "reasonable explanation" why it will not exercise its discretion either way). As to the state of climate change science, the Court's focus on the policy reasons EPA gave as part of exercising its "judgment" obscures the fact that the agency's rejection of the petition stemmed in part from expressions of scientific uncertainty in a 2001 National Research Council report on the science of climate change. Whether scientific reports since the petition rejection in 2003 have foreclosed the scientific-uncertainty rationale is beyond the scope of this report. The EPA Administrator did say after the decision that although it bars EPA use of policy considerations as a basis for denying the petition, it left open whether the agency can invoke them when actually writing the regulations, should the agency make an endangerment finding. CAA section 202 does not impose any stringency or other criteria on GHG emission standards promulgated under the section. Given the wide latitude EPA has in setting section 202 standards for GHGs, the possibility exists that EPA, following an endangerment finding, could set voluntary standards, or standards pegged to the CAFE standards for fuel economy, or standards that must be complied with only after the President certifies that developing nations have put adequate GHG emission limits into effect. In May, 2007, President Bush, in response to Massachusetts v. EPA , asked EPA to have CAA regulations limiting vehicle GHG emissions in place by the end of 2008 and to use the President's 2007 State of the Union proposal for raising the CAFE standards as a guide. As late as early December, 2007, EPA was consistently stating that it intended to issue proposed regulations by the end of 2007. However, the enactment of the Energy Independence and Security Act in December, 2007, with its increase in CAFE standards, led EPA to back off from any firm deadline for issuance of mobile-source GHG emission standards. In early 2008, EPA proposed instead to issue an advance notice of proposed rulemaking (ANPR) addressing the full range of Massachusetts v. EPA 's ramifications throughout the CAA, not just on section 202 standards. In response, the Massachusetts v. EPA petitioners in April, 2008 requested the D.C. Circuit to order EPA to comply with the Supreme Court's remand and the Circuit's mandate within 60 days (by choosing one of the three options noted earlier). The court denied the request in June, 2008. The following month, EPA issued a lengthy ANPR that, it said, "reflects the complexity and magnitude of the question of whether and how greenhouse gases could be effectively controlled under the Clean Air Act" —extending well beyond the narrow section 202 endangerment issue in the case. It warned that regulating GHGs under any provision of the CAA "could result in an unprecedented expansion of EPA authority that would have a profound effect on virtually every sector of the economy...." Apparently undaunted, the Obama Administration EPA issued a proposed endangerment finding on April 24, 2009, to be followed by a 60-day comment period after which the agency will decide whether to finalize the finding. If the finding is finalized, emission "standards" for GHGs must follow, though section 202 says nothing about what form these standards must take and how stringent they must be. As the ANPR asserts, the Court's ruling in Massachusetts v. EPA has many implications beyond its four corners. On the substantive (non-standing) side, the Court's ruling upholding CAA coverage of GHG emissions from mobile sources improves the prospects of litigation seeking to have EPA restrict GHG emissions from stationary sources as well. The stationary-source provisions of the CAA use terms similar to that of section 202—in particular, "air pollutant," "in his judgment," and "endanger." As the earlier subsection on suits seeking general CAA rulemaking indicated, such an effort to compel EPA regulation of stationary source GHGs is already underway as to NSPSs. Further, if EPA sets a national ambient air quality standard for CO 2 , GHGs would be covered under the CAA's new source review permitting program for major emitting facilities and modifications in Prevention of Significant Deterioration areas. Presumably, best available control technology for CO 2 emissions would then have to be installed on such facilities. On the mobile-source side, Massachusetts v. EPA is expressly relied upon in at least seven additional rulemaking petitions seeking EPA regulation of GHGs from mobile sources. As described in the ANPR, the petitions seek rulemaking under CAA sections 202(a)(3), 211, 213, and 231 to limit GHG emissions from (1) fuels and a wide array of mobile sources including ocean-going vessels, (2) all other types of nonroad engines and equipment, such as locomotives, construction equipment, farm tractors, forklifts, harbor crafts, and law and garden equipment, (3) aircraft, and (4) rebuilt heavy-duty highway engines. Beyond the federal clean air program, the Supreme Court's decision will likely be pivotal to the fortunes of plaintiffs in other climate change litigation owing to its discussion of standing. The question will be the extent to which the Court's finding of standing was contingent, as it obliquely suggested, on the existence of a state-sovereign plaintiff and the presence in the CAA of an explicit provision allowing the filing of administrative petitions. In the first major decision on this point, Center for Biological Diversity v. U.S. Department of the Interior , No. 07-1247 (D.C. Cir. April 17, 2009), a unanimous D.C. Circuit panel did indeed limit Massachusetts v. EPA to state plaintiffs (discussed in Section III and Section IV). Ironically, the "environmental win" in Massachusetts v. EPA has thwarted the environmental side in a climate-change-related nuisance case. One court used the decision as peripheral support for dismissing a nuisance action on "political question" grounds, reasoning that the Supreme Court has now found authority over GHG emissions to reside in the Federal Government. In the future, the decision may also undermine federal common law claims, on the argument that Congress intended to leave no room for courts to develop overlapping federal common law restricting GHG emissions. The Marine Mammal Protection Act (MMPA) bars the taking of marine mammals, with exceptions. One exception is for "incidental takings" by specified activities. It provides that persons "engage[d] in a specified activity (other than commercial fishing) within a specified geographical region" may request the Secretary of the Interior or Commerce to authorize, for up to five years, the incidental, but not intentional, taking of small numbers of marine mammals. The Secretary must grant the authorization if he/she makes certain findings—including that the effect of the incidental take will be "negligible"—and promulgates rules setting out permissible methods of taking by the specified activity. In Center for Biological Diversity v. Kempthorne , No. 3:07-CV-0141 (D. Alaska April 22, 2008), transferred from No. 07-CV-00894 (N.D. Cal. filed February 13, 2007), environmental groups challenge one such "incidental taking" rule—authorizing the incidental take of polar bears and Pacific walrus for five years (2006-2011) resulting from oil and gas activities in the Beaufort Sea and adjacent coastal areas of the Alaska north slope. Plaintiffs argue that the rule violates the MMPA by permitting more than a "negligible" impact on the species, based on the combined impact of oil-and-gas activities and the weakened condition of polar bears due to climate change. The district court dismissed the suit, holding that the determination by the Fish and Wildlife Service (FWS) of negligible impact was reasonably based on the administrative record. An appeal has been filed. (This lawsuit also contains a National Environmental Policy Act claim, discussed in Section IV.) Under the Endangered Species Act (ESA), animals (and plants) may be listed as endangered or threatened. Particularly relevant to climate change litigation are ESA sections 9 (prohibitions) and 7 (consultation). Section 9 makes it unlawful to "take" a member of a listed endangered species, and has been extended by regulation to most threatened species. Exceptions from this "take" prohibition are possible, chiefly through incidental take permits. The other provision, section 7, demands that each federal agency "insure that any action authorized, funded, or carried out by such agency ... is not likely to jeopardize the continued existence of any endangered species or threatened species or result in the destruction or adverse modification of [designated critical habitat] of such species...." To achieve this goal, section 7 directs a federal agency to consult with the appropriate wildlife agency—the FWS or National Marine Fisheries Service (NMFS)—to determine the effect its action may have on listed species or their habitats. This is called "section 7 consultation." Then, the FWS or NMFS prepares a "biological opinion" concluding either that the proposed action would not violate the mandate of no jeopardy or adverse modification, or that it would violate the mandate, in which case FWS or NMFS must suggest "reasonable and prudent alternatives" that would not violate the mandate. In Natural Resources Defense Council v. Kempthorne , 506 F. Supp. 2d 322 (E.D. Cal. 2007), environmental and sport fishing groups attacked the FWS biological opinion prepared for the 2004 Long-Term Central Valley Project and State Water Project Operations Criteria and Plan and certain related future actions. The biological opinion concluded that project operations would not jeopardize the continued existence of the Delta smelt, a threatened species, or adversely modify its designated critical habitat—that is, would not violate ESA section 7. The court, however, held that the biological opinion was arbitrary and capricious in ignoring data about climate change that may adversely affect the Delta smelt and its habitat. The court observed, for example, that the opinion was based on the assumption that the hydrology of the waters affected by the 2004 plan would follow historical patterns for the next 20 years, an assumption that studies on the potential effects of climate change on water supply reliability did not support. A companion case before the same judge, Pacific Coast Federation of Fishermen's Associations/Institute for Fisheries Resources v. Gutierrez , No. 1:06-CV-00245, 2008 WL 2223070 (E.D.Cal. May 20, 2008), successfully challenged the NMFS biological opinion prepared in connection with the same project for various salmon and trout species—based on its "total failure to address, adequately explain, and analyze the effects of global climate change on the species." Id. at *60. More ESA cases are likely on the way in connection with a campaign spearheaded by the Center for Biological Diversity (CBD). CBD has filed multiple petitions to have animals listed as endangered or threatened due in various degrees to climate change impacts on their habitat. Given that some of these petitions have been successful (and more may be in the future), the Center is likely to test in court whether substantial GHG sources run afoul of protections afforded those species by the ESA. Three climate-change-related proposals to list a species have reached the actual listing stage thus far. The first, in which climate change was only a contributing factor, was NMFS' listing of the staghorn coral and elkhorn coral as threatened in 2006. The second, garnering considerably more attention, was the May 15, 2008 listing of the polar bear as threatened, under pressure of a court-imposed deadline requiring a decision for or against listing by that date. The polar bear listing was based largely on the many studies as to the disproportionately large impact of climate change on the Arctic and the resulting loss of sea ice required by polar bears as habitat. The third, again with climate change but a contributing factor, is NMFS' listing of the black abalone as endangered in 2009. In addition to the coral, polar bear, and abalone, CBD has petitioned the FWS to list as either endangered or threatened Kittlitz's murrelet, a seabird (2001), 12 species of penguins (2006), the American pika, an alpine mammal (2007), the ashy storm-petrel, another seabird (2007), the ribbon seal (2007), the Pacific walrus (2008), and the ringed, bearded, and spotted seals (2008). In each instance, the Center asserts global warming to be a cause, principal or otherwise, of the species' plight. (Not included in this report are the CBD suits challenging agency failures to make the statutorily mandated interim findings in the petition process for listing, known as 90-day or 12-month findings.) With the listing of the corals and polar bear—particularly the latter where the climate change nexus is so clear—the question moves to the fore whether operating a fossil-fuel-fired power plant or other major GHG source violates section 9—causes a prohibited "take"—through the effects of its GHG emissions, via climate change, on polar bear habitat. Notable here is that "take" is statutorily defined to include "harm" to a member of a listed species, and "harm," in turn, is defined by regulation to include certain "significant habitat modification[s] or degradation[s]." The crux, presumably, is whether the causal link between the power plant's GHG emissions and the effect on the species habitat is sufficiently direct and substantial to constitute a "take," a question beyond the scope of this report. If a take is found, the power plant would require an incidental take permit to operate, such permit likely containing restrictions on the amount of GHGs that could be emitted. Likewise, the argument runs, a federal agency issuing a permit for power plant construction might have to initiate section 7 consultation. In 2008, under the George W. Bush Administration, the FWS repeatedly asserted that its listing of the polar bear would not implicate the ESA – neither section 9 nor section 7 – based on the GHG emissions from an activity. The FWS sought to ensure the irrelevance of GHG emissions to the ESA in several ways. One way was by issuing a "special rule" for the polar bear under ESA section 4(d) stating that section 9 "take" prohibitions do not apply to "any taking of polar bears that is incidental to, but not the purpose of, carrying out an otherwise lawful activity" occurring anywhere in the United States except Alaska. A half-dozen or more lawsuits challenging the polar bear listing and the accompanying "special rule"—most including grounds related to climate change—were consolidated on December 3, 2008 in the D.C. federal district court by the Judicial Panel on Multidistrict Litigation. Another way used by FWS (and NMFS) in 2008 to keep the ESA and GHG emissions separate was by amending the section 7 consultation regulations to say, for example, that no consultation is required when a federal agency action is not anticipated to result in "take" and the action's effects are "manifested through global processes" and either (a) cannot be reliably predicted at the scale of the species' range, or (b) will have insignificant impact on the species or its habitat. With the arrival of the Obama Administration, Congress in 2009 allowed the relevant Secretary (of the Interior, with regard to FWS; of Commerce, with regard to NMFS) 60 days in which to withdraw the polar bear special rule and/or the 2008 amendments to the consultation regulations "without regard to any provision of statute or regulation that establishes a requirement for such withdrawal." This streamlined withdrawal authority was exercised on May 4, 2009, solely with regard to the amendments of the consultation regulations, reinstating the prior version. Owing to the withdrawal, the lawsuits challenging the amended rule (filed by environmental groups and nine states) were dismissed on May 14, 2009. In Center for Biological Diversity v. National Highway Traffic Safety Administration , 538 F.3d 1172 (9 th Cir. 2008), 11 states (CA, CT, ME, MA, NJ, NM, NY, OR, RI, VT, MN), environmental groups and others attacked a 2006 rule promulgated by the National Highway Traffic Safety Administration (NHTSA) under the Energy Policy and Conservation Act (EPCA). The rule established corporate average fuel economy (CAFE) standards for light-duty trucks—defined by NHTSA to include many SUVs, vans, and pickup trucks—in model years 2008 through 2011. EPCA says that the light-truck CAFE standard shall be the "maximum feasible" standard that manufacturers can achieve in a given model year. The court found that even assuming NHTSA may use a cost-benefit analysis to determine the "maximum feasible" standard, it was arbitrary and capricious not to include in the analysis the benefit of carbon emissions reduction—calling this "the most significant benefit of more stringent CAFE standards." NHTSA had argued, for example, that the wide range of values put forward in studies as to how the benefits of reduced GHG emissions should be monetized justified placing no value on that benefit in its cost-benefit analysis. The court countered that while there is indeed a range of values in the studies, they are all greater than zero. Accordingly, the court remanded the CAFE standard to NHTSA for the agency to include a monetized value for carbon emission reduction in its analysis of the proper CAFE standard. (There was also a climate-change-related NEPA claim in this lawsuit, discussed in Section IV.) Quite recently, CBD filed a petition for review of NHTSA's rule setting the standard for model year 2011 passenger cars and light trucks. It is unclear from the tersely worded petition whether climate change concerns underlie this suit, though given the court decision immediately above, it seems likely. In Center for Biological Diversity v. U.S. Dep't of the Interior , No. 07-1247 (D.C. Cir. April 17, 2009), the court rejected the climate change arguments made against the Secretary of the Interior's approval of the Outer Continental Shelf Oil and Gas Leasing Program 2007-2012 under the Outer Continental Shelf Lands Act (OCSLA). Petitioners alleged that the Secretary violated OCSLA by failing to analyze the climate change impacts from the GHG emissions resulting from the consumption of oil and gas produced under the program. Adopting the argument of the United States, the court held that the Supreme Court's standing discussion in Massachusetts v. EPA is limited to state plaintiffs, and thus did not aid petitioners. Being unable, in the court's view, to satisfy the standing elements of injury in fact and causation under a traditional analysis, petitioners were held to lack regular standing—though they were found to have procedural rights standing. On that latter basis, the court proceeded to petitioners' OCSLA claims, finding that they failed because "OCSLA does not require Interior to consider the global environmental impact of oil and gas consumption before approving a Leasing program." Interior may properly limit the scope of its environmental inquiry to the effect of the Program's production activities. Despite the failure of these climate change claims, the Leasing Program was vacated and remanded on other grounds. (There was also a climate-change-related NEPA claim, discussed in Section IV.) Much of the climate change litigation is based on statutory requirements that the government generate, compile, or disclose information. The National Environmental Policy Act (NEPA) cases involving climate change represent the oldest and most numerous category of climate change litigation. To be sure, NEPA is more than just an information statute, declaring as it does a sweeping policy that the federal government must consider the environmental impacts of its actions. However, NEPA ensures that such environmental consideration will occur chiefly through the production of information, in the form of environmental assessments and environmental impact statements, and does not require that an agency choose from among its options the one with the least environmental impact. The dominant issue has been whether plaintiffs have standing to sue—as mentioned, an issue on which plaintiffs may be helped (but so far have not) by the 2007 Supreme Court decision in Massachusetts v. EPA . Thus, all the standing issues discussed here should be viewed through the prism of that decision. The standing determination has been particularly difficult in the context of NEPA, which confers only a procedural right (having a federal agency prepare an adequate environmental impact statement (EIS)), not a substantive right (having the agency select a particular course of action after preparing the EIS). Massachusetts v. EPA addressed only substantive-rights standing, not procedural-rights standing, though the analyses often overlap. Where courts have found standing and reached the merits, they have usually accepted that climate change impacts in the proper circumstances are a required consideration in an EIS. Standing barriers have proved particularly daunting in the D.C. Circuit, and Massachusetts v. EPA has thus far been construed narrowly. In the first significant climate change case under any law, City of Los Angeles v. National Highway Traffic Safety Admin ., 912 F.3d 478 (D.C. Cir. 1990), the city attacked a NHTSA decision not to prepare an EIS when it set the corporate average fuel economy standard at 26.5 mpg for model year 1989 passenger cars—below the statutory default setting of 27.5 mpg. A majority of the D.C. Circuit concluded that petitioners had standing based on their argument that had NHTSA done an EIS considering the climate change impacts of its one mpg rollback, the agency might have rejected it. This provided the requisite causal nexus, said the majority, between NHTSA's decision not to do an EIS and climate change. In dissent, however, one judge argued that Article III demanded a more precise causal showing, with clear proof of a nexus between the agency action and harm to the petitioners. On the merits, one judge in the majority concluded that NHTSA had "inadequately explained why the admitted increase in carbon dioxide is insignificant within the context of the environmental harm posed by global warming." She would have remanded NHTSA's NEPA decision but left the rollback in place in the meantime. Because the other majority judge ruled for the agency, however, the petition was denied. The plaintiff-friendly City of Los Angeles standard for finding global-warming-based standing was to prove short-lived. Six years later, a divided D.C. Circuit declared en banc that to obtain standing, a procedural-rights plaintiff must show not only that the government omitted a required procedure, but that it is substantially probable that the procedural omission will cause a particularized injury to the plaintiff —adopting the dissenter's position in that case. To the extent City of Los Angeles dispensed with the second, causation-of-a-particularized-plaintiff-injury requirement, it was expressly overruled. Still later court decisions, however, have cast doubt on this strict standard. In Foundation on Economic Trends v. Watkins , 794 F. Supp. 395 (D.D.C. 1992), the standing bar was raised during, rather than after, the litigation. Plaintiffs claimed that NEPA required the Secretaries of Energy, Agriculture, and the Interior to evaluate the effect on climate change of 42 actions and programs under their authority. Plaintiffs' standing argument was based on "informational standing," under which failure to do an EIS discussing possible climate change impacts satisfies the injury requirement of standing merely by harming plaintiffs' programs for disseminating information about climate change to the public. In so arguing, plaintiffs relied on a line of D.C. Circuit decisions going back two decades. Unfortunately for them, however, informational standing was limited by the D.C. Circuit during the pendency of their suit. An amended complaint by the individual plaintiff, arguing that his expected use of his oceanfront cottage may be curtailed if oceans rise from climate change, was also rejected. Among other things, said the court, the plaintiff had not met the causation requirement of standing in that he had not related the environmental harm he predicted to any of the 42 challenged agency actions. "[T]here is no 'global warming' exception to the standing requirements of Article III or the [Administrative Procedure Act]," it asserted. In a decision also described in Section III, Center for Biological Diversity v. U.S. Dep't of the Interior , No. 07-1247 (D.C. Cir. April 17, 2009), petitioners charged that the department violated NEPA in approving its five-year Outer Continental Shelf oil and gas leasing program. As relevant here, petitioners pointed to the department's failure to account for the impacts of climate change on the Program areas, and the impact on climate change of the additional oil and gas consumption caused by the Program. The court held that petitioners had procedural rights standing, but found their NEPA claims unripe, explaining that at the point petitioners filed their petitions, Interior had only approved the Leasing Program; no lease sales had occurred. The Leasing Program had therefore not yet reached the critical stage where an irreversible commitment of resources occurs. Despite the failure of these climate-change-related claims, the court vacated and remanded the Leasing Program on other grounds. In Montana Environmental Information Center v. Johanns , No. 07-CV-1311 (D.D.C. filed July 23, 2007), dismissed March 20, 2008, challenge was made to the Department of Agriculture's Rural Utility Service's use of low-interest loans to help finance the construction of at least eight new coal-fired powerplants. The charge was that the EIS for one plant is deficient because it fails to consider the cumulative impacts of GHG emissions from the eight new plants. Finally, in Sierra Club v. U.S. D e partment of Agriculture , No. 07-cv-1860 (D.D.C. filed October 16, 2007), that group challenges the failure of the Department of Agriculture's Rural Utility Service to conduct any environmental analysis under NEPA before participating in and approving a number of business agreements that were needed for a project. The project involves the construction of up to three new 700-megawatt coal-fired electric generating units at Sunflower Electric Power Corporation's existing coal-fired power plant in Kansas. (See discussion of further litigation involving this proposal under " VII. State Statutes .") The standing barriers in the D.C. Circuit seem to be attenuated in the Ninth Circuit where, as far as research reveals, plaintiffs raising climate change claims in NEPA suits have yet to encounter standing problems. In 2002, environmental groups sued the Overseas Private Investment Corp. (OPIC) and Export-Import Bank of the United States alleging continued failure to comply with NEPA. These federal agencies provide insurance, loans, and loan guarantees for overseas projects, or to U.S. companies that invest in overseas projects. Plaintiffs alleged that these overseas projects include oil and gas extraction and refining, and power plants, which together result in the annual emission of billions of tons of GHGs, causing climate change in the United States. In 2005, the district court held that plaintiffs had standing, given what it saw to be the relaxed standards in the Ninth Circuit for showing standing in cases alleging procedural violations—here, failure to prepare an EIS. Friends of the Earth v. Mosbacher , 2005 Westlaw 2035596 (N.D. Cal. 2005). It is "reasonably probable," said the court, that emissions from projects supported by the defendants will threaten plaintiffs' concrete interests. In 2007, the court reached the merits, holding on summary judgment motions that defendants need not prepare a programmatic EIS for the energy projects they finance, and that neither side had shown, as a matter of law, that energy projects specifically listed in the complaint are or are not "major Federal actions" requiring an EIS. 488 F. Supp. 2d 889 (N.D. Cal. 2007). The case was settled February 6, 2009, the Export-Import Bank and OPIC agreeing to implement various measures for considering the GHG emissions of supported projects. In Border Power Plant Working Group v. Dep't of Energy , 260 F. Supp. 2d 997 (S.D. Cal. 2003), plaintiff challenged the environmental assessment accompanying applications for permits and federal rights of way to build electricity transmission lines connecting new power plants in Mexico with the power grid in Southern California. In part because four of its members were seen to have procedural standing, the plaintiff organization was held to have organizational standing. The court's standing discussion made no mention of climate change, however, perhaps because climate change was only a small part of plaintiff's case. On the merits, the court agreed with plaintiff that the environmental assessment was legally inadequate because, among other things, it failed to discuss CO 2 emissions from the powerplants and "[t]he record shows that carbon dioxide ... is a greenhouse gas." The decision in Center for Biological Diversity v. NHTSA , 538 F.3d 1172 (9 th Cir. 2008), offers a deja vu to City of Los Angeles , discussed earlier in this section. Both cases involve a NHTSA rule setting a corporate average fuel economy (CAFE) standard—this time, for light-duty trucks (model years 2008-2011) —and in both cases, the agency did no EIS. Petitioners include 11 states (CA, CT, ME, MA, NJ, NM, NY, OR, RI, VT, MN) and four environmental groups. In sharp contrast with earlier NEPA/climate-change decisions, the United States in this case did not contest standing and the court decision does not mention it. On the merits, the court held that NHTSA's environmental assessment for its CAFE rule, finding no significant impact, was inadequate owing to, among other things, its analysis of the rule's cumulative impacts from GHG emissions. Said the court: "The impact of greenhouse gas emissions on climate change is precisely the kind of cumulative impacts analysis that NEPA requires agencies to conduct." Nor did the Energy Policy and Conservation Act, the statute authorizing CAFE standards, limit NHTSA's duty to assess environmental impacts such as climate change. More specifically, while NHTSA's assessment indicated the expected amount of CO 2 emitted by light-duty trucks under the new CAFE standard, it failed to "evaluate the 'incremental impact' that these emissions will have on climate change ... in light of other past, present, and reasonably foreseeable actions such as other light truck and passenger automobile CAFE standards." Finally, the court invoked the well-settled principle that an EIS must be prepared if substantial questions are raised as to whether a proposed project may have significant environmental impact, and held that petitioners' evidence raised the necessary level of doubt. Thus, the court ordered preparation of a full EIS. (There was also a climate change-related Energy Policy and Conservation Act claim, discussed in Section III.) In Center for Biological Diversity v. Kempthorne , No. 3:07-CV-0141 (D. Alaska), transferred from No. 07-CV-00894 (N.D. Cal. filed February 13, 2007), environmental groups challenge a Fish and Wildlife Service "incidental taking" rule. As described in Section II, the rule authorizes the incidental take of polar bears and Pacific walrus by oil and gas activities in the Beaufort Sea and adjacent coastal areas of the Alaska north slope, from 2006 to 2011. Plaintiffs challenge the environmental assessment and finding of no significant impact, charging that the Service put out the rule "without seriously analyzing the effects of climate change on them or their habitat." The accusation is not that the oil and gas activities themselves contribute to climate change, but that direct harms to polar bears and walruses from those activities will be exacerbated by climate change impacts on the Arctic that are already stressing those species. In April, 2008, the district court ruled that the FWS had been reasonable in finding that the impacts of oil and gas activities in and along the Beaufort Sea, over the next five years, will fall short of NEPA's "significant" threshold for requiring environmental assessments. An appeal has been filed. In Mid States Coalition for Progress v. Surface Transportation Bd ., 345 F.3d 520 (8 th Cir. 2003), petitioners disputed the adequacy of an EIS prepared by the Surface Transportation Board to accompany its approval of a railroad's proposal to construct new rail and upgrade existing rail. The proposed rail line was to provide a less expensive route by which low-sulfur coal in Wyoming's Powder River Basin could reach powerplants, and thus might be expected to increase coal consumption and its attendant effects. In this regard, the court noted that CEQ's NEPA regulations require that EISs cover both direct and indirect effects of proposed actions. It concluded by finding it "irresponsible" for the Board to approve such a large project without first examining the possible effects of an increase in coal consumption—apparently, the opinion suggests (but does not explicitly say), including climate change. In Ranchers Cattlemen Action Legal Fund v. Conner , No. 07-CV-01023 (D.S.D. filed October 24, 2007), plaintiffs challenge Department of Agriculture regulations easing restrictions on the import of live cattle and edible bovine products from "minimal risk" Mad Cow Disease regions (Canada). Plaintiffs assert that the environmental assessment was inadequate because it did not analyze the increased GHG emissions from the transportation of the cattle into the United States. A few GHG-related suits also have been filed under state "little NEPAs"—state laws requiring state (and sometimes local) agencies to consider the environmental impacts of their proposed actions, just as the federal NEPA does for federal agencies. For example, in General Motors Corp. v. California Air Resources Bd ., No. 05-02787 (Cal. Sup. Ct. filed September 2, 2005), two car manufacturers claimed that the Board's adoption of California's GHG emission standards involved delayed and inadequate compliance with the state's NEPA-type law. This suit offers as a prime reason for environmental analysis the argument that GHG emissions regulation has, in addition to a possible benefit, some environmental downsides. In particular, it contends that restriction of GHG emissions may cause an increase in new-vehicle sticker prices and a consequent decrease in the rate at which old, higher-emissions vehicles are retired from use. Invoking California's NEPA-like statute (the California Environmental Quality Act), conservation groups and California attorney general Jerry Brown sued in 2007 to require San Bernardino County, the largest county in the US by area, to address climate change in its General Plan update. Later that year, California settled its lawsuit, the county agreeing to prepare a Greenhouse Gas Emissions Reduction Plan and adopt other measures. Later, the conservation groups took a voluntary dismissal of their suit after extracting promises from the county to do a mapping of wildlife habitat and research on wildfire dangers. In broaching the vast realm of local land use plans, these cases portend a major new front in climate change litigation, particularly in states that require environmental impact analysis. The Global Change Research Act of 1990 (GCRA) commands the President to create an interagency United States Global Change Research Program to improve understanding of "global change." Global change is defined broadly by the GCRA to include all changes in the global environment "that may alter the capacity of the Earth to sustain life." Thus, the statute includes, but goes beyond, climate change. The Program is to be implemented by a National Global Change Research Plan, with regular scientific assessments that evaluate the findings of the Program. The GCRA demands that revised Research Plans be submitted to the Congress at least every three years, with the last one having been submitted July, 2003. The statute further demands that scientific assessments be submitted to the President and Congress not less often than every four years, with the only assessment to date submitted October, 2000. On these undisputed facts, the district court in Center for Biological Diversity v. Brennan , 571 F. Supp. 2d 1105 (N.D. Cal. 2007), had little difficulty finding that the Bush Administration had unlawfully withheld action it was required to take. It ordered defendants to publish a summary of the revised proposed Research Plan no later than March, 2008, with submission to Congress no later than 90 days thereafter. The court further ordered the scientific assessment to be produced by May, 2008. It should be noted that the great bulk of this opinion is devoted not to the foregoing violation and remedy, but to threshold matters: standing (finding procedural rights injury and informational injury, associational standing, and Administrative Procedure Act standing) and a motion to intervene by two Members of Congress (denied). The Freedom of Information Act (FOIA) mandates that documents in the possession of federal executive branch agencies are to be disclosed to the public upon request, unless covered by a FOIA exemption. In May, 2006, Citizens for Responsibility and Ethics in Washington (CREW) invoked FOIA to request from the Council on Environmental Quality (CEQ) all of its records relating to the causes of climate change, from January 20, 2001, to October 26, 2006. Though CEQ produced many documents, CREW sued under FOIA seeking a court order that CEQ release all records responsive to its request. Citizens for Responsibility and Ethics in Washington v. Council on Environmental Quality , No. 1:07CV00365 (D.D.C. filed February 20, 2007). The case has been stayed while CEQ efforts to comply continue. This lawsuit parallels allegations at the time that political appointees in the Bush Administration CEQ edited many of the agency's reports to minimize the danger and human causes of climate change. In July, 2006, the House Committee on Government Reform requested that CEQ provide documents and communications relating to the agency's edits of climate change materials, its efforts to influence the statements of government scientists, its communications with federal agencies and nongovernmental parties regarding climate change, and so on. A report making findings was issued in December, 2007, with minority views. The widely diverse injuries predicted from climate change mean that a comparably diverse spectrum of plaintiffs and defendants could become involved in common law tort litigation based on such injuries. Possible plaintiffs include property owners (farmers dealing with reduced rainfall, owners of oceanfront homes dealing with rising sea level or increased storm activity), nonowner users of natural resources (ski resort operators, commercial fishermen), and state attorneys general bringing private or public nuisance claims (the former for injury to state-owned land, the latter on behalf of the state's citizenry to protect public health and well-being). Possible defendants include the companies that produce the fossil fuels whose combustion produces GHG emissions, entities that emit GHGs (chiefly fossil-fuel-fired powerplants, but many other sources also), and companies that manufacture or market products whose use creates GHG emissions (chiefly the automakers). Several of these potential plaintiff and defendant categories are represented in the five climate-change-related tort cases known to be filed thus far (four discussed in the following text, one in footnote 130 ). Thus far, all of those tort actions that have produced court decisions have failed, either due to lack of standing or the political question doctrine, or both. Three are on appeal, however. Nuisance has been the principal tort theory used in cases seeking relief (injunctive or monetary) from harms caused by climate change. In 2004, eight states (CA, CT, IA, NJ, NY, RI, VT, WI) and New York City sued five electric utility companies. Connecticut v. American Electric Power Co. , Civ. No. 04 CV 05669 (S.D.N.Y. filed July 21, 2004). These defendants were chosen as allegedly the five largest CO 2 emitters in the United States, through their fossil-fuel-fired electric powerplants. Invoking the federal and state common law of public nuisance, plaintiffs seek an injunction requiring defendants to abate their contribution to the nuisance of climate change by capping CO 2 emissions and then reducing them. Plaintiffs sue both on their own behalf to protect state-owned property (e.g., the hardwood forests of the Adirondack Park in New York), and as parens patriae on behalf of their citizens and residents to protect public health and well-being. On the same day, three land trusts filed a similar suit against the same defendants, in the same court, adding a private nuisance claim. Open Space Institute v. American Electric Power Co. , No. 04 CV 05670 (S.D.N.Y. filed July 21, 2004). They seek to protect land owned and preserved by them in the state of New York, which they claim to be threatened by climate change. This suit was consolidated with the state suit. In a series of motions, defendants sought to have these actions dismissed on a wide spectrum of threshold grounds. Though the case has now been decided by the trial court on a single threshold issue, it is worth reviewing some of the grounds advanced in these motions because they may reappear later, in this or other private GHG litigation. To reiterate, many of these grounds typify the difficulties encountered when one seeks to address through private litigation a ubiquitous, long-term environmental problem to which countless parties contribute. In a dismissal motion, some defendants argued there is no federal common law cause of action for climate change. Creating such federal common law, they argued, runs afoul of Supreme Court directives that federal courts do so only in limited areas—especially where, as with climate change, the problem at issue has sweeping implications. Even assuming a viable federal common-law nuisance theory, they continued, Congress's enactment of a comprehensive scheme of air pollution regulation in the CAA displaces federal court authority in this area. Defendants also challenge plaintiffs' standing to sue. Plaintiffs, they argued, have not demonstrated the "injury in fact" requisite of standing because they allege only injuries from climate change in the indefinite future. Nor, said these defendants, have plaintiffs shown "causation" because they do not allege that defendants' conduct will directly cause the consequences of climate change—especially since defendants' collective emissions are admitted to be less than 2-1/2% of the global total from human activities. As mentioned, the viability of these federal common law of nuisance and no-standing arguments by defendants may be significantly affected—the displacement argument helped, the others hurt—by Massachusetts v. EPA . Another motion to dismiss asserted that to the limited extent a federal common law claim to abate an interstate nuisance has been recognized, it has been limited to actions brought by state entities. Nor, said defendants, can plaintiffs assert public nuisance, because they have not alleged special injury to their properties, or private nuisance, because they have not alleged substantial harm. As indicated, the dismissal motions in Connecticut and Open Space Institute have now been ruled on by the district court, which dismissed the cases on political question grounds. This judicial doctrine requires a court to look into "the appropriateness under our system of government of attributing finality to the action of the political departments [i.e., the legislative and executive branches] and also the lack of satisfactory criteria for a judicial determination...." One situation judicially recognized as pointing to a political question, hence dismissal of the action, is "the impossibility of deciding [the case] without an initial policy determination of a kind clearly for nonjudicial discretion." This situation, said the court, perfectly fit the GHG cases, touching as they do on so many areas of national and international policy. As a political question, the court believed the climate change issue in these suits to be for the legislature, not the courts, to resolve. Very possibly, the amorphousness of nuisance law, giving the court little guidance in resolving these cases, may have hurt the plaintiffs' cause. These cases are now on appeal to the Second Circuit. A second nuisance action was filed in 2006 by California against several automobile manufacturers based on the alleged contributions of their vehicles to climate change impacts in the state. The suit asserts that these impacts constitute a public nuisance under federal or state common law, and seeks monetary damages (plaintiffs in Connecticut seek injunctive relief). The district court dismissed the suit on the same political-question rationale as in Connecticut —namely, "the impossibility of deciding without an initial policy determination of a kind clearly for nonjudicial discretion." California v. General Motors Corp ., 2007 Westlaw 2726871 (N.D. Cal. September 17, 2007). The need for an "initial policy determination" by the political branches was supported, in the court's view, by the complexity of the climate change issue, the need for political guidance in divining what is an "unreasonable" interference with the public's rights (the definition of a public nuisance), and the global warming debate in the political branches. Ironically, the environmental "win" in Massachusetts v. EPA was cited by the court against the state, both because that decision found authority over GHG emissions to lie with the federal government and because it recognized a state's standing to press its grievances at the federal level. An appeal to the Ninth Circuit is pending. Most recently, a native village on the northwest Alaska coast sued certain oil and energy companies, claiming that the large quantities of GHGs they emit collectively contribute to climate change. Climate change, the village contends, is destroying the village by melting Arctic sea ice that formerly protected it from winter storms, leading to massive coastal erosion. Native Village of Kivalina v. Exxonmobil Corp ., No. 08-cv-01138 (N.D. Cal. filed February 26, 2008). Indeed, the complaint asserts, "[t]he U.S. Army Corps of Engineers and U.S. Government Accountability Office have both concluded that the village must be relocated due to global warming...." The village invokes the federal common law of public nuisance, and state statutory or common law of private and public nuisance, and makes a civil conspiracy claim. The conspiracy claim asserts that some of the defendants have engaged in agreements to participate in the intentional creation or maintenance of a public nuisance—that is, global warming—by misleading the public as to the science of global warming. The suit seeks monetary damages. Owners of Mississippi property damaged by Hurricane Katrina sued certain oil, coal, and chemical companies, alleging a multistep chain of causation: the companies emitted GHGs, which contributed to global warming, which made the waters of the Gulf of Mexico warmer, which caused Hurricane Katrina to become more intense as it passed over the Gulf than it would otherwise have been, which increased the harm to plaintiffs' property caused by the hurricane. Plaintiffs asserted various state-law tort claims, including negligence, nuisance (public and private), and trespass, and seek compensatory damages; they request punitive damages for gross negligence. Further, they claimed fraud and conspiracy to commit fraud, alleging that the oil and coal companies disseminated misinformation about global warming. Finally, plaintiffs made claims against their home insurance companies (e.g., breach of fiduciary duty claim for misrepresenting policy coverage, and violation of a state consumer-protection act) and their mortgage companies (arguing that they may not claim sums owed by plaintiffs for the value of the mortgaged property that was uninsured). The district court, sitting in diversity, dismissed the action for lack of plaintiff standing. Comer v. Murphy Oil USA, Inc. , Civ. Action No. 1:05-CV-436-LG-RHW (S.D. Miss. August 30, 2007). With regard to certain defendants, the court also found plaintiffs' claims nonjusticiable under the political question doctrine—as in the decisions above where nuisance was the sole legal theory advanced. An appeal to the Fifth Circuit is pending. The question of whether federal law preempts state regulation of GHG emissions arises chiefly in connection with mobile sources. With limited exceptions, the CAA disclaims any intention to preempt state air pollution controls on stationary sources. And the Energy Policy and Conservation Act does not set fuel economy standards for other than mobile sources, so it too would be unlikely to preempt state regulation of stationary sources. However, some have asserted that state regulation of stationary-source GHGs is preempted as contrary to the federal government's authority over foreign policy—an argument being pressed, so far unsuccessfully, in litigation attacking state regulation of mobile-source GHG emissions (see below). The most prominent state enactment limiting GHG emissions from stationary sources is that of California, which as yet has not been challenged. The picture is quite different for mobile sources, where preemption is the general rule. The CAA preempts states from adopting any "standard relating to the control of emissions from new motor vehicles ...," and the act defines "emission standard" as certain limits on "emissions of air pollutants ." The Supreme Court has now held that at least for purposes of mobile sources, "air pollutants" includes GHGs. Thus, CAA preemption of state regulation of car and truck GHG emissions is clear, whether or not EPA proceeds to regulate a particular mobile-source GHG. It would seem, then, that states are preempted from setting emission standards for CO 2 , methane, and hydrofluorocarbons—three substances said to enhance climate change—even though EPA has not set mobile-source emission standards for them. An exception to the general CAA rule preempting state mobile-source emission regulation is that EPA may waive CAA preemption for one particular state, California, if that state requests a waiver. Further, when EPA does grant California a waiver, the act automatically extends it to almost all states with mobile-source emission limits identical to California's. Under this "California waiver" authority, California requested a preemption waiver for its GHG emissions regulations on December 21, 2005. These regulations had been promulgated under a 2002 California enactment that was the first in the nation to call for limits on GHG emissions from mobile sources. Assembly Bill 1493 instructs the California Air Resources Board (CARB) to adopt regulations that achieve the maximum feasible reduction of GHGs emitted by passenger vehicles and light-duty trucks. The CARB adopted the required regulations in 2004. The regulations target CO 2 , methane, nitrous oxide, and hydrofluorocarbon emissions, setting "fleet average greenhouse gas exhaust mass emission requirements for passenger car, light-duty truck, and medium-duty passenger vehicle weight classes." The first model year to which the fleet averages apply is 2009. The averages are reduced for each subsequent model year through 2016. On December 19, 2007, almost two years after California requested the waiver, the EPA Administrator wrote the California governor that he intended to deny the state's request. On January 3, 2008, two petitions for review of this letter, arguing that it constituted final agency action on the waiver request, were filed in the Ninth Circuit. However, with the issuance of EPA's March 6 decision document, these suits based on the EPA letter were dismissed and replaced by a suit in the D.C. Circuit challenging that document. Petitioners in State of California v. U.S. EPA , No. 08-1178 (D.C. Cir. filed May 5, 2008) are California, 18 other states, and numerous environmental groups. Most of the California congressional delegation, including Speaker of the House Nancy Pelosi and Senators Boxer and Feinstein, are participating as amici in support of the petitioners. With the arrival of President Obama, the California Air Resources Board and President Obama (by executive order) requested EPA to reopen the waiver-denial matter—which EPA did on February 12, 2009. On February 25, 2009, motion was granted to hold State of California in abeyance pending the Obama Administration EPA's reconsideration of California's petition. That the CAA preempts state GHG regulation of mobile sources cannot be seriously questioned, absent a California waiver. The following preemption litigation is significant for the non-CAA preemption claims being pressed. If successful, these claims would prevent California and other states from implementing the California mobile-source standards even if EPA's denial of the waiver is administratively or judicially reversed. The chief non-CAA preemption theory in this litigation is based on the Energy Policy and Conservation Act (EPCA, also noted in Section III). EPCA is the authority under which the National Highway Traffic Safety Administration (NHTSA) establishes corporate average fuel economy standards ("CAFE standards"). As recently amended, EPCA requires NHTSA to prescribe separate fuel economy standards for passenger and non-passenger automobiles beginning with model year 2011, to achieve a combined fuel economy average for model year 2020 of at least 35 miles per gallon. More pertinent here, EPCA preempts states from adopting laws "related to" the federal fuel economy standards. The auto industry argues that the only known way to reduce GHG emissions is to improve gas mileage, so that a state regulation of auto GHG emissions is a law "related to" the federal emission standard, hence invalid. Non-CAA preemption suits, brought by auto interests, are pending in four of the federal judicial circuits containing a state that has adopted GHG controls on vehicles. Two decisions on the merits have been handed down, from Vermont (First Circuit) and California (Ninth Circuit). Both reject the preemption theories presented. In the first to be decided, Green Mountain Chrysler Plymouth Dodge v. Crombie , 508 F. Supp. 2d 295 (D. Vt. 2007), the court ruled that the relationship between Vermont's California-identical GHG standards and EPCA was better analyzed as an interplay between two federal statutes (EPCA and the CAA) rather than as a federal preemption question. So viewing the matter, the court pointed out that NHTSA has consistently treated EPA-approved California mobile source emissions standards as constituting "other motor vehicle standards of the Government," which EPCA says NHTSA must consider when setting CAFE standards. This suggests that EPCA was meant to coexist with the CAA, rather than supersede it. Moreover, noted the court, in a related context the Supreme Court's Massachusetts v. EPA decision saw the EPCA CAFE provisions as harmonious with the CAA. Thus, the court found the relationship between the CAA waiver authority and the EPCA CAFE provisions to be one of overlap, but not conflict. Despite its conclusion that preemption doctrine did not apply, the court did a preemption analysis anyway, finding that Vermont's GHG standards were preempted neither by EPCA nor as an intrusion upon the foreign policy authority of the United States. An appeal is pending. In the second decision, Central Valley Chrysler-Jeep, Inc. v. Goldstene , 529 F. Supp. 2d 1151 (E.D. Cal. 2007), a district court similarly rejected claims that California's regulation of GHG emissions from cars and trucks was precluded by EPCA, preempted by EPCA, or preempted as an intrusion of state law on federal authority to conduct foreign affairs. An appeal in this case is pending as well. The legal theories pressed in the Crombie and Goldstene litigation are similar to those in two Rhode Island suits, consolidated as Lincoln Dodge, Inc. v. Sullivan , No. 1:06-CV-00070 (D.R.I. filed February 13, 2006), challenging that state's adoption of the California standards. Recently, the district court held that the claims of the auto manufacturers and trade associations in this case were barred by collateral estoppel, a legal doctrine that prohibits parties from relitigating issues they have already adjudicated, as these plaintiffs had done in Crombie and Goldstene . The Rhode Island auto dealers, by contrast, had themselves never raised the issues in the case and thus were held to be viable plaintiffs, allowing the case to proceed. In yet another preemption case, New Mexico's adoption of the California GHG standards has been challenged as preempted under EPCA in Zangara Dodge, Inc. v. Curry , No. 1:07-CV-01305 (D.N.M. filed December 27, 2007). The first climate-change decision involving state statutes (other than nuisance statutes) appears to be Matter of Quantification of Environmental Costs , 578 N.W.2d 794 (Minn. App. 1998). This case involved a state law requiring the state's public utilities commission to determine environmental cost values for each method of energy generation, and to use those values in proceedings before the commission. The commission set values for six pollutants, including CO 2 . Petitioners' challenge to the CO 2 value was rejected on the grounds that (a) notwithstanding the speculative nature of some of the data, the ALJ conducted a careful review based on sufficient evidence in the record, (b) the determination that CO 2 negatively affects the environment was proper, and (c) the determination as to CO 2 value otherwise comported with the governing statute. In 2000, the City of Seattle adopted a goal of meeting its electricity needs with "no net greenhouse gas emissions." To achieve this goal, the city ordered the city-owned electric utility to offset its GHG emissions by paying others to reduce their GHG emissions. The utility did so, largely through agreements paying other entities to use cleaner fuels. This made the utility (according to its press release) "the first large electric utility in the country to effectively eliminate its contribution of harmful greenhouse gas emissions." In Okeson v. City of Seattle , 150 P.3d 556 (Wash. 2007) (en banc), however, the utility's ratepayers argued that this offset arrangement was not authorized by the state's utility enabling act. The Washington Supreme Court agreed, explaining that the purchase of GHG offsets was not impliedly authorized by the enabling act in that the offset contracts were not proprietary because they were not part of the services for which ratepayers are billed, nor were they within the enabling act's purposes. A pair of cases deals with permit applications by electric utilities seeking to build new facilities. In In re Otter Tail Power Co ., 744 N.W.2d 594 (S.D. 2008), environmental intervenors urged the South Dakota public utilities commission to deny a permit to build a coal-fired energy conversion facility, in light of the substantial CO 2 it would emit. Notwithstanding, the commission granted the permit, and the state supreme court sustained. The commission, it held, was not clearly erroneous in finding that the added CO 2 threatened no "serious" injury to the environment, the state's statutory standard. Deference to the commission was particularly appropriate, it said, because the CO 2 from the facility would increase national CO 2 emissions by only .07%, and neither Congress nor the state had chosen to regulate CO 2 emissions. By contrast, the permit was initially denied in Kansas. After applying for a PSD construction permit for two 700-megawatt coal-fired power plants, the Sunflower Electric Power Corp. initially received a favorable response from the state agency, which asserted it would not consider CO 2 in connection with the application owing to the national and international character of climate change. Later, however, the agency invoked a state law providing it with emergency powers when emissions present a substantial endangerment to the health of persons or the environment. Using this authority, and specifically citing the large volume of CO 2 from the proposed plants, the agency denied the permit in 2007. Three times in 2008 and once in 2009 the Kansas legislature passed laws that would have required Sunflower's application to be evaluated without taking CO 2 emissions into account, but each was vetoed by Governor Sebelius. In response to the 2008 vetoes, Sunflower filed several suits now pending in state and federal court. In federal court, in Sunflower Electric Power Corp. v. Sebelius , No. 08-2575 (D. Kan. filed November 17, 2008), Sunflower alleged first that the permit denial violates equal protection because it prohibits CO 2 emissions from the proposed plants when the state has authorized, and continues to authorize, other CO 2 sources in Kansas. Second, Sunflower claims a violation of the Dormant Commerce Clause in that the permit denial was allegedly motivated by the fact that much of the electricity to be generated by the proposed plants would be sold out of state. With the arrival of a new governor, however, a deal was struck on May 4, 2009, allowing one 895-megawatt coal-fired power plant to be built. Reportedly the deal includes Sunflower's dismissal of the federal suit. Research reveals only one lawsuit contesting insurance policy coverage of injuries or liability arising from climate change, though the future is likely to see more. One of the energy companies sued in tort by the Village of Kivalina (see Section V) is now being sued by the insurance company holding its commercial general liability policy. Steadfast Insurance Co. v. The AES Corporation , No. 2008-858 (Va. County Ct. filed July 9, 2008). The insurance company seeks a declaratory judgment that, it hopes, will decree it is not obligated under the policy to provide either defense or indemnity coverage to the energy company in the litigation brought by the Village of Kivalina. The insurer's arguments are three: (1) the policy applies only to an "accident," which is not the basis of the suit against the energy company by the Kivalina plaintiffs; (2) the policies do not apply to injury that began before the earliest of the insurance policies (September 2003), which the injuries here did; and (3) all of the conditions for avoiding the policy's pollution exclusion have not been met (e.g., the pollution alleged by the Kivalina complaint was not unexpected). More significant than the coverage of current liability and casualty policies is the long-term challenge posed by climate change to the insurance industry. Reports suggest that the successor to the Kyoto Protocol may contain provisions by which wealthy industrialized nations contribute to the adaptation costs of developing countries affected by climate change. Lurking in the background, however, is the question whether the major GHG emitting nations can be sued in international fora for the adverse effects of climate change. Gauging the viability of such claims involves a good deal of guesswork, as they lie on the frontiers of international law. This report, concerned primarily with actually filed claims, notes only a few highlights, taken mostly from what appears to be the most pertinent article in the area. The article suggests that the International Court of Justice (ICJ) might be one forum for resolution of climate change claims, with jurisdiction established through treaties that specifically provide for dispute resolution before the court. A problem with the ICJ approach is that the treaties most likely to be invoked are Friendship, Commerce, and Navigation or similar treaties, which focus on how each party within its own country treats the other country's nationals and property. A climate change suit, by contrast, likely would have an extraterritorial focus. Another ICJ possibility would be for the court to render an advisory opinion, at the request of a body authorized under the U.N. Charter to request one. Other possibilities include voluntary submission of a climate change dispute to any of several international arbitral forums or resort to the specialized dispute resolution systems created under various treaties. An example of the latter, reportedly being actively considered, is a fisheries conservation agreement under the UN Law of the Sea Convention, presumably on the argument that increased ocean temperatures from climate change imperil certain fish stocks. Some principles that might be applied to a claim alleging GHG-caused injury might be taken from the international law of transboundary pollution. For example, the Restatement (Third) of Foreign Relations Law describes an international law principle under which a nation must "take such measures as may be necessary, to the extent practicable under the circumstances, to ensure that activities within its jurisdiction or control ... are conducted so as not to cause significant injury to the environment of another state...." Similarly, the Trail Smelter arbitration decision, probably the seminal ruling on state liability for transboundary pollution, declared that "[a] State owes at all times a duty to protect other States against injurious acts by individuals from within its jurisdiction." Of course, as with the domestic common law litigation described in Section V, daunting hurdles confront the claimant in making the link between climate change in general and specific environmental harms, and in apportioning how much of such harms are attributable to the charged party or parties, in this instance the United States. Research reveals only one climate-change-related international law action filed against the United States. Not surprisingly, it was filed by a group based in the Arctic, where the temperature rise from climate change has been among the fastest. In 2005, the Chair of the Inuit Circumpolar Conference, on behalf of herself and all affected Inuit of the arctic regions of the United States and Canada, filed a petition against the United States with the Inter-American Commission on Human Rights, the investigative arm of the Organization of American States (OAS). The petition alleged that the United States, through its failure to restrict its GHG emissions and the resultant climate change, has violated the Inuit's human rights—including their rights to their culture, to property, to the preservation of health, life, and physical integrity, and so on. Inuit culture is described in the petition as "inseparable from the condition of [its] physical surroundings." Generally, the Inter-American Commission on Human Rights is empowered to recommend measures that contribute to human rights protection, request states in urgent cases to adopt specific precautionary measures to avoid serious harm to human rights, or submit cases to the Inter-American Court of Human Rights. The United States, however, has not accepted the jurisdiction of this court, so the Inuit petition sought only to have the Commission prepare a report declaring the responsibilities of the United States and recommending corrective measures. In 2006, the Inuit petition was rejected, with no reasons given (as is customary for the Commission). However, at the request of petitioners the Commission held a hearing on March 1, 2007 on the generic issue of climate change and human rights. One may speculate that the Commission felt more comfortable with the hearing format than the petition because the former did not single out the United States. Or that the Commission was concerned the petition took it into a realm of global scale, orders of magnitude vaster than the typical human rights petition it receives. In 2005-2006, five petitions were submitted to the Intergovernmental Committee for the Protection of the Cultural and Natural Heritage of Outstanding Universal Value (World Heritage Committee), part of UNESCO. The petitions request that various designated World Heritage Sites be placed on the List of World Heritage in Danger owing to alleged impacts of climate change. The sites covered by the petitions are Waterton-Glacier International Peace Park (U.S./Canada), Sagarmatha National Park (Nepal), Belize Barrier Reef Reserve System (Belize), Huascaran National Park (Peru), and the Great Barrier Reef (Australia). Only the Waterton-Glacier petition was filed by entities within the United States (12 environmental groups) and involves a natural resource within the United States. As a party to the World Heritage Convention, the United States is obligated to "do all it can ... to the utmost of its own resources and, where appropriate, with any international assistance and cooperation" to protect its cultural and natural heritage. In 2006, the World Heritage Committee acknowledged the five petitions but appeared desirous of shifting the debate toward the use of existing committee mechanisms at individual sites to adapt to the threat of climate change. Since then, a few additional petitions to place sites on the danger list have been filed, most interestingly a petition titled "The Role of Black Carbon in Endangering Sites Threatened by Glacial Melt and Sea Level Rise." This petition notes that "[r]ecent scientific studies identify black carbon, a component of fine particulate matter, as a key climate forcing agent…." It then asserts that high latitude and high altitude glaciers and low-elevation sites are the World Heritage Sites most vulnerable to climate change, and lists 15 sites (including those in the preceding paragraph) that should be placed on the danger list. Waterton-Glacier remains the only site mentioned in a petition for placement on the List of World Heritage in Danger that is in the United States. Thus far, no international law claims have been brought by low-lying nations likely to be inundated by the sea level rise predicted to accompany climate change. A recent scientific report asserts that sea level rise is likely to be larger than previously predicted, affecting as many as 600 million people on low-lying Pacific islands and southeast Asia delta areas. Gauging the prospects of the pending climate change lawsuits is a precarious venture; for many of the suits, there is little precedent. It is clear, however, that success in the conventional sense—obtaining a judgment for the environmental plaintiff—is not the only objective of many of these suits. Some of the climate change litigation almost certainly has a long-range strategic purpose—to keep climate change on the political front burner and make it difficult for government and GHG emitters to ignore the problem. In the conventional sense of the term, plaintiffs' successes have been rare in cases seeking relief directly from GHG emitters . A court may be reluctant to impose expensive measures to address a global problem on a defendant that is a proportionately minor contributor (which almost all defendants are, given the vast number of GHG emitters), using statutory provisions or common law principles that were not formulated with global problems in mind, against a backdrop of scientific uncertainty as to the precise consequences (if not the general cause) of climate change. By contrast, the environmental side recently has scored major wins where governmental remedies were sought. In a string of 2007 decisions under the Clean Air Act, Energy Policy and Conservation Act of 1975, foreign policy authority of the United States, and NEPA, courts have shown increased willingness to authorize or require government consideration of climate change. As this report shows, standing has been a persistent issue for environmental plaintiffs, though of late the tide appears to be shifting in their favor. And at least for states, the Supreme Court decision in Massachusetts v. EPA is likely to work a sea change in improving plaintiffs' prospects. As noted earlier, the big question is the extent to which the Supreme Court decision finding standing will be seen by the lower courts to generalize to nonstate plaintiffs, other statutory and common law contexts, and injuries (as from weather events) not as clearly attributable to climate change as Massachusetts's loss of shore land. Causation is not only a component of the threshold standing test but a component of the plaintiff's case on the merits. Several writers have identified proof of causation as a key obstacle to a tort action seeking relief from climate change injury. And at the remedy stage, allocation of damages among specific defendants will likely present both factual and legal challenges. In either the standing or case-in-chief contexts, the climate change issues in private-remedy actions reprise an intractable problem in environmental law: imposing liability for harms that are remote in time and place from the pollution sought to be abated, particularly where the pollution comes from multiple sources. Lawmakers of yesteryear encountered this same redistributive conundrum in tackling the problem of acid rain, where pollution cause and effect are separated by hundreds of miles and weeks or months. Imposing liability for harm from exposure to toxic chemicals is of the same ilk: exposure to contamination from multiple sources may result in ill effects manifested only a decade or two later. Perhaps because of these hurdles under existing law, and the resistance of the George W. Bush Administration to regulatory approaches to climate change, new directions have been explored. Within the United States, several states have adopted their own GHG emission controls, citing, among other things, inaction at the federal level. Twenty-three states have joined one of the three regional GHG reduction initiatives (Western Climate Initiative, Midwestern Regional Greenhouse Gas Reduction Accord, and in the northeastern states, Regional Greenhouse Gas Initiative). Some states have explored the idea of emissions trading with Europe. At least 40 states and multiple Canadian provinces have partnered to form a Climate Registry to support voluntary and mandatory schemes for reporting GHG emissions in those states and provinces. California and the United Kingdom signed an agreement on July 31, 2006, committing both parties to implement market-based mechanisms, to share results from studies to quantify the economic impacts of climate change, collaborate on research, etc. Also internationally, this report noted the unsuccessful Inuit petition filed with the Inter-American Commission on Human Rights and the pending petitions before the World Heritage Committee. Reportedly, the low-lying Pacific nation of Tuvalu threatened to sue the United States and Australia years ago in the ICJ, but held off for unspecified reasons. In the corporate world, use of the shareholder proposal process and SEC disclosure requirements have been suggested as ways of forcing the issue. New categories of litigation also may emerge. For example, the head of the California Air Resources Board has predicted a court challenge to her state's cap-and-trade system to regulate GHGs (expected to take effect in 2012). Such a challenge, she said, might argue that the cap-and-trade system's fee on GHG emissions imposes a new tax, which requires a 2/3 vote of the state legislature. As another example, rising sea levels may prompt lawsuits seeking a judicial blessing for the landward migration of the public's beach access rights. And of course, any climate change legislation enacted by Congress is likely to spawn its own generation of litigation. Whether these new paths will yield results, only time will tell. It is clear, however, that if there is to be a government response to climate change at all, a solution from the political branches is more likely to be comprehensive and fully reflective of societal priorities than the typically narrowly targeted results of litigation. Many proponents of litigation or unilateral action by the states freely concede that such initiatives are make-do efforts that, while making a small contribution to mitigating climate change, are also aimed at prodding the national government to act.
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The scientific, economic, and political questions surrounding climate change have long been with us. This report focuses instead on a relative newcomer: the legal debate. Though the first court decision related to climate change appeared 19 years ago, such litigation has proliferated in just the past six. Representatives of some suing organizations and states acknowledge that a prime cause for this litigation surge was inaction by Congress and the executive branch during the George W. Bush Administration with regard to mandatory constraints on greenhouse gas (GHG) emissions. The court cases, decided and pending, arise in eight contexts. The first is the Clean Air Act (CAA). In Massachusetts v. EPA, the Supreme Court held that as to mobile sources of emissions (cars, trucks), the U.S. Environmental Protection Agency (EPA) has authority under the act to regulate greenhouse gas (GHG) emissions. This decision puts pressure on EPA to move forward as well with regulation of GHGs from stationary sources (power plants, factories). Second, litigation under wildlife statutes, particularly the Endangered Species Act, raises the possibility that the impacts of climate change on wildlife may constrain private activities that emit GHGs. Third, energy statutes have been invoked. It has been held, for example, that under the Energy Policy and Conservation Act, the United States must monetize the benefits of reduced carbon emissions as part of setting light-truck fuel economy standards. Fourth, various statutes requiring federal government analysis and information dissemination—the National Environmental Policy Act (NEPA), Global Change Research Act (GCRA), and Freedom of Information Act (FOIA)—have generated climate-change litigation. NEPA suits make up the most numerous subset of this category. Courts agree that if a plaintiff can establish standing, NEPA can be used to compel agency consideration of the climate change effects of its actions. Fifth, common law tort theories such as nuisance have been invoked, not yet successfully, to force cutbacks in GHG emissions, or payment of damages. Several cases are on appeal. Sixth are the preemption suits. These challenge state regulation of GHG emissions from motor vehicles as preempted by the federal corporate average fuel economy standards or federal authority over foreign policy. The two rulings thus far have rejected these challenges, but are on appeal. California's suit attacking EPA's denial of its request for a waiver of federal preemption under the Clean Air Act has now been stayed, pending EPA reconsideration of the denial. Seventh, chiefly with respect to coal-fired power plants, are suits under state utilities laws. And eighth, one case asks whether existing general liability insurance policies cover climate-change-related liability. Finally, the report discusses international law aspects of a nation's contributions to climate change, and offers some overview comments.
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This report explains the process for filling positions to which the President makes appointments with the advice and consent of the Senate (PAS positions). It also identifies, for the 110 th Congress, all nominations to executive-level full-time positions in the 15 departments. Profiles of the departments provide information regarding their full-time PAS positions and related appointment activity during the 110 th Congress. The President and the Senate share the power to appoint the principal officers of the United States. The Constitution (Article II, Section 2, clause 2) empowers the President to nominate and, by and with the advice and consent of the Senate, to appoint the principal officers of the United States. Three distinct stages mark the appointment process: selection, clearance, and nomination by the President; consideration by the Senate; and appointment by the President. In the first stage, the White House selects and clears a prospective appointee before sending a formal nomination to the Senate. There are a number of steps in this stage of the process for most Senate-confirmed positions. First, with the assistance of, and preliminary vetting by, the White House Office of Presidential Personnel, the President selects a candidate for the position. Members of Congress and interest groups sometimes recommend candidates for specific PAS positions. They may offer their suggestions by letter, for example, or by contact with a White House liaison. In general, the White House is under no obligation to follow such recommendations. In the case of the Senate, however, it has been argued that Senators are constitutionally entitled, by virtue of the advice and consent clause noted above, to provide advice to the President regarding his selection; the extent of this entitlement is a matter of some debate. As a practical matter, in instances where Senators perceive insufficient pre-nomination consultation has occurred, they have sometimes exercised their procedural prerogatives to delay or even effectively block consideration of a nomination. During the clearance process, the candidate prepares and submits several forms, including the "Public Financial Disclosure Report" (Standard Form (SF) 278), the "Questionnaire for National Security Positions" (SF 86), and the White House "Personal Data Statement Questionnaire." The Office of the Counsel to the President oversees the clearance process, which often includes the collection and review of background information by the Federal Bureau of Investigation (FBI), Internal Revenue Service (IRS), Office of Government Ethics (OGE), and an ethics official for the agency to which the candidate is to be appointed. If conflicts of interest are found during the background check, OGE and the agency ethics officer may work with the candidate to mitigate the conflicts. Once the Office of the Counsel to the President has cleared the candidate, the nomination is ready to be submitted to the Senate. The selection and clearance stage has often been the longest part of the appointment process. There have been, at times, lengthy delays, particularly when many candidates have been processed simultaneously, such as at the beginning of an Administration, or where conflicts needed to be resolved. Candidates for higher-level positions have often been accorded priority in this process. At the end of 2004, in an effort to reduce the elapsed time between a new President's inauguration and the appointment of his or her national security team, Congress enacted amendments to the Presidential Transition Act of 1963. These amendments encourage a President-elect to submit, for security clearance, potential nominees to high-level national security positions as soon as possible after the election. A separate provision of law, enacted as part of the Federal Vacancies Reform Act of 1998, lengthens, during presidential transitions, the potential duration of a temporary appointment by 90 days. Although this provision might give some additional flexibility to an incoming President, it might also lengthen the appointment process for some positions by, in effect, extending the deadline by which a permanent appointment must be completed. For a position located within a state (e.g., U.S. attorney, U.S. marshal, and U.S. district judge), the President, by custom, normally has nominated an individual recommended by one or both Senators (if they are from the same party as the President) from that state. In instances where neither Senator is from the President's party, he usually has deferred to the recommendations of party leaders from the state. Occasionally, the President has solicited recommendations from Senators of the opposition party because of their positions in the Senate. If circumstances permit and conditions are met, the President could give the nominee a recess appointment to the position (see section entitled " Recess Appointments " below). Recess appointments have sometimes had political consequences, however, particularly where Senators perceived that such an appointment was an effort to circumvent their constitutional role. Some Senate-confirmed positions, such as many of those in the executive departments, may also be temporarily filled under the Vacancies Act. A nominee has no legal authority to assume the duties and responsibilities of the position; a nominee who is hired by the agency as a consultant while awaiting confirmation may serve only in an advisory capacity. Authority to act comes once there is Senate confirmation and presidential appointment, or if another method of appointment, such as a recess appointment or a temporary appointment, is utilized. (For further information on these methods, see sections entitled " Recess Appointments " and " Temporary Appointments " below.) In the second stage, the Senate alone determines whether or not to confirm a nomination. The way the Senate has acted on a nomination has depended largely on the importance of the position involved, existing political circumstances, and policy implications. Generally, the Senate has shown particular interest in the nominee's views and how they are likely to affect public policy. Two other factors have sometimes affected the examination of a nominee's personal and professional qualities: whether the President's party controlled the Senate, and the degree to which the President became involved in supporting the nomination. Much of the Senate confirmation process occurs at the committee level. Administratively, nominations are received by the Senate executive clerk, who arranges for the referral of the nominations to committee, according to the Senate rules and precedents. Committee nomination activity has generally included investigation, hearing, and reporting stages. As part of investigatory work, committees have drawn on information provided by the White House, as well as information they themselves have collected. Some committees have held hearings on nearly all nominations; others have held hearings for only some. Hearings provide a public forum to discuss a nomination and any issues related to the program or agency for which the nominee would be responsible. Even where confirmation has been thought to be a virtual certainty, hearings have provided Senators and the nominee with opportunities to go on the record with particular views or commitments. Senators have used hearings to explore nominees' qualifications, articulate policy perspectives, or raise related oversight issues. A committee may decline to act on a nomination at any point—upon referral, after investigation, or after a hearing. If the committee votes to report a nomination to the full Senate, it has three options: it may report the nomination favorably, unfavorably, or without recommendation. A failure to obtain a majority on the motion to report means the nomination will not be reported to the Senate. If the committee declines to report a nomination, the Senate may, under certain circumstances, discharge the committee from further consideration of the nomination in order to bring it to the floor. The Senate historically has confirmed most, but not all, executive nominations. Rarely, however, has a vote to confirm a nomination failed on the Senate floor. Unsuccessful nominations usually do not make it past the committee stage. Failure of a nomination to make it out of committee has occurred for a variety of reasons, including opposition to the nomination, inadequate amount of time for consideration of the nomination, or factors that may not be directly related to the merits of the nomination. Senate rules provide that "[n]ominations neither confirmed nor rejected during the session at which they are made shall not be acted upon at any succeeding session without being again made to the Senate by the President." In practice, such pending nominations have been returned to the President at the end of the session or Congress. Pending nominations also may be returned automatically to the President at the beginning of a recess of more than 30 days, but the Senate rule providing for this return is often waived. In the final stage, the confirmed nominee is given a commission bearing the Great Seal of the United States signed by the President and is sworn into office. The President may sign the commission at any time after confirmation, at which point the appointment becomes official. Once the appointee is given the commission and sworn in, he or she has full authority to carry out the responsibilities of the office. The Constitution also empowers the President to make limited-term appointments without Senate confirmation when the Senate is in recess. Such recess appointments expire at the end of the next session of the Senate. Appendix C provides a table showing the dates of the Senate recesses for the 110 th Congress and showing that during this Congress, President Bush made no recess appointments to executive department positions. Presidents have occasionally used the recess appointment power to circumvent the confirmation process. In response, Congress has enacted provisions that restrict the pay of recess appointees under certain circumstances. Because most potential appointees to full-time positions cannot serve without a salary, the President has an incentive to use his recess appointment authority in ways that allow them to be paid. Under the provisions, if the position falls vacant while the Senate is in session and the President fills it by recess appointment, the appointee may not be paid from the Treasury until he or she is confirmed by the Senate. However, the salary prohibition does not apply (1) if the vacancy arose within 30 days before the end of the session of the Senate; (2) if, at the end of the session, a nomination for the office, other than the nomination of an individual appointed during the preceding recess of the Senate, was pending before the Senate for its advice and consent; or (3) if a nomination for the office was rejected by the Senate within 30 days before the end of the session and an individual other than the one whose nomination was rejected thereafter receives a recess appointment. A recess appointment falling under any one of these three exceptions must be followed by a nomination to the position not later than 40 days after the beginning of the next session of the Senate. For this reason, when a recess appointment is made, the President generally submits a new nomination for the nominee even when an old nomination is pending. These provisions have been interpreted by the Department of Justice to preclude payment of an appointee who is given successive recess appointments to the same position. Although recess appointees whose nominations to a full term are subsequently rejected by the Senate may continue to serve until the end of their recess appointment, a provision of the FY2008 Financial Services and General Government Appropriations Act may prevent them from being paid after their rejection. The provision reads, "Hereafter, no part of any appropriation contained in this or any other Act shall be paid to any person for the filling of any position for which he or she has been nominated after the Senate has voted not to approve the nomination of said person." Prior to this provision, similar wording was included in annual funding measures for most or all of the previous 50 years. Another recent congressional response to the President's use of recess appointments was the decision, during the latter part of the first session of the 110 th Congress, to restructure the Senate's longer recesses into a series of shorter recesses divided by pro forma sessions. Based upon the notion that the President can be restricted from making recess appointments during a recess that is no more than three days, the Senate sought to prevent recess appointments by holding pro forma sessions approximately every three days. Beginning in November of 2007, the Senate agreed to regularly scheduled pro forma sessions during periods that would have otherwise been recesses of duration of a week or longer. The Senate recessed on November 16, and pro forma meetings were convened on November 20, 23, 27, and 29, with no business conducted. The Senate reconvened and conducted business beginning on December 3, 2007. Similar procedures were followed for the remainder of the 110 th Congress during other periods that would otherwise have been Senate recesses of at least a week in duration. For the remainder of his presidency, President Bush did not make any more recess appointments. Congress has provided limited statutory authority for the temporary filling of vacant positions requiring Senate confirmation. It is expected that, in general, officials holding PAS positions who have been designated as "acting" are holding their offices under this authority or other statutory authority specific to their agencies. Under the Federal Vacancies Reform Act of 1998, when an executive agency position requiring confirmation becomes vacant, it may be filled temporarily in one of three ways: (1) the first assistant to such a position may automatically assume the functions and duties of the office; (2) the President may direct an officer in any agency who is occupying a position requiring Senate confirmation to perform those tasks; or (3) the President may select any officer or employee of the subject agency who is occupying a position for which the rate of pay is equal to or greater than the minimum rate of pay at the GS-15 level, and who has been with the agency for at least 90 of the preceding 365 days. The temporary appointment is for 210 days, but the time restriction is suspended if a first or second nomination for the position is pending. In addition, during a presidential transition, the 210-day restriction period does not begin to run until either 90 days after the President assumes office, or 90 days after the vacancy occurs, if it is within the 90-day inauguration period. The act does not apply to positions on multi-headed regulatory boards and commissions and to certain other specific positions that may be filled temporarily under other statutory provisions. Table 1 summarizes appointment activity, during the 110 th Congress, related to full-time positions in the 15 departments. President George W. Bush submitted to the Senate 172 nominations to executive department full-time positions. Of these 172 nominations, 125 were confirmed; 13 were withdrawn; and 34 were returned to the President under the provisions of Senate rules. President Bush did not make any recess appointments to the departments during this period. The length of time a given nomination may be pending in the Senate has varied widely. Some nominations were confirmed within a few days, others were confirmed within several months, and some were never confirmed. This report provides, for each executive department nomination that was confirmed in the 110 th Congress, the number of days between nomination and confirmation ("days to confirm"). For confirmed nominations, an average (mean) of 104 days elapsed between nomination and confirmation. The median number of days elapsed was 92. The methodology used in this report to count the length of time between nomination and confirmation differs from that which was used in previous similar CRS reports. The statistics presented here include the days during which the Senate was adjourned for its summer recesses and between sessions of Congress. The methodological change reduces the direct comparability of statistics in this report with those of the earlier research. Reasons for the change include the conversion of long recesses into a series of short recesses punctuated by pro forma sessions during the 110 th Congress; the fact that although committees may not be taking direct action on nominations in the form of hearings or votes, they are likely still considering and processing nominations during recesses; and a desire to be consistent with the methodology used by a majority of political scientists as well as CRS research on judicial nominations. In addition, an argument could be made that the decision to extend Senate consideration of nominees over the course of a recess is intentional, and the choice to extend this length of time is better represented by including all days, including long recesses. A more detailed explanation of this methodological change is located in Appendix E . Each of the 15 executive department profiles provided in this report is organized into two parts: a table providing information, as of the end of the 110 th Congress, regarding the organization's full-time PAS positions, and a table listing nominations and appointments to these positions during the 110 th Congress. Data for these tables were collected from several authoritative sources. The first of these two tables identifies, as of the end of the 110 th Congress, each full-time PAS position in the department, its incumbent, and its pay level. For most presidentially appointed positions requiring Senate confirmation, the pay levels fall under the Executive Schedule, which, as of January 2009, ranged from level I ($196,700) for Cabinet-level offices to level V ($143,500) for the lowest-ranked positions. An incumbent's name followed by "(A)" indicates an official who was, at that time, serving in an acting capacity. Vacancies are also noted in the first table. The appointment action table provides, in chronological order, information concerning each nomination. It shows the name of the nominee, position involved, date of nomination or appointment, date of confirmation, and number of days between receipt of a nomination and confirmation. Actions other than confirmation (i.e., nominations returned to or withdrawn by the President) are also noted. Some individuals were nominated more than once for the same position, usually because the first nomination was returned to the President. Each appointment action table provides the average "days to confirm" in two ways: mean and median. Both are presented because the mean can be influenced by outliers in the data, while the median does not tend to be influenced by outliers. In other words, a nomination that took an extraordinarily long time might cause a significant change in the mean, but the median would be unaffected. Presenting both numbers is a better way to look at the central tendency of the data. For a small number of positions in this report, the two tables may give slightly different titles to the same position. This is a result of the fact that the titles used in the nomination the White House submits to the Senate, the title of each position as established by statute, and the title of the position used by the department itself are not always identical. The first table presented for each department, the table listing the incumbents at the end of the 110 th Congress, relies upon data provided by the department itself in listing the positions. The second table presented, the list of nomination action within each department, relies primarily upon the Senate nominations database of the Legislative Information System (LIS). This information is based upon the nomination sent to the Senate by the White House, which is not always identical to the exact title of the position used by the department. However, the inconsistency only appears in a small minority of the positions listed in this report. Inconsistencies are noted in the footnotes following each appointment table. Appendix A presents a table of all nominations and recess appointments to positions in executive departments, alphabetically organized by last name, and follows a similar format to that of the department appointment action tables. It identifies the agency involved and the dates of nomination and confirmation. The table also indicates if a nomination was confirmed, withdrawn, or returned. The mean and median numbers of days taken to confirm a nomination are also provided. Appendix B provides a table with summary information on appointments and nominations, by department. For each of the 15 executive departments discussed in this report, the table provides the number of positions, nominations, individual nominees, confirmations, nominations returned, and nominations withdrawn. The table also provides the mean and median numbers of days to confirm a nomination. Appendix C provides a table showing the dates of the Senate recesses for the 110 th Congress. A list of department abbreviations can be found in Appendix D . As noted above, this report employs certain methods that differ from reports tracking appointments during previous Congresses. These methodological changes are explained in detail in Appendix E . Appendix A. Presidential Nominations, 110 th Congress Appendix B. Nomination Action, 110 th Congress Appendix C. Senate Intersession Recesses and Intrasession Recesses of Four or More Days, 110 th Congress Appendix D. Abbreviations of Departments Appendix E. Change in Methodology from Previous Tracking Reports The calculations of nomination-to-confirmation intervals provided in this report counted all the days within the interval, including those during summer recesses and between sessions of the Senate. The inclusion of all days differs from the methodology used in similar CRS reports for previous Congresses. In these earlier reports, days during August and intersession recesses were not included in calculations of nomination-to-confirmation intervals. The rationale for the earlier methodology was that the Senate was unlikely to continue consideration of nominations during these periods; committee hearings and votes, among other activities, typically do not occur during these times. The exclusion of days during only certain periods of adjournment—intersession recesses and August recesses, which are usually longer than 30 days—is suggested by Senate rules regarding when nominations are to be returned to the President. These provide, Nominations neither confirmed nor rejected during the session at which they are made shall not be acted upon at any succeeding session without being again made to the Senate by the President; and if the Senate shall adjourn or take recess for more than thirty days, all nominations pending and not finally acted upon at the time of taking such adjournment or recess shall be returned by the Secretary to the President. This earlier methodology was also consistent with the approach of some political scientists who study executive branch appointments. The methodology for this report is different from that which was used in previous similar reports for several reasons. First, as discussed above in the section on recess appointments, from the latter part of the first session through the end of the 110 th Congress, the Senate chose to break up what would otherwise have been longer recesses into shorter recesses separated by pro forma sessions. This introduced two options for this report with regard to the calculation of nomination-to-confirmation intervals. The first option would have been to treat each series of short recesses created in this fashion as one long recess and to subtract these days from the nomination-to-confirmation interval. The second option would have been to treat each recess in the series of short recesses created in this fashion as a short recess, and not to subtract these days from the nomination-to-confirmation interval. Arguably, actions of the Senate and the President were consistent with the latter construction—short recesses as short recesses. Otherwise, Senate rules would have required the return of pending nominations (or the waiver of that rule) and the President could have made recess appointments. The Senate and the President did not take these actions. As a result, short recesses created by pro forma sessions are treated as short recesses in the count of the length of time to confirmation. It should be noted, however, that the inclusion of these days reduces the comparability of statistics provided in this report with statistics in previous similar tracking reports, since the intervals calculated in this report include days that in previous reports were part of longer recesses and therefore were subtracted from the length of the interval. Although the phenomenon underlying this methodological problem first arose during the 110 th Congress, it could arise again in future Congresses. Other reasons for the methodological change are not unique to the 110 th Congress. First, in some cases, committee or floor action on a nomination that could have been completed before a recess has been, instead, deferred until after the recess. For such a nomination, the period of Senate consideration arguably has been intentionally extended. Counting all days, including those during a long recess, in calculations of elapsed time reflects that extension of Senate consideration. Second, it is unlikely that all work pertaining to nominations stops over a recess, and the inclusion of recess days is a reflection of the fact that the nominee is still under consideration, even during recess. Member and committee staffs may still be considering nominations at that time, even though they may not take direct action in the form of hearings or votes on the nominees. Ongoing activities may include investigatory work and interviews with nominees. Finally, although, as mentioned above, some political scientists who study nominations do subtract recess days during calculations of nomination-to-confirmation intervals, many others do not. In addition, the calculation of nomination-to-confirmation intervals in CRS research concerning judicial nominations does not exclude days that fall during recesses. By using methodology that is more similar to the work of other political scientists and to CRS judicial nominations research, the research presented here could be more easily compared and combined with related work. For all of these reasons, in this report, we employ a new methodology for calculating nomination-to-confirmation intervals.
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The appointment process for advice and consent positions consists of three main stages. The first stage is selection, clearance, and nomination by the President. This step includes preliminary vetting, background checks, and ethics checks of potential nominees. At this stage, the president may also consult with Senators who are from the same party if the position is located in a state. The second stage of the process is consideration of the nomination in the Senate, most of which takes place in committee. Finally, if a nomination is approved by the full Senate, the nominee is given a commission signed by the President, which makes the nomination official. During the 110th Congress, the President submitted to the Senate 172 nominations to executive department full-time positions. Of these 172 nominations, 125 were confirmed; 13 were withdrawn; and 34 were returned to him in accordance with Senate rules. For those nominations that were confirmed, an average of 104 days elapsed between nomination and confirmation. The median number of days elapsed was 92. The methodology used in this report to count the length of time between nomination and confirmation differs from that which was used in previous similar CRS reports. The statistics presented here include the days during which the Senate was adjourned for its summer recesses and between sessions of Congress. The methodological change, which may reduce the comparability of statistics in this report with those of the earlier research, is discussed in the text of this report as well as in an appendix. Reasons for the change include the conversion of long recesses into a series of short recesses punctuated by pro forma sessions during the 110th Congress; the fact that although committees may not be taking direct action on nominations in the form of hearings or votes, they are likely still considering and processing nominations during recesses; and a desire to be consistent with the methodology used by many political scientists as well as CRS research on judicial nominations. In addition, an argument could be made that the decision to extend Senate consideration of nominees over the course of a recess is intentional, and the choice to extend this length of time is better represented by including all days, including long recesses. President George W. Bush did not make any recess appointments to executive department full-time positions during the 110th Congress. Information for this report was compiled from data from the Senate nominations database of the Legislative Information System http://www.congress.gov/nomis/, the Congressional Record (daily edition), the Weekly Compilation of Presidential Documents, telephone discussions with agency officials, agency websites, the United States Code, and the 2008 "Plum Book" (United States Government Policy and Supporting Positions). This report will not be updated.
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The nature of greenhouse gas (GHG) emissions (particularly carbon dioxide (CO 2 ) emissions) makes their control difficult to integrate with the U.S economy and traditional U.S. energy policy. There is a strong linkage between industrialization and GHG emissions, particularly between energy consumption and GHG emissions. In 2008, energy-related activities contributed 86% of U.S. greenhouse gases. Despite the obvious interrelationship between energy policy and greenhouse gas (GHG) emissions, the United States has struggled to integrate the two. For a country that has traditionally used its cheap supply of energy to substitute for more expensive labor and capital costs to compete internationally, this linkage is particularly strong, as witnessed by the nation's high GHG emissions per capita. The country continues to increase how efficiently it uses energy to create economic goods and services, thus reducing energy-related emissions per unit of output. Two factors contributing to this trend are a two-decade preference for using natural gas (rather than coal) for new electric generating facilities and a steady structural change in the economy away from heavy manufacturing and toward high technology and services. Overall, however, U.S. GHG emissions rose from about 6 billion metric tons in 1990, to about 7 billion metric tons in 2008. In the face of this economic reality, along with continuing scientific uncertainty, debate over a greenhouse gas (GHG) reduction program can be categorized by three inter-related Cs: C ost, C ompetitiveness, and C omprehensiveness. In the debate each of these terms frequently represents a "sound-bite" for a concern; but in program development, each represents an interwoven complex of issues. Cost, as a sound-bite, commonly refers to some monetary estimate of what a GHG reduction program would require, typically expressed as a gross dollar amount or as a percentage reduction in gross domestic product for some period of time. Costs most often are cited by a number or percentage, but costs actually embrace a multifaceted set of changes in economic relationships, involving producers, consumers, and government entities. At a program level, "costs" have many ramifications: federal outlays for research and monitoring; regulatory program operation and oversight; potential public and private sector increases in expenses—for example if energy prices rise; and so on. Furthermore, in a nuanced view, net costs/benefits would be considered, as opposed to looking at costs (or benefits) in isolation. But direct benefits from GHG reductions, as well as secondary benefits such as commercialization of breakthrough technologies and reductions in related more conventional pollutants (e.g., sulfur dioxide, nitrogen oxides, and mercury), can be difficult to quantify (and are frequently ignored). Competitiveness, at the simplest level, most typically reflects concerns about what firms would be disadvantaged by cost increases as a result of GHG reduction requirements. More broadly, however, competitiveness reflects changes in the competitive relationships of producers of goods and services—some facing serious product cost and product substitution issues, others seeking to capitalize on new markets or new cost advantages resulting from legislation. Moreover, competitiveness concerns arise at both the domestic and international levels, depending on the details of the proposed legislation. Comprehensiveness, in the debating arena, relates to the disconnect between individual national responses and a problem that is global in nature—particularly as an individual country's action or inaction affects international competitiveness and growth in GHG emissions. Specifically, if the United States were to require GHG reductions that impose costs on its industry while some other countries do not, domestic firms might be competitively disadvantaged, perhaps substantially, and global GHG emissions would not be significantly affected. Only a "comprehensive" GHG reduction requirement—all nations having to meet comparable GHG reduction requirements—would result in a "level playing field" in which no nation would be at a competitive disadvantage in world markets. However, what would represent "comparable" GHG reduction requirements is problematic, given the diverse resource endowments and disparate economic conditions of the world's nations. The United Nations Framework Convention on Climate Change (UNFCCC) specifically provides for "differentiated" responsibilities between designated developed nations and developing nations with the developing countries taking the lead. The complexity involved in developing a fair and effective comprehensive approach to reducing GHG emissions that encompasses these features has stymied the international community for almost two decades. Because cost, competitiveness, and comprehensiveness are inter-related, C ost frequently becomes the overriding soundbite. Nevertheless, it should be recognized that the term cost alone may embody many ramifications. Costs have been a major concern in GHG policy deliberations, beginning with the United States' negotiations on, and 1992 ratification of, the United Nations Framework Convention on Climate Change, and continuing to the current debate in Congress. During the protracted deliberations on the UNFCCC, the National Academy of Sciences (NAS) released a report, Policy Implications of Greenhouse Warming , in which the expert panel stated that "The United States could reduce or offset its greenhouse gas emissions by between 10 and 40 percent of 1990 levels at low cost, or at some net savings, if proper policies are implemented." The NAS's energy policy recommendations focused on increasing energy conservation and efficiency, incorporating greenhouse warming as a factor in future energy planning, and studying and eventually implementing "full social cost pricing" of energy. Although widely publicized and promoted, this premise was not sufficient for the U.S. to commit to firm targets and time frames for carbon dioxide (CO 2 ) reductions, as witnessed by the U.S. negotiation and ratification of the UNFCCC. Driven by concerns about scientific uncertainty with respect to global climate, the George H. W. Bush Administration—against the wishes of most environmentalists and some vocal Members of Congress—refused to commit to a binding agreement to reduce the nation's CO 2 emissions by a specific date. The UNFCCC reflects this negotiating position of the United States and some other countries in that it calls for voluntary control measures. Senate floor debate on ratification of the treaty brought out concerns by some Senators about the cost of compliance, its impact on the country's competitiveness , and the comprehensiveness with respect to the developing countries—concerns that were overcome because of the non-binding nature of the reduction goals. Those arguing for more binding commitments argued that emissions controls could create jobs and enhance economic health, and that emissions were an indicator of inefficiency. As finally negotiated, the objective of the Convention is to: ... achieve ... stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system. Such a level should be achieved with a time frame sufficient to allow ecosystems to adapt naturally to climate change to ensure that food production is not threatened, and to enable economic development to proceed in a sustainable manner. Arguing that "the developed country Parties should take the lead" in reducing emissions, the Convention set the goal that developed countries aim toward returning their greenhouse gas emissions to their 1990 levels by the year 2000. In line with this goal, developed countries were to adopt national plans and policy options to mitigate climate change by reducing anthropogenic emissions and enhancing sinks. The Energy Policy Act of 1992 (EPACT), P.L. 102-486 , was the principal statutory basis for programs making up the U.S. response to the UNFCCC. Primarily crafted as an energy policy response to the Iraqi takeover of Kuwait and the U.S.-led response, its energy conservation, renewable energy, and other titles were also seen as having a beneficial effect on global climate change concerns being debated at this time in international circles. In its 1992 UNFCCC National Action Plan submission to the UNFCCC, the George H. W. Bush Administration listed 11 different titles of EPACT as "extremely important" to its overall strategy of reducing greenhouse gases. The aforementioned recommendations of the NAS were embodied in several sections of EPACT. These sections included provisions to establish energy-efficiency standards, promote dissemination of energy-saving information, establish several national research and development programs related to deployment of energy-efficiency technologies, and authorize the Department of Energy (DOE) to evaluate cost-effective energy efficiency technologies. In addition to these activities to improve energy efficiency, EPACT included a separate title to incorporate global warming concerns in energy policy planning. Title XVI was designed to assist the government in making informed decisions on global warming by collecting, analyzing, and reporting information on climate change through DOE. Activities included a report on the various economic, energy, social, environmental, and competitive implications of reducing greenhouse gas emissions; developing a least-cost energy strategy designed to achieve "the stabilization and eventual reduction in the generation of greenhouse gases"; creating a Director of Climate Change; and developing an inventory of greenhouse gases and early reductions in such gases. Indeed, the passage of EPACT was anticipated by its authors to stabilize or even reduce emissions of greenhouse gases at little cost, in line with the 1991 NAS report. As stated by the House Report: The committee expects that, if fully implemented, H.R. 776 will result in a substantial reduction in U.S. greenhouse gas emissions relative to forecasted levels. The bulk of these reductions result from the programs that will demonstrate and transfer advanced clean coal and renewable technologies abroad, and from the domestic energy efficiency and renewable energy initiatives. The provisions on electric utilities, alternatives fuels and coalbed methane are also significant. EPACT's portfolio of domestic strategies and program options—technology development/transfer, financial assistance to developing countries, and least-cost solutions—closely track the provisions of the UNFCCC. With the authorization of these programs and activities, EPACT effectively constitutes implementing legislation for the U.S. commitment made in signing and ratifying the UNFCCC. It should be noted, however, that typically the programs are relatively specific, not broad authorizations; that for many the benefit of reducing greenhouse gases is a "bonus" in achieving other goals (e.g., "substantially reduce environmental pollutants, including greenhouse gases...." [sec. 1608]); and that in at least one case the act explicitly denies new authority (i.e., "This subsection does not provide any new data collection authority" [sec. 1605(a)]). To meet the obligation of the UNFCCC, the George H. W. Bush Administration issued in December 1992, the first U.S. plan, National Action Plan for Global Climate Change. This plan consisted primarily of (1) estimating U.S. emissions of greenhouse gases and (2) describing then-existing activities affecting them. These activities were dominated by research initiatives supplemented by programs proposed in the National Energy Strategy or anticipated as resulting from the recent passage of EPACT, along with the Environmental Protection Agency's (EPA) various pollution prevention, "green" initiatives begun in 1991. These mostly voluntary initiatives, led by EPA's "Green Lights" program, formed the core of the George H. W. Bush Administration's "No Regrets" policy and followed the recommendations of the 1991 Intergovernmental Panel on Climate Change (IPCC) report for countries to consider taking actions on global climate change that were: Beneficial for reasons other than climate change and justifiable in their own right—for example, increased energy efficiency.... Economically efficient and cost-effective, in particular those that use market-based mechanisms. Able to serve multiple social, economic and environmental purposes. Flexible and phased, so that they can be easily modified to respond to increased understanding of ... climate change. Compatible with economic growth and the concept of sustainable development. Administratively practical and effective in terms of application, monitoring, and enforcement. Mindful of the obligations of both industrialized and developing countries in addressing this issue, while aware of the special needs of developing countries, in particular in the areas of financing and technology. As codified by the national action plan, the combination of EPA and DOE programs were forecasted to hold U.S. greenhouse gas emissions at near their 1990 levels in the year 2000. Emissions were projected to rise by only 1.4%-6% over that time period, compared to a projected rise of 13% under a "business as usual" scenario. The Clinton Administration followed a June 1993 White House Conference on Global Climate Change by issuing a new plan, The Climate Change Action Plan , in October 1993. This plan explicitly set a goal of reducing U.S. greenhouse gas emissions to 1990 levels in the year 2000; and laid out of series of nearly 50 program activities to achieve the goal, including both enhancement of earlier programs and new, mostly voluntary, initiatives. It was not submitted to the UNFCCC, but was described as the core of a forthcoming submission to meet the obligations of the convention. In March 1994, the Clinton Administration issued a technical supplement that documented the assumptions and parameters used in developing the supporting analysis for the plan. Also in 1994 the Clinton Administration submitted its Climate Action Report to the convention, and a revised version was submitted in 1997. Philosophically, the Clinton Action Plans were similar to that developed under the George H. W. Bush Administration. They were designed to foster market choices that would conserve energy, increase energy efficiency, and encourage natural gas use. They were also designed to strengthen selected regulatory standards that concomitantly also reduced greenhouse gas emissions—such as landfill regulations that curtail methane releases. Several actions in the 1993 Clinton plan expanded programs listed in the George H. W. Bush Administration's plan by augmenting funding or technical support to increase anticipated reductions. Other Clinton proposals were new; examples included a "Golden Carrot" program to induce efficiency improvements of industrial equipment, a renewable energy consortium, a program to encourage employers to replace parking subsidies with cash incentives for non-solo commuting, and a program to promote more efficient nitrogen fertilizer use. Under the 1993 Clinton plan, total greenhouse gas emissions were projected to return to their 1990 levels by the year 2000, although CO 2 emissions alone would rise about 2%. By 1997, revisions both to the reductions expected and to the baseline being used resulted in the projection that rather than emissions returning to their 1990 levels in the year 2000, emissions would in fact increase about 13% above 1990 levels. The Clinton Administration blamed this failure to reduce emissions in 2000 to the 1990 level primarily on unanticipated economic growth and on Congress not fully funding the programs. Despite this, the basic rationale of the Clinton plan remained: the plan "combines an array of public-private partnerships to stimulate the deployment of existing energy-efficient technologies and accelerate the introduction of innovative technologies. The goal of these programs was to cut CO 2 emissions, while enhancing productivity domestically and U.S. competitiveness abroad." The echo of the 1991 NAS report was clear: the cost to control greenhouse gas emissions would net out to zero, or even save money, depending on how the benefits from increased efficiency were estimated. A central component of the UNFCCC was its establishment of a conference of parties (COP) to negotiate further agreements to counter global climate change. The first two COPs were held in Berlin in 1995 and 1996. At COP-1, several industrialized countries, including the United States, expressed concern about the lack of comprehensiveness of reduction expections: that newly industrializing countries, such as Brazil and China, would continue to be classified as non-Annex I countries (i.e., developing countries, exempt from possible future legally binding reduction requirements) despite their projected large increases in greenhouse gas emissions in the future. This issue of exempting such countries from future binding reduction requirements took on heightened importance when ministerial participants at COP-2 signed a declaration calling for "legally binding mid-term targets." Such targets were the subject of COP-3, held in Kyoto in December 1997. In anticipation of the Kyoto negotiations, the U.S. Senate debated the appropriate U.S. position vis-à-vis any legally binding agreement to reduce greenhouse gas emissions. On July 25, 1997, the Senate voted 95-0 to approve Senate Resolution 98 ( S.Res. 98 ), expressing the sense of the Senate regarding the conditions under which the United States should become a signatory to any international agreement on greenhouse gases under the UNFCCC. Specifically, the resolution states that the U.S. should not sign any agreement limiting developed countries' greenhouse gas emission (e.g., the United States) unless that agreement also includes specific schedules to limit developing countries' greenhouse gas emissions over the same period. In addition, no agreement should be signed that would "result in serious harm to the economy of the United States." S.Res. 98 also states that any agreement sent to the Senate for advice and consent should include a detailed discussion of required legislative and regulatory actions to implement the treaty and a cost analysis of an implementation strategy. These conditions for Senate consideration of a treaty illustrate the Senate's concern about the cost of any agreement to the U.S. economy and consumers, the competitive effects on U.S. trade, and the environmental effectiveness of a treaty that is not comprehensive, exempting increasingly important greenhouse emitting developing countries. By requiring re-analysis of the costs of implementing binding reduction requirements, the Senate was in effect calling for a reexamination of the NAS report's argument that greenhouse gas emissions could be reduced at modest cost. That the Kyoto Protocol did not meet the conditions of S.Res. 98 is not in dispute: it does not bind developing countries to any schedule of reductions. For many critics, no commitment may be comprehensive until the developing world's largest emitters, China and India, sign on. Although the Clinton Administration signed the Kyoto Protocol, it did not submit it to the Senate for ratification. Subsequently, the George W. Bush Administration abandoned both the Kyoto Protocol and its negotiation process. In a June 11, 2001 speech on global climate change, the President stated that the Kyoto Protocol was "fatally flawed in fundamental ways." A primary flaw outlined by the President was the exemption of China and other developing countries from its provisions. This "comprehensiveness" concern was closely followed by "cost" and "competitiveness" concerns: Kyoto is, in many ways, unrealistic. Many countries cannot meet their Kyoto targets. The targets themselves are arbitrary and not based upon science. For America, complying with those mandates would have a negative economic impact with layoffs of workers and price increases for consumers. And when you evaluate all these flaws, most reasonable people will understand that it's not sound public policy. To respond to global climate change, President Bush called for a new approach focused on the science and with flexible control mechanisms that employ market-based incentives. Among the principles that the President argued should guide such a program were the following: We must always act to ensure continued economic growth in prosperity for our citizens and for citizen throughout the world.... And finally, our approach must be based on global participation, including that of developing countries whose net greenhouse gas emissions now exceed those in the developed countries. In its 2006 action plan submitted under UNFCCC, the George W. Bush Administration outlined six principles in building a climate change policy: be consistent with the long-term goal of stabilizing greenhouse gas concentrations; be measured and continually build on new scientific data; ensure continued economic growth and prosperity; pursue market-based incentives and spur technological innovation; be flexible to adjust to new information and take advantage of new technology; and promote global participation, including developing countries. These are principles that follow closely those that underlay the "no regrets" policy of the George H. W. Bush Administration and the initiatives of the Clinton Administration. However, unlike the action plans developed by the George H.W. Bush and the Clinton Administrations, the George W. Bush Administration's plan made no attempt to suggest that it would achieve the UNFCCC goal of returning greenhouse gas emissions to their 1990 levels. In fact, the Administration's voluntary program shifted the focus from reducing greenhouse gas emissions per se to reducing the intensity of emissions per unit of economic activity. As announced by President George W. Bush in February 2002, his voluntary plan would reduce greenhouse gas intensity in the U.S. by 18% in 2012 (three-quarters of which would occur from projected business-as-usual trends); concomitantly, greenhouse gas emissions were projected to increase. In addition, on July 27, 2005, the Bush Administration announced formation of a six-nation Asia-Pacific Partnership on Clean Development and Climate (APP). The members are the United States, China, India, Japan, Australia, and South Korea. The purposes of the Partnership are to create a voluntary, non-legally binding framework for international cooperation to facilitate the development, diffusion, deployment, and transfer of existing, emerging and longer term cost-effective, cleaner, more efficient technologies and practices among the Partners through concrete and substantial cooperation so as to achieve practical results. It has the goal of meeting "national pollution reduction, energy security and climate change concerns, consistent with the principles of the U.N. Framework Convention on Climate Change (UNFCCC)." Notably, unlike the Kyoto Protocol requirements, the partnership engages both developed and developing nations as equals. Also notably, consistent with the Bush Administration's rejection of the Kyoto Protocol's mandatory reduction requirements, the Partnership's initiatives are voluntary—and as such removes any perception that costs would be imposed. While global climate change had been an important element in the legislative drafting and debates that led to Energy Policy Act of 1992, global climate change was largely peripheral during the drafting of and deliberating on the bills (predominately, H.R. 6 in both the 108 th and 109 th Congresses) that ultimately became the Energy Policy Act of 2005 ( P.L. 109-58 )—indeed, the drafters and managers of the legislation focused on energy security and energy supply and preferred to avoid engaging in debate on climate implications. Nevertheless, some Members did seek to inject explicit consideration of climate change into the debate on energy policy, and as a result, the issue of mandatory versus voluntary efforts to address global climate change was again debated. In 2003, a Senate bill ( S. 139 ) that would have imposed a mandatory cap-and-trade greenhouse gas reduction program failed on a 43-55 vote. In 2005, a similar initiative was considered as an amendment during the Senate debate on the Energy Policy Act of 2005 and defeated on a 38-60 vote. However, concern that global climate change should be addressed explicitly during the debate on energy policy in the 109 th Congress led 13 Senators to introduce S.Amdt. 866 —a Sense of the Senate resolution on climate change. The resolution finds that (1) greenhouse gases are accumulating in the atmosphere, increasing average temperatures; (2) there is a growing scientific consensus that human activity is a substantial cause of this accumulation; and (3) mandatory steps will be required to slow or stop the growth of greenhouse gas emissions. Based on these findings, the resolution states it is the Sense of the Senate that the Congress should enact a comprehensive and effective national program of mandatory, market-based limits and incentives on greenhouse gases that slow, stop, and reverse the growth of such emissions. This should be done in a manner that will not significantly harm the U.S. economy and will encourage comparable action by other countries that are our major trading partners and contributors to global emissions. The resolution passed by voice vote after a motion to table it failed on a 43-54 vote. As with the Energy Policy Act of 2005, the Energy Independence and Security Act of 2007 ( P.L. 110-140 ) included floor debates about climate change. But also as with the earlier enactment, direct climate change initiatives were omitted in the final bill, although such provisions as those promoting energy conservation and more stringent auto efficiency standards were seen as consistent with climate change initiatives. Explicit climate change legislation progressed in the 110 th Congress, however: consistent with Senate Amendment 866, the Committee on Environment and Public Works reported out a revised version of S. 2191 —America's Climate Security Act of 2007—by an 11 to 8 vote on December 5, 2007. As reported, S. 2191 was estimated to reduce greenhouse gas emissions 19% below 2005 levels by 2020 and 63% below 2005 levels by 2050. The bill would have capped greenhouse gas emissions from the electric generation, industrial, transportation, and natural gas sectors. The program would have been implemented through an expansive allowance trading program to maximize opportunities for cost-effective reductions. However, an attempt to proceed to the bill and amendments on the Senate floor failed on a procedural vote. As candidates, then-Senators Obama and Biden outlined several climate change initiatives in a "New Energy for America" plan, highlighted by a pledge to "implement an economy-wide cap-and-trade program to reduce greenhouse gas emissions 80 percent by 2050." They also promised to "re-engage" the UNFCCC (with a Conference of Parties to meet in Copenhagen in December 2009 to negotiate a post-Kyoto program), to "invigorate" the Major Economies effort, to "establish a National Low Carbon Fuel Standard to speed the introduction of low carbon non-petroleum fuels," and to "instruct DOE to enter into public private partnerships to develop 5 'first-of-a-kind' commercial scale coal-fired plants with carbon capture and sequestration." President Obama quickly signaled that his Administration was shifting directions. He appointed John Holdren, a strong proponent of engaging climate change, as Science Advisor; he designated an Assistant to the President for Energy and Climate Change and appointed former EPA Administrator Carol Browner to the post; and he nominated Steven Chu, a proponent of alternative energy research, to be the Secretary of Energy. Another signal was that on January 26, 2009, Obama sent EPA a memorandum directing the agency to reconsider the Bush Administration decision to disallow a California waiver so the state could regulate carbon dioxide emissions from autos. In this changed atmosphere, and with the UNFCCC process set to meet on post-Kyoto climate change actions in Copenhagen in December 2009, the House during the first session of the 111 th Congress passed H.R. 2454 , a 1,428-page bill addressing a number of interrelated energy and climate change issues. The bill would have amended the Clean Air Act to establish a cap-and-trade program for greenhouse gas (GHG) emissions, beginning in 2012. The emissions cap would have gradually declined until the year 2050, at which point the emissions cap for covered sources would have been 83% below the level of 2005. The cap could be met by actual reductions in emissions or the purchase of offsets (reductions by sources not covered by the cap). In addition to the cap-and-trade program, the bill would have established renewable energy and energy efficiency requirements, mandated carbon capture and sequestration by new coal-fired electric generating units, and required EPA to set GHG emission standards for various sources. The bill distributed the cap-and-trade program's emission allowances to a wide array of sectors in an effort to address potential impacts on low income households, protect industries that might be subject to import competition from countries with less stringent GHG requirements, and encourage the use of offsets. Meanwhile, in the Senate, the Environment and Public Works Committee approved S. 1733 , which would have established a cap-and-trade program similar to that in H.R. 2454 , November 5, 2009. Separately, the Energy and Natural Resources Committee reported on July 16, 2009, the American Clean Energy Leadership Act ( S. 1462 ), a comprehensive energy policy bill that would have, among its provisions, established renewable energy requirements for electric utilities, but would not have established a mandatory GHG control program. But the momentum of 2009 began to flag as opponents to climate change legislation and critics of climate change control programs focused on the potential costs, on the competitive disadvantages that might ensue, and on the fast-rising emissions of the developing nations that meant any non-comprehensive agreement would fail to stop the increase in atmospheric concentrations of GHGs. An especially confounding element of the debate concerned how to assess costs of the cap-and-trade program. From one perspective, this program—for which experience has been gained in the acid rain program of the Clean Air Act (Title V) and in the climate change program of the European Union—is intended to ensure the cost-effectiveness of emission reductions. In brief, a cap and trade program should reduce the costs of a "command and control" approach by allowing the most cost-effective reductions to be taken first. The program does so by creating a market in allowances for emitting GHGs and setting a cap on how many allowances are available. As a limited resource, the allowances have value; and emitters have the choice of reducing emissions, or buying allowances, whichever is in their economic interest. Overall, the total value of allowances in U.S. cap-and-trade program could reach many tens of billions of dollars per year. The confounding element is that the actual costs of reducing emissions are considerably less than the total value of the allowances: but in debate, the difference between control costs and allowance value has at times been misunderstood or misrepresented. Measuring the cost of a climate change program by the value of allowances gives a much, much higher cost of addressing climate change than measuring the costs of control. Thus, a mechanism designed to reduce costs that would be imposed by a command and control regimen has in some debates been distorted into a massive cost. The citing of such large costs has combined with the rising emissions of developing countries, particularly China (which passed the United States as the world's largest emitter of GHGs in about 2005), to slow passage of control legislation. The crux of the 2009 Copenhagen Conference, to plot a post-Kyoto course for addressing global climate change, was how to engage the two largest emitters, the United States and China—the former having rejected Kyoto in part because developing nations were not obligated to curtail emissions; and the latter having become the world's largest emitter of greenhouse gases. Politically, while the George W. Bush Administration had been a reluctant partner in the UNFCCC process, including early negotiations pointing toward Copenhagen, President Obama has been a vigorous proponent of engagement. At the Copenhagen Conference, he met twice with Chinese Premier Wen Jiabao in an effort to move the negotiations forward. At Copenhagen, only a last-minute effort by a subset of nations, including the United States, led to an agreement. The outcome showed both some progress in bridging the gap between the developed and developing nations, and continuing difficulties in finding common ground on how to reduce greenhouse gas emissions. The accord did not mandate specific reductions, but set a goal of reducing global emissions "so as to hold the increase in global temperature below 2 degrees C, and take action to meet this objective consistent with science and on the basis of equity." Developed, Annex I nations, including the United States, commit to implement "quantified economy-wide emissions targets for 2020" and non-Annex I nations, including China, commit to implement "mitigation actions." Both sets of nations commit to reporting and verification procedures "in accordance with guidelines adopted by the Conference of the Parties." (Monitoring, reporting, and verification were a key demand of the United States of developing nations.) Also, the accord contained the promise of $100 billion a year by 2020 "to address the needs of developing countries." In the end, the Copenhagen agreement hinged on mitigating concerns about the costs of controlling GHG by making targets voluntary; and on getting comprehensive buy-in by allowing each country to set its own targets. The United States and China have submitted their commitments: For the United States, the quantified emissions reduction target for 2020, from a baseline of 2005, is— In the range of 17%, in conformity with anticipated U.S. energy and climate legislation, recognizing that the final target will be reported to the Secretariat in light of enacted legislation. [Note: The pathway set forth in pending legislation would entail a 30% reduction in 2025 and a 42% reduction in 2030, in line with the goal to reduce emissions 83% by 2050.] For China, the nationally appropriate mitigation action of a developing country, is— China will endeavor to lower its carbon dioxide emissions per unit of GDP by 40-45% by 2020 compared to the 2005 level, increase the share of non-fossil fuels in primary energy consumption to around 15% by 2020 and increase forest coverage by 40 million hectares and forest stock volume by 1.3 billion cubic meters by 2020 from the 2005 levels. [China's submission adds:] Please note that the above-mentioned autonomous domestic mitigation actions are voluntary in nature and will be implemented in accordance with the principles and provisions of the UNFCCC, in particular Article 4, paragraph 7. Three fundamental policy assumptions changed between the U.S. ratification of the 1992 UNFCCC and key events of the first decade of the 21 st century—the George W. Bush Administration's 2001 decision to abandon the Kyoto Protocol process and the 2009 negotiations at Copenhagen. First, the ratification of the UNFCCC was based at least partially on the premise that significant reductions could be achieved at little or no cost . This assumption helped to reduce concern some had (including those of the former George H.W. Bush Administration) that the treaty could have deleterious effects on U.S. competitiveness—a significant consideration because developing countries are treated differently from developed countries under the UNFCCC. Further ameliorating this concern, compliance with the treaty was voluntary. While the United States could "aim" to reduce its emissions in line with the UNFCCC's goal, if the effort indeed involved substantial costs, the United States could fail to reach the goal (as has happened) without incurring any penalty under the treaty. This flexibility would have been eliminated under the Kyoto Protocol with its mandatory reduction requirements. The possibility of failure to comply with a binding commitment intensifies one's perspective on potential costs: How confident can one be in the claim that carbon reductions can be achieved at little or no costs? The George W. Bush Administration was sufficiently concerned about potential CO 2 control costs to reverse a campaign pledge to seek CO 2 emissions reductions from power plants, in addition to its decision to abandon the Kyoto Protocol process. While the Obama administration is moving ahead on climate change initiatives, at the same time its has recognized the cost issue—for example by addressing them through efficiency gains, through a cap and trade approach, and through the voluntary goals agreed to at Copenhagen. But the technological breakthroughs on which the "low cost" presumption relies remain difficult to confirm; for many energy alternatives the actual experience is of continuing high costs and/or limited commercialization. But the presumption has never lacked critics; and their views—and to some extent, experience based on alternative energy costs—have rendered the "low cost" assumption tenuous in the eyes of many. Second, theUNFCCC was debated and ratified at a time when salient competitiveness issues were as much focused on Japan and Europe as on developing nations. These countries ratified the Kyoto Protocol, and the European Union (EU) in particular has begun implementing reduction policies. Thus, the issue with U.S. competitiveness among Annex I nations has been addressed. Indeed, it is the EU that has raised the prospect of a trade barrier with the United States because of the lack of U.S. carbon policies, not the other way around. Instead, those concerns about international competitiveness have refocused on rapidly growing economies in the developing world, particuarly those of India and China. In response to these concerns, competitiveness has received specific attention in legislation introduced in both the House and Senate; legislation that contains provisions providing financial assistance to firms that might be adversely affected by climate change mandates, and requirements that could affect imports from nations without comparable climate change mandates. And third, the UNFCCC was debated and ratified at a time when the developed, Annex I nations dominated GHG emissions; at that point, it was assumed comprehensiveness could be delayed as non-Annex I nations pursued greater economic development and while more environmentally friendly technologies were commercialized and transfered to them. However, time has begun to overtake this strategy. In 2005 China passed the United States to become the world's largest emitter, and 9 of the 20 largest GHG emitting countries were non-Annex I countries. Without a comprehensive approach, any reductions in emissions from developed countries could be offset by emission increases by developing countries. The UNFCCC's twin goals of reducing GHG emissions and preserving the right for non-Annex I nations to pursue traditional economic policies is increasingly challenged. Annex I countries' promises to provide financial and technical assistance have yet to produce the desired results, and the situation may require more fundamental changes in the relationship between Annex I and non-Annex I countries. Copenhagen tried to preserve the twin goals by allowing each nation to set its own emissions reduction (Annex I) or mitigation action (non-Annex I) goal—thereby allowing each nation to determine the costs it would accept; and also by establishing a mechanism by which the developed nations would provide funds for GHG reduction actions by non-Annex I nations. What remains to be seen is whether any voluntary program can successfully reduce GHG emissions sufficiently to meet the goal of holding the increase in global temperatures to 2 degrees C. What also remains to be seen is whether the Agreement's provision by which Annex I countries set actual reduction targets, while non-Annex I countries establish nationally appropriate mitigation actions, will be enough to lessen the competitiveness and comprehensiveness concerns—given that some mitigation actions, such as China's, may not necessarily actually reduce emissions. The Kyoto Protocol is now being implemented, and as a policy initiative it represents an effort to resolve the failure of developed nations to voluntarily reduce emissions, as agreed to in the original UNFCCC. Also, the Kyoto process is providing experience in programs for reducing emissions, such as the European emissions trading scheme. The question is whether the lessons learned will inform a truly global effort beyond 2012. Likewise, it remains to be seen what the Copenhagen agreement will lead to; just as it remains to be seen what the world's two largest emitters, China and the United States, will do—whether the goals that they have submitted under the Copenhagen agreement will be met. In ratifiying the UNFCCC, the United States committed itself to lead, along with other developed countries, in reducing emissions of greenhouse gases. Meeting that commitment while addressing the cost, competitiveness, and comprehensiveness issues that commitment raises has proven elusive over the past two decades. Success may depend on not only crafting appropriate domestic responses, but also on the attitudes and actions of other major greenhouse gas emitters and whether they reinforce or detract from domestic initiatives.
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The nature of greenhouse gas (GHG) emissions (particularly carbon dioxide (CO2) emissions) makes their control difficult to integrate with the U.S economy and traditional U.S. energy policy. Despite the obvious interrelationship between energy policy and greenhouse gas (GHG) emissions, the United States has struggled to integrate the two. For a country that has traditionally used its relatively cheap supply of energy to substitute for more expensive labor and capital costs to compete internationally, this linkage is particularly strong, as witnessed by the nation's high GHG emissions per capita. In the face of this economic reality, along with continuing scientific uncertainty, debate over a greenhouse gas (GHG) reduction program can be categorized by three inter-related Cs: Cost, Competitiveness, and Comprehensiveness. Cost typically refers to some monetary estimate of what a GHG reduction program would require, often expressed as a gross dollar amount or as a percentage reduction in gross domestic product for some period of time. Competitiveness, at the simplest level, reflects concerns about what firms would be disadvantaged by cost increases as a result of GHG reduction requirements. Comprehensiveness concerns the extent to which all nations have to meet comparable GHG reduction requirements—in contrast to the current situation in which developing nations, such as China, have no obligation to actually reduce emissions. Fundamental policy assumptions regarding each of the three Cs have changed between the U.S. ratification of the 1992 UNFCCC and key events of the first decade of the 21st century—the George W. Bush Administration's 2001 decision to abandon the Kyoto Protocol process and the 2009 negotiations at Copenhagen. First, the ratification of the UNFCCC was based at least partially on the premise that significant reductions could be achieved at little or no cost. This assumption helped to reduce concern some had that the treaty could have deleterious effects on U.S. competitiveness. Further ameliorating this concern, compliance with the treaty was voluntary. But the assumption has never lacked critics; and their views—and to some extent, experience based on alternative energy costs—have rendered the "low cost" assumption tenuous in the eyes of many. Second, theUNFCCC was approved at a time when salient competitiveness issues were focused as much or more on developed nations, rather than developing ones. But the competitiveness issue has increasingly refocused on the rapidly growing economies, especially of India and China—shifting the competitiveness concern to countries that have been absolved from mandatory reduction requirements while they grow their economies. And third, the UNFCCC was approved at a time when the developed nations dominated GHG emissions, and it was assumed comprehensiveness could be subordinated temporarily to the imperative for developing nations to grow their economies. But by 2005 China had passed the United States to become the world's largest emitter. The Copenhagen Agreement tried to preserve the twin goals of economic development and emissions reductions by allowing each nation to determine the costs it would accept; and also by establishing a mechanism by which the developed nations would provide funds for greenhouse gas reduction actions in developing nations. What remains to be seen is whether any voluntary program can successfully reduce emissions sufficiently to meet the UNFCCC goal of holding the increase in global temperatures to 2°C.
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The 115 th Congress and the Trump Administration are reviewing existing U.S. policies and programs in sub-Saharan Africa (henceforth, "Africa") as they establish their budgetary and policy priorities toward the region while also responding to emerging crises. Key issues for Congress include the authorization and appropriation of U.S. aid to Africa, the authorization and appropriation of funds for U.S. military activities on the continent, and oversight of U.S. programs and policies. In support of congressional deliberations, this report provides background on select issues related to Africa and U.S. policy in the format of frequently asked questions. Much of Africa experienced rapid economic growth starting in the early 2000s, which spurred middle class expansion. Growth in many countries has slowed since 2015, however, and most African countries still face significant development challenges. These include unmet needs for health, education, and other social services—particularly for large youth populations—as well as climate and environmental shocks. Among the factors that hinder investment and economic growth are poor governance and infrastructure, poverty and low domestic demand, a lack of skilled labor, limited access to inputs and capital, political instability, and insecurity. Since the early 1990s, nearly all African countries have transitioned from military or single-party rule to at least nominally multiparty political systems in which elections are held regularly. Nonetheless, the development of accountable, functional democratic institutions remains limited in many countries. State institutions often lack sufficient human and financial capacities and/or are beset by problems such as corruption and mismanagement. Enhancing democracy, the rule of law, and respect for human rights in the region have long been U.S. policy priorities, often as mandated by Congress. U.S. efforts to promote democracy, human rights, and economic development on the continent have been pursued through the use of diplomacy, foreign aid or restrictions on assistance, preferential tariff treatment, or the sanctioning or prosecution of human rights violators, often under close congressional oversight. Armed conflict and instability continue to threaten regional security, impede development, and contribute to widespread human suffering and humanitarian crises. Long-running civil conflicts continue to affect parts of the Democratic Republic of Congo (DRC), Somalia, and Sudan, while newer conflicts have unfolded in recent years in the Lake Chad Basin, the Central African Republic (CAR), Mali, and South Sudan. In a number of African countries, porous borders, weak state institutions, and corruption have created permissive environments for transnational threats, including terrorism, illicit trafficking, and maritime piracy. Three African countries—South Sudan, Nigeria, and Somalia—face famine or a credible risk of famine in 2017; in each case, security-related restrictions have hindered humanitarian access to the affected populations. The Obama Administration pursued several global development initiatives that sought to benefit Africa, as well as a number of Africa-specific initiatives and major programs. In 2012, the Obama Administration released a policy document entitled U.S. Strategy Toward Sub-Saharan Africa , which prioritized as U.S. goals the strengthening of democratic institutions; the expansion of economic growth, trade, and investment; the advancement of peace and security; and the promotion of opportunity and development. The document did not represent a dramatic departure from traditional U.S. policy goals in Africa, but it signaled a high-level effort to promote an integrated, comprehensive U.S. approach toward sub-Saharan Africa. Analysts continue to debate whether that Strategy reflected an appropriate mix and ranking of priorities, and the degree to which the Obama Administration's actions reflected its stated goals. Trump Administration views on many U.S.-Africa policy issues have not been publicly stated. In his first weeks in office, President Trump called the presidents of several key African states, including South Africa, Nigeria, and Kenya. Nationals of two African countries, Somalia and Sudan, are subject to a revised Executive Order on immigration signed by President Trump in March 2017 that temporarily suspends, with some exceptions, entry into the United States by nationals of six countries identified as presenting a security threat. Other Administration priorities remain unspecified, and may be contingent on forthcoming senior official appointments. Starting in the early 2000s, many countries in sub-Saharan Africa exhibited high rates of annual economic growth, albeit starting from a low base by global standards. These trends spurred middle class expansion in some countries, a rapid spread in access to digital communications, and infrastructure construction. Health indicators improved, as did primary school enrollment rates. Poverty alleviation was more limited than in other developing-country regions with similar growth rates, however, and many African economies continue to face diverse structural challenges. Most African countries failed to achieve most of the U.N. Millennium Development Goals by the deadline of 2015. Many countries have confronted economic headwinds since 2015. African countries that rely on raw commodity exports, for instance, have suffered declining growth due to generally weak global commodity prices, even as low oil prices have aided countries that are net energy importers. Notably, Africa's largest economy, Nigeria, a major oil exporter, experienced a recession in 2016—its worst economic contraction since 1987, according to World Bank data. A previous trend in which African governments sought to access financing through international bond offerings has slowed in the face of low growth and increasing public deficits in several countries. Some economic challenges are weather-related: since 2015, countries in Southern Africa and the Horn of Africa have faced food security crises and low growth due to drought associated with the El Niño weather phenomenon. Economic growth rates and the quality of economic policy performance vary widely among countries in the region, and generalizations about trends in the region often do not hold true for specific countries. The International Monetary Fund (IMF) in late 2016 described the region's outlook as one of "multispeed growth," with growth projections in commodity exporting countries revised downward to reflect weak global commodity prices but with continued robust growth expected in the region's non-resource exporters. In countries that have experienced growth, rising national incomes have often not been equally distributed or inclusive, and in many countries the informal sector remains large and unemployment rates high. In addition, growth has not always been effectively marshalled to address the region's development challenges. Income increases have often not been as significant in real terms as growth rates suggest. For example, one sub-Saharan African country (the Seychelles) qualifies as "high income" as defined by the World Bank; seven more (Angola, Botswana, Equatorial Guinea, Gabon, Mauritius, Namibia, and South Africa) qualify as "upper-middle-income" economies—although wealth is unequally distributed and welfare indicators remain low in several of these countries. All other countries in the region are either "lower-middle-income" or "low-income." On a per-capita basis and by other measures, Africa remains among the poorest global regions. According to United Nations (U.N.) data, as of 2015, 41% of the population in sub-Saharan Africa lived on less than $1.25 per day. Africa was also the most malnourished region in the world, with an under-nourishment prevalence rate of 23%. Many countries lack the institutional capacity to provide effective public services (e.g., healthcare and education) or public goods (e.g., electricity and transportation infrastructure) considered necessary for sustained growth and human development. Corruption and insecurity hinder improvements in many countries. Consequently, despite considerable progress in certain areas—particularly related to combatting communicable disease, reducing infant and child mortality, and improving life expectancy—the region continues to face significant human development challenges. Africa's maternal mortality rates remain the highest of any region in the world; in 2015, the region accounted for almost two-thirds of all maternal deaths globally. Africa's child mortality and stunted growth prevalence rates are also the highest in the world, as are rates of HIV/AIDS, tuberculosis, and malaria. Ensuring access to improved drinking water and sanitation facilities continues to pose a steep challenge: the World Health Organization (WHO) reports that in 2012, 45% of all deaths due to exposure to unsafe water (largely attributable to infectious disease) occurred in Africa. The provision of quality education is another major challenge facing the region, notwithstanding marked gains in primary school enrollment and youth literacy rates across the continent. The U.N. estimates that one-third of children between the ages of 12 and 14 and more than half of children between the ages of 15 and 17 in Africa are not in school. One-third of those enrolled fail to complete primary education. Literacy rates continue to lag behind those of other regions: in 2015, the average youth literacy rate in sub-Saharan African countries for which data were available was just under 70%, as compared to an average of 88% in other developing countries. African girls continue to be disproportionately excluded from school, despite considerable progress. Africa's gap between male and female literacy is the highest of any region. Africa also has a proportionally large youth population. According to U.S. Census estimates, in 2016, 60% of the population in sub-Saharan Africa was aged 24 or younger, and the proportion was significantly higher in some sub-regions. While youthful populations hold significant socioeconomic promise, realizing their potential presents governments with profound challenges related to the provision of education, job creation, and socio-political enfranchisement. The risk to governments that do not meet such challenges is high. In many countries, youth are a major source of dissent and protest and, in some cases, instability. Youth recruitment into armed groups has contributed to the persistence of armed conflicts throughout the region. As of 2016, the United States ran a goods trade deficit ($-6.5 billion) with sub-Saharan Africa, importing $20.1 billion worth of goods, and exporting $13.6 billion. Major U.S. exports to Africa are diverse. They include machinery, vehicles, refined fuel products, aircraft, and wheat. Oil constitutes the largest share of U.S. imports from Africa, although U.S. energy imports from Africa have declined dramatically in both value and volume as U.S. domestic energy production has grown and global energy prices have declined. From 2011 to 2016, U.S. crude oil imports from the region fell from $56.4 billion to $7.2 billion. Key nonenergy U.S. imports include metals, vehicles, and cocoa. Nigeria and South Africa have the continent's largest economies and are sub-Saharan Africa's largest U.S. trade partners, accounting for roughly half of all such trade. Nigeria has historically been a major oil exporter to the United States. The stock of U.S. foreign direct investment (FDI) in the region is concentrated in a few countries, including Mauritius ($6.9 billion in 2015, the last year for which data are available), South Africa ($5.6 billion), Nigeria ($5.5 billion), and Equatorial Guinea ($4.2 billion). The stock of sub-Saharan African FDI in the United States is relatively small, totaling less than $1 billion, with Liberia ($500 million), Mauritius ($385 million), and Angola ($207 million) accounting for the bulk of such activity. U.S. trade and investment policy toward Africa is focused on encouraging economic growth and development through trade within the region, with the United States, and internationally. The U.S. government also seeks to facilitate U.S. firms' access to future opportunities for trade and investment in Africa. A growing number of Members of Congress have supported expanded efforts to pursue such goals, and multiple committees have held hearings addressing these topics in recent years. Africa is a key supplier of some U.S. natural resource imports, such as oil, minerals, and metals, and improving economic and political climates in some African countries have led to increasing interest in the region as a destination for U.S. goods, services, and investment. Despite these trends, many U.S. businesses remain skeptical of the region's investment and trade potential and focus their investment interest in regions thought to offer more opportunity and less risk. Many avoid engaging in business in Africa due to the daunting economic governance challenges that a number of African countries continue to confront, the relative difficulty of doing business in many African countries, and in some instances, political instability. To some extent, the lack of U.S. business interest may also stem from lack of knowledge about opportunities, challenges, and differences among African countries and, in some cases, from negative perceptions of the region. Despite impressive economic growth in many African countries in recent years, several factors continue to hamper the region's business climate and economic potential. Key factors include the following: Infrastructure . Africa has poor electrical, transportation, and maritime infrastructure. Roads, when present, are often unpaved and poorly maintained, rail networks are unreliable and limited, and ports are inefficient and lack capacity. These problems increase production and transportation costs, harm product quality, and lead to shipment delays. Market size. Low per capita incomes across much of Africa limit domestic demand. Efforts to deepen regional and sub-regional integration and thereby boost market size and diversity vary considerably among regions and in their relative effectiveness. As a result, most foreign business interest in sub-Saharan Africa continues to focus on the region's major economies, such as South Africa, Nigeria, and Kenya. Labor force. Much of the region suffers from a scarcity of skilled labor owing to under-investment in education. Further, in many countries, low-skill agriculture production (including subsistence agriculture) remains the principal form of employment; by some estimates, farming provides up to 60% of all jobs on the continent. Economic diversification and value chain enhancement . Many economies in Africa remain highly dependent on labor-intensive, small-scale, and often low-profit and highly variable rain-fed agricultural production, or on exports of unrefined commodities, especially in the energy, mining, and agricultural sectors. Many countries have also failed to pursue value-added processing and production. This has often limited growth potential, inhibited business sector development, constrained market size and complexity, and undermined the growth of skilled work forces. The result has been unrealized potential income earnings and low levels of competitiveness vis-à-vis other world regions. Access to inputs. Capital markets and markets for other inputs, such as spare parts and manufacturing supplies, are limited compared with other regions. Such shortfalls increase production costs and inhibit growth of integrated manufacturing sectors and cross-sectoral linkages. Regulatory and legal environments. Governments have often provided an inadequate enabling environment for private sector activity, including through failing to enforce contracts or protect property rights. Corruption also remains a challenge. Inefficient cross-border trade procedures and a lack of trade regulation and tariff harmonization also often impose high costs on import and export flows, both within Africa and with other regions. Political instability and security. Many countries continue to be beset by political instability and conflict, undermining business confidence in the region. President Obama's Africa Strategy emphasized the need to improve legal, regulatory, and institutional frameworks to enable trade and investment; economic governance and regional economic and trade integration; and African capacity to access and participate in global markets. The African Growth and Opportunity Act (AGOA, see below) has been the cornerstone of U.S.-Africa trade policy since it was established by Congress in 2000. Working with Congress to secure a long and timely reauthorization of AGOA in 2015 was a key focus of the Obama Administration. To advance its goals for African trade and investment, the Obama Administration also launched the Doing Business in Africa campaign and the Trade Africa Initiative. Efforts initiated prior to the Obama presidency include three African trade hubs established by the George W. Bush Administration that work to increase African producers' export competitiveness and increase the use of AGOA. The Obama Administration sought to transform these hubs into two-way U.S.-Africa trade and investment centers, in addition to their prior mandates to increase intraregional trade and economic integration and exports to the United States under AGOA, among other ends. This was done to facilitate U.S. trade and investment in the region and support broader U.S.-African business linkages. Several U.S. agencies have also provided trade capacity building (TCB) programs in Africa not directly related to AGOA. Other U.S. trade and investment policy tools in place with African countries include Trade and Investment Framework Agreements (TIFAs)—intergovernmental forums for dialogue on trade and investment issues—and bilateral investment treaties, which advance rules to facilitate and protect foreign investment. The United States has a Free Trade Agreement (FTA) with Morocco, in North Africa, but there are no existing U.S. FTAs with sub-Saharan African countries. Negotiations on a potential U.S.-Southern African Customs Union (SACU) FTA were initiated in 2003 but suspended in 2006 due to divergent views on the agreement's scope. In September 2016, the Obama Administration released a "Beyond AGOA" report examining potential next steps to move U.S. trade and investment policy toward more reciprocal agreements with the region. A key challenge identified in the report was economic diversity among African countries and varying levels of interest and capacity to undertake FTA commitments, which typically include comprehensive tariff coverage as well as protections for intellectual property rights, investment, worker rights, and the environment, among others. The report also highlighted the need to ensure that U.S. trade policy in the region continues to support ongoing regional integration efforts and to promote diversified and greater value-added production and broader economic reforms. Determining whether and how to advance U.S. trade relations beyond unilateral trade preferences, particularly with the larger sub-Saharan African economies, is an ongoing policy question for the Trump Administration and the 115 th Congress. AGOA (Title I, P.L. 106-200 , as amended) is a nonreciprocal U.S. trade preference program that provides duty-free tariff treatment on certain imports from eligible sub-Saharan African countries. Congress first passed AGOA in 2000 as part of an ongoing U.S. effort to promote African development, deepen economic integration within the region, and strengthen U.S.-African trade and investment ties. The Trade Preferences Extension Act of 2015 ( P.L. 114-27 ) extended AGOA's authorization for an unprecedented 10 years to September 2025. U.S. trade with Africa has fluctuated considerably since 2001, the first full year AGOA was in effect. Trade in energy products dominates U.S. trade flows with the region and accounts for much of the variation—U.S. energy imports rose from $15 billion in 2001 to $72 billion in 2008 and have since declined to $8 billion in 2016. Most analysts, however, focus on AGOA and its relation to nonenergy trade as a potential catalyst for economic development in Africa. U.S. imports of such products from the region nearly doubled between 2001 and 2016 ($7 billion to $12 billion). Total U.S. imports under AGOA were $10.6 billion in 2016, but a handful of countries and products account for the bulk of these imports. Despite the decline in recent years, energy products, mostly crude oil, remain the top import under AGOA (62% of the total in 2016). The remaining $4.2 billion in nonenergy imports under AGOA comes largely from South Africa ($2.8 billion), which exports the most diverse range of products, including motor vehicles, under the preference program. Kenya, Lesotho, and Mauritius export primarily apparel products under AGOA, and together account for nearly $900 million of U.S. nonenergy AGOA imports. The remaining 34 AGOA beneficiary countries together accounted for 10% or $428 million of U.S. nonenergy imports under the program in 2016. AGOA also requires the President, in consultation with Congress and AGOA beneficiary governments, to hold an annual U.S.-Africa Trade and Economic Cooperation Forum. The original AGOA legislation states that the purpose of the Forum, which is held in alternate years in the United States and Africa, is to "discuss expanding [U.S.-Africa] trade and investment relations" and to encourage "joint ventures between small and large businesses," as well as to foster the broader goals of AGOA. Civil society and private sector events are typically held in conjunction with the Forum. The 15 th Forum was held in September 2016 in Washington, DC. In addition, AGOA directs the President to provide U.S. government technical and trade capacity building (TCB) assistance aimed at developing stronger trade linkages between U.S. and African firms and promoting AGOA beneficiary countries' abilities to engage in international trade. AGOA has been amended six times since its initial passage. The June 2015 reauthorization included an extension of two critical components: the apparel provision, which allows for duty-free treatment of eligible apparel items, and the third-country fabric provision, which enables African firms to assemble textiles and apparel products with fabric from other regions and export them to the United States duty-free. Other key provisions of the reauthorization include the following: Rules of origin . Determine if a product originates from a beneficiary AGOA country and is eligible for duty-free treatment. The origin rules are broadened to allow for greater cumulation (i.e., use of inputs from peer AGOA countries) to promote value-added processing across beneficiary countries. Country eligibility reviews . Codifies the U.S. Trade Representative (USTR) annual review process on AGOA country compliance with certain eligibility criteria. The process includes an annual public comment period and hearing, a public petition process for input on eligibility compliance, and an out-of-cycle review process. It also required an out-of-cycle review of South Africa's AGOA eligibility. South Africa ultimately maintained its AGOA eligibility, but only after removing certain import restrictions on U.S. agricultural exports, as stipulated in the review. Termination and partial withdrawal . Requires USTR to notify Congress 60 days before any eligibility termination, and provides additional alternatives to termination, including partial withdrawal of preferences. Utilization strategies . AGOA utilization is heavily concentrated in select countries and products. The legislation encourages beneficiary countries and regional economic communities to develop AGOA utilization strategies and directs U.S. trade capacity building agencies to assist in strategy development. Role of women in development . States AGOA policy promoting the role of women in development and clarifies that AGOA eligibility requires protecting private property rights "for men and women." Other trade and investment agreements . Promotes the negotiation of other trade and investment agreements with AGOA countries, including a specific plan for free trade agreements. Also encourages implementation of WTO commitments, and stipulates objection to third-party agreements not covering substantially all trade. The original AGOA legislation similarly mandated potential FTA negotiations, but such efforts were ultimately unsuccessful. Agriculture capacity building funding . Requires the President to identify African countries with the greatest potential to increase agriculture exports and increases, from 20 to 30, workers required to assist AGOA agriculture exporters in meeting U.S. laws. Reporting requirements . Reinstates a previous AGOA requirement for a report within one year of passage, and biennially thereafter, addressing overall U.S. trade and investment relations with Africa, changes in country AGOA eligibility, the status of regional integration efforts, and a summary of U.S. trade capacity building efforts. The first report was released in June 2016. Types of government and levels of democratic accountability vary widely among sub-Saharan Africa's 49 countries. Democracy, rule of law, and human rights trends have long been a prominent focus of U.S. policy toward Africa, in part due to congressional interest and legislation. Democratic P rogress. Since the early 1990s, nearly all African countries have transitioned from military or single-party rule to at least nominally multiparty political systems in which elections are regularly held. Countries such as Senegal, Cabo Verde, and Ghana have had multiple peaceful, democratic transfers of power. Several southern African states, such as South Africa, Botswana, and Namibia, have developed strong institutions, though their political systems remain dominated by single parties that, in a number of cases, were born of liberation struggles against colonial or white-minority rule. Nigeria's 2015 elections were widely viewed as historic, marking the country's first peaceful transition of power from an incumbent president to an opposition candidate. The departures of long-serving leaders in Burkina Faso in 2014 and The Gambia in 2017 have also been heralded as positive signs of democratic progress in West Africa. Challenges to D emocracy. Despite this progress, the development of accountable democratic institutions remains limited in much of Africa. While most countries hold regular elections, many are marred by fraud, violence, or irregularities that often favor dominant political parties. Analysts have also noted a trend of "third-termism" in Africa, whereby leaders attempt to extend their mandates by circumventing, altering, or abolishing constitutional term limits (as in Burundi, the Democratic Republic of Congo, the Republic of Congo, Rwanda, and Uganda, among others). Seven African leaders have been in office for more than 30 years. In Zimbabwe, opposition to the long tenure in office of President Robert Mugabe, age 93, and dissatisfaction over poor economic conditions are generating a growing protest movement in the country, which also faces a potentially unstable succession. In countries such as Equatorial Guinea, Ethiopia, Eritrea, Rwanda, and Sudan, viable democratic competition or independent civil society activism are very limited. Some governments have used repressive laws to restrict political and media freedoms. In several other countries, such as Mali, Mauritania, Burkina Faso, and Guinea-Bissau, governments have been ousted by military coups in recent years. Weak parliamentary oversight capacity and legislative dominance by the executive branch are also problems in many African countries. Governance H urdles. Policies and budget allocations often benefit incumbent majority parties or special interests. Moreover, state institutions in Africa often fail to respond adequately to citizens' needs because they lack sufficient human and financial capacity or are beset by problems such as corruption and mismanagement. Countries such as Somalia, Sudan, South Sudan, Guinea-Bissau, Eritrea, Zimbabwe, and Burundi are ranked near the bottom of Transparency International's Corruption Perceptions Index. Endemic corruption also continues to corrode state effectiveness in Nigeria and Kenya and has challenged or dimmed the reputation of purportedly reform-oriented leaders in countries such as Liberia, Malawi, and Mali. The corrosive impacts of transnational drug trafficking have also impaired institutional capacity in some countries, notably in West Africa. The justice sector in many countries in the region is often subject to political influence and corruption; this can weaken public trust in justice and law enforcement systems and has spurred incidents of vigilante justice in many countries. Conflict and S tate C ollapse. In Somalia, the Central African Republic (CAR), and South Sudan, among other countries, state weakness and violent conflict impede the provision of even the most basic public services, and the conflicts have also resulted in widespread and severe human rights abuses. There is often a lack of accountability for such abuses, prompting international support for transitional justice processes and institutions, which seek to redress legacies of large-scale human rights violations, as a component of conflict resolution and postconflict processes. Several key tools are used by U.S. policymakers to promote democracy and human rights in Africa, including the following: Diplomacy and Report ing . U.S. diplomats often publicly criticize or condemn undemocratic actions and human rights violations in Africa, and reportedly raise human rights concerns regularly in private meetings with African leaders. Some Members of Congress likewise raise concerns directly with African leaders, or through legislation. The State Department publishes annual congressionally mandated reports on human rights conditions globally, and on other issues of concern, such as international religious freedom and trafficking in persons (TIP). Such reports both document violations and, in some cases, provide the basis for U.S. policy actions, such as restrictions on assistance. The State Department and USAID also finance international and domestic election observer missions in Africa that produce reports assessing the relative credibility of electoral contests. Foreign Aid. Multiple U.S. aid programs support African electoral institutions; train African political parties, civil society organizations, parliaments, and journalists; assist local government officials in improving service delivery; and provide expert advice to African governments considering legal changes pertaining to more accountable governance, among other areas of activity. Some U.S. security assistance programs are also designed to improve the human rights records of African security forces and/or advance the rule of law by building the capacity of judicial and law enforcement bodies Foreign Aid Restrictions. Congress has imposed human rights-related restrictions or conditions on aid to specific African countries (e.g., Ethiopia, South Sudan, Sudan, and Zimbabwe, in P.L. 114-113 ), often through the enactment of foreign aid appropriations measures. Aid to multiple African governments is also restricted due to legislation curtailing or denying certain types of aid to any country that fails to observe a range of human rights norms regarding, for instance: religious freedom (under the International Religious Freedom Act of 1998, with Sudan and Eritrea currently designated); the use of child soldiers (under the Child Soldiers Prevention Act and related legislation, with DRC, Nigeria, Rwanda, Somalia, South Sudan, and Sudan listed in 2016); and trafficking in persons (under the Trafficking Victims Protection Act and related legislation, with Burundi, CAR, Comoros, Djibouti, Equatorial Guinea, Eritrea, The Gambia, Guinea-Bissau, Mauritania, South Sudan, Sudan, and Zimbabwe listed in 2016). Sanctions. Executive orders authorize U.S. sanctions targeting individuals implicated in human rights violations and/or undermining democratic transitions or peace processes in countries including Burundi, CAR, DRC, Somalia, Sudan, South Sudan, and Zimbabwe. In January 2017, citing progress by the Sudanese government on a number of peace and humanitarian issues and cooperation with the United States on counterterrorism and regional security efforts, the Obama Administration took actions to ease sanctions on Sudan, though many restrictions remain in place. Prosecutions. The United States has helped fund special tribunals that investigated and prosecuted human rights violations in Sierra Leone, Rwanda, and Chad. The United States is not a state party to the International Criminal Court (ICC) but has provided diplomatic, informational, and logistical aid in support of some ICC prosecutions. U.S. courts have also tried some persons accused of human rights abuses in African countries, notably Rwanda and Liberia, often using violations of immigration laws as a basis for prosecution. The United States has been a proponent of the establishment by the African Union of a court to investigate abuses in South Sudan. Armed conflict and instability in parts of Africa continue to threaten regional security, impede development and investment, and contribute to widespread human suffering. This is underscored by the fact that multiple African countries rank among the most fragile states globally, according to the Fragile States Index (see Figure 2 ). A majority of the U.N.'s peacekeeping operations are located in sub-Saharan Africa, with eight missions currently authorized in the region. The U.N.-authorized African Union Mission in Somalia (AMISOM) is not U.N.-conducted, but it carries out peacekeeping activities, as well as broader stabilization and counterterrorist operations, primarily against the Al Qaeda-linked group Al Shabaab. Under the U.N. system of assessed financial contributions to peacekeeping, the United States is the top source of funding for U.N. peacekeeping missions, providing over a quarter of their cost. The United States is a major funder of regional stabilization operations in Africa, drawing on bilateral security assistance funding to prepare troop contributors and support deployment logistics. The United States also supports various conflict prevention, mitigation, and mediation efforts in Africa. In addition to intrastate conflicts and localized instability, the continent faces diverse transnational threats, which continue to pose a challenge to both African and U.S. interests. Across Africa, porous borders, weak government institutions, and corruption have created permissive environments for such threats, including operations by terrorist groups, illicit trafficking (e.g., of narcotics and people), and maritime piracy. Violent Extremism. Violent Islamist extremist groups in Northwest and East Africa—including Al Qaeda in the Islamic Maghreb (AQIM), Al Shabaab (Somalia), Boko Haram (the Lake Chad Basin region), and several emergent groups active in Mali—threaten state stability, regional security, and U.S. national security interests. While such groups have historically been most active in rural areas where there is little government presence, since 2013 there have been several mass casualty terrorist attacks targeting big city hotels, malls, and restaurants popular with Westerners (e.g., in Nairobi, Kenya; Bamako, Mali; Ouagadougou, Burkina Faso; and Grand Bassam [near Abidjan],Cote d'Ivoire). Other Transnational Threats. In some parts of the continent, weak law enforcement and justice mechanisms—as well as collusion by state actors—have allowed transnational crime networks to operate with relative impunity. In some countries, these syndicates may threaten state stability. U.S. concern has grown over potential links between Africa-based drug traffickers and terrorist groups—notably in connection with the transit through Africa of Latin American cocaine bound for Europe and Southwest Asian heroin bound for various destinations. Reported links between armed extremist or insurgent groups and wildlife trafficking networks are another growing security concern, as is a rise in illegal poaching and wildlife trafficking generally. Maritime Security. Africa's coastal waters, particularly along the Gulf of Guinea, the Gulf of Aden, and the western Indian Ocean, have been highly susceptible to illegal fishing, trafficking, and piracy in recent years. African governments have generally been unable to adequately police the region's waters. Criminal elements exploiting the absence of state controls smuggle people, drugs, and weapons, and dump hazardous waste. Maritime commerce and offshore oil production facilities in some regions have faced high rates of maritime piracy, involving both theft and kidnapping for ransom, and sabotage. Waters off Nigeria and in the broader Gulf of Guinea rank among the most dangerous in the world for acts of piracy and armed robbery at sea. While the waters off the Somali coast have seen a dramatic reduction in pirate attacks in the past five years as a result of international antipiracy efforts, analysts warn of the continued threat of piracy in the region. In March 2017, pirates seized an oil tanker off the Somali coast of the Indian Ocean, marking the first hijacking of a large commercial vessel in waters off the Somali coast since 2012. Several countries, including Sierra Leone, Liberia, and Angola, continue to rebuild after civil wars in the 1990s and early 2000s, while others, such as Cote d'Ivoire and Guinea-Bissau, confront the legacy of more recent conflicts. Meanwhile, parts of DRC, Somalia, and Sudan remain afflicted by long-running patterns of instability. Newer conflicts have broken out in recent years in CAR, Mali, and South Sudan. Other African countries, such as Ethiopia, Kenya, Mali, and the countries of the Lake Chad Basin region (Nigeria, Niger, Chad, and Cameroon) face threats from armed violent extremist or insurgent groups. Major conflicts include the following: The conflict in South Sudan , which erupted in late 2013, is of significant concern for U.S. and African policymakers. A shaky peace agreement, signed in August 2015, collapsed in July 2016, spurring a new round of violence. By some estimates, more than 50,000 people have been killed and more than 3.4 million people have been displaced. It is Africa's largest refugee crisis and the third largest in the world. Some 4.9 million people face "severe" food insecurity, with more than 100,000 experiencing famine and 1 million on the brink. The United States is South Sudan's largest bilateral donor of humanitarian aid. Conflict and insecurity persist in parts of Sudan , notably the Darfur region and Southern Kordofan and Blue Nile states. Over a decade since the United States declared that genocide was occurring in Sudan's western Darfur region, the conflict eludes resolution, and violence from 2015 into early 2016 resulted in displacement at a level not seen since the early years of the crisis. The government declared a cessation of hostilities in mid-2016, but periodic skirmishes and attacks against civilians continue. More than 3.2 million Sudanese are displaced internally and over half a million are refugees in neighboring countries. By some estimates, 5.8 million people in the country are in need of humanitarian aid. The threat posed by the insurgent and terrorist group Al Shabaab in war-torn Somalia remains severe. Drought conditions, combined with security restrictions on humanitarian access, have worsened the food security situation, and parts of Somalia face the threat of famine in 2017. Roughly 1.2 million people remain displaced in Somalia, and almost 900,000 live as refugees in neighboring countries and Yemen. Al Shabaab has demonstrated its intent and ability to conduct terrorist attacks against targets in the broader East Africa region—most notably Kenya , which has seen a significant increase in Al Shabaab attacks since 2011. Kenya, along with Uganda , Djibouti , Ethiopia , and Sierra Leone , has also been the target of terrorist attacks in retaliation for its role in AMISOM, which has led the military offensive against Al Shabaab. The 2013 rebel overthrow of CAR 's central government triggered a crisis that led to the collapse of an already fragile state. Widespread violence followed, much of it playing out along ethno-religious lines, and resulted in massive displacement and human suffering. With the support of the international community, CAR established a transitional government and held elections in early 2016, but internal stability and the continuing actions of armed groups remain a challenge. Ongoing insecurity in eastern Democratic Republic of the Congo ( DRC ) continues to pose a threat to the broader Great Lakes region, despite the presence of a U.N. peacekeeping operation with a robust mandate to disarm militias. Continuing controversy over election delays, restrictions on some opposition figures, and a bid by the incumbent regime to extend its tenure have led to mass protests that have sometimes turned violent, resulting in fatalities. The operational capacity of the Lord's Resistance Army (LRA) , a small armed group of Ugandan origin responsible for thousands of civilian kidnappings and murders, has been reduced through a combination of U.S., Ugandan, and multilateral efforts, but it continues to terrorize civilian populations in remote areas. In Burundi , President Pierre Nkurunziza's reelection to a third term in 2015, which many viewed as unconstitutional and a violation of a landmark peace accord, has sparked a violent political crisis with regional implications. In Republic of Congo , some signs point to a renewed insurgency in the wake of disputed elections in 2016 that maintained longtime leader Denis Sassou-Nguesso in office. In the Lake Chad Basin region, Boko Haram , a violent extremist group, has grown increasingly deadly in its attacks against state and civilian targets since 2010 in Nigeria , Chad , Niger , and Cameroon . Tens of thousands have been killed in Boko Haram attacks, and more than 2.6 million people have been displaced across the region. In 2015, the group formally affiliated with the Islamic State organization, although the extent of operational ties remains unclear; an apparent leadership split in 2016 raised further questions about the group's cohesion and direction. Mali continues to struggle in the wake of its 2011-2013 political, humanitarian, and security crisis, despite assistance from the French military and a U.N. peacekeeping operation. While a coalition of northern rebel groups agreed to a peace accord with the government in 2015, the complex array of underlying causes of Mali's crisis has not been resolved and security conditions have deteriorated since 2014. In addition to domestic armed groups, Malian and international troops continue to face asymmetric attacks from Islamist extremist groups. Since 2012, Mozambique has faced a low-level armed insurgency by the main opposition party, RENAMO, which, among other goals, seeks electoral reforms, the decentralization of governance, and a more prominent provincial governing role for itself. Various domestic and internationally aided efforts to negotiate an end to the conflict have yielded few tangible successes to date. Angola has also faced long-running sporadic armed rebellion by the Front for the Liberation of the Enclave of Cabinda (FLEC) in Cabinda, a small oil-rich province that is separated from the rest of Angola by the DRC. U.S. foreign aid programs aim to address Africa's many development challenges, meet urgent humanitarian needs, and improve security. Much of this aid is administered by USAID, typically under country strategies that target each country's specific development needs, as well as under multiple global and Africa-specific presidential development initiatives. The State Department administers additional programs aimed at bolstering health, encouraging the rule of law, countering trafficking, and improving military and police professionalism, often in coordination with other executive branch agencies. The Department of Defense (DOD) implements some State Department-funded assistance programs and, in certain circumstances, is authorized to provide its own assistance to foreign militaries and internal security forces. DOD also carries out military-to-military cooperation activities in many African countries. The Millennium Challenge Corporation (MCC) supports large-scale, multiyear development projects in selected countries under agreements known as Compacts. Compacts are typically five-year aid programs targeting a limited number of crucial impediments to economic growth (e.g., building roads or irrigation infrastructure) that the recipient country carries out under MCC oversight. In recent years, sub-Saharan Africa has generally received between 20% and 25% of total U.S. bilateral aid, the bulk of which supports health programs in the region. Nearly $8.27 billion in State Department and USAID-administered funds were allocated specifically for sub-Saharan Africa from FY2015 appropriations, and the initial estimate for FY2016 stood at $7.03 billion as of mid-2016—not yet including emergency food aid, which totaled $1.28 billion in FY2015 and is allocated during the year according to need. Many countries receive additional globally or functionally allocated funding, such as humanitarian and disaster aid. Some also receive MCC-funded assistance, which is not included in the above totals. The Obama Administration requested $7.10 billion specifically for Africa FY2017, not including most types of humanitarian aid or MCC funding. The United States also channels substantial aid to Africa through international financial institutions and U.N. entities. African recipients of $300 million or more in FY2015 bilateral assistance included Nigeria, Tanzania, South Africa, Uganda, Kenya, Zambia, South Sudan, Ethiopia, Mozambique, Somalia, and the Democratic Republic of Congo (see Table A-1 ). Between FY2003 and FY2010, U.S. aid to Africa grew rapidly due to global health spending increases, notably for HIV/AIDS, and to more moderate increases in economic and security aid. In recent years the topline figure has stabilized at roughly $7.5 billion to $8 billion (including food aid)—roughly seven times as large, in nominal terms, as in FY2002, when it stood at $1.1 billion. A large portion of U.S. bilateral aid to African countries is provided under presidential development initiatives. These are typically large, broad-based programs that reflect the policy priorities and program implementation approach of a particular administration. Most have a global focus, but some are targeted specifically toward Africa. Key Obama Administration initiatives with a major or sole focus on Africa included the following: The Global Health Initiative (GHI) . The GHI was created in 2009 to coordinate and integrate the implementation of three global health initiatives launched during the George W. Bush Administration: the President's Emergency Plan for AIDS Relief (PEPFAR) the President's Malaria Initiative (PMI), and the Neglected Tropical Diseases (NTD) Program. The GHI also seeks to strengthen domestic health systems in developing countries, and promotes increased country "ownership" and financing of health assistance programs that U.S. assistance has supported. Key GHI program areas include maternal and child health; family planning and reproductive health; nutrition; social services for vulnerable children; HIV/AIDS prevention, care, and treatment; and a range of disease-specific and other pandemic outbreak efforts. Feed the Future (FtF) /New Alliance. FtF is a government-wide, USAID-led initiative launched in 2009 to fulfill U.S. commitments under a global food security initiative of the Group of Eight (G-8). It seeks to reduce poverty and malnutrition by helping selected countries to improve food security, boost agricultural production, and expand related market value chains. It focuses on 19 focus countries—12 of which are in Africa—and selected regions. FtF complements the New Alliance for Food Security and Nutrition, an international initiative to promote the formation of public-private partnerships in Africa that foster agricultural policy reforms by African governments, marshal related private sector investments, and increase aid by G-8 countries. At the 2014 U.S.-Africa Leaders Summit (ALS), the Obama Administration and the AU Commission jointly announced "more than $10 billion in planned socially responsible private sector investments through the New Alliance." The Administration also pledged to provide, through FtF, 1,300 youth fellowships and training opportunities. Global Climate Change Initiative (GCCI). Africa is considered to be among the geographic regions most likely to experience negative social and environmental impacts attributable to climate change. The Obama Administration's GCCI seeks to respond to anticipated climate shocks by building social resilience and adaptation to extreme weather and climate events to reduce associated risk of damage, loss of life, and instability; promoting clean energy technologies, supportive regulatory environments, and low-emission development strategies in selected countries; and supporting environmental conservation and sustainable land and forest uses to reduce carbon emissions, preserve species, and protect biodiversity. Power Africa. Power Africa is a five-year, USAID-led, multiagency presidential initiative launched in 2013 to increase access to electricity in Africa, the most electrification-poor global region. The initiative fosters public-private partnerships, facilitates access to private and U.S. export financing, provides technical assistance for power-related projects, and supports cooperation with other international donors and development agencies. U.S. export credit agencies have set out financing targets for Power Africa, but meeting those targets depends on private business demand for their financial products. When Power Africa was first launched, it was supported with a mix of technical assistance and potential U.S. trade agency loan and financial service commitments worth up to $7.8 billion, complemented by a reported $9 billion in private sector project commitments. Key initial targets included the creation of more than 10,000 megawatts (MW) of new, cleaner electricity generation capacity and new power connections for 20 million households and businesses. During the 2014 ALS, President Obama renewed his commitment to Power Africa and announced expanded initiative goals of an aggregate of 30,000 MW in additional capacity and 60 million or more new power connections. Additionally, he pledged new technical assistance, primarily administered by USAID, of $300 million per year starting in FY2016, on top of an FY2013-FY2015 USAID total of $285 million. He also announced new private sector pledges. A 2015 White House release indicated that a mid-year total of nearly $31.5 billion had been committed to Power Africa by the private sector ($20 billion) and by other donor governments and multilateral agencies ($11.5 billion). By early 2016, USAID reported, total commitments had grown to $43 billion. Congress has shown substantial interest in the goals and implementation of Power Africa. Several bills were introduced in the 113th and 114th Congresses that sought to authorize an approach similar to that pursued under Power Africa. In early 2016, President Obama signed into law the Electrify Africa Act of 2015 (EAA, P.L. 114-121 ), which makes it U.S. policy to pursue a range of U.S. and international efforts to expand African access to power. It requires the President to submit to Congress "a comprehensive, integrated, multiyear strategy" to encourage African governments to "implement national power strategies and develop an appropriate mix of power solutions to provide access to sufficient reliable, affordable, and sustainable power in order to reduce poverty and drive economic growth and job creation." The act lays out a range of criteria that the strategy must take into account, but its approach is broadly analogous to that pursued under Power Africa. While the act did not make any new appropriations and required the Obama Administration to submit a strategy, its enactment suggests that there is broad congressional support for continuing Power Africa-like activities. Whether Congress may appropriate funding at levels similar to those allocated by the Obama Administration and whether and in what manner the Trump Administration may continue Power Africa or pursue similar activities under the EAA has yet to be determined. Trade Africa. Trade Africa is a multiagency initiative that aims to encourage U.S. private sector trade and investment activities in Africa and boost trade among African countries. In its initial phase, the program focused on the East African Community (EAC, comprising Kenya, Tanzania, Uganda, Rwanda, and Burundi), with two main goals: to deepen the U.S.-EAC Trade and Investment Partnership begun in 2012, and to establish a USAID-led East Africa Trade and Investment Hub, an expansion of an existing "trade hub." Specific program objectives included increasing EAC exports to the United States by 40%, doubling intra-EAC trade, and reducing selected intra-EAC transit times by 30%. The Obama Administration held up Trade Africa's initial phase as having contributed to "dramatic progress" in the U.S.-EAC trade relationship, which saw EAC exports to the United States increase by 24% in 2013-2014. The Obama Administration also expanded the Trade Africa initiative to several new partner countries, including Cote d'Ivoire, Ghana, Mozambique, Senegal, and Zambia. The State Department's FY2017 budget request includes $75 million in Development Assistance (DA) for Trade and Investment Capacity Building in Africa. This assistance, an expansion of Trade Africa, was designed to "improve sub-Saharan Africa's capacity for trade and export competitiveness, including trade facilitation to reduce the time and cost to trade, while increasing opportunities for U.S. businesses to positively participate in and benefit from African economic growth." Young African Leaders Initiative (YALI) . YALI, initiated by President Obama in 2010, is a joint State Department- and USAID-administered initiative that fosters the development of young African business, civic, and public management leaders through exchange-based fellowships. The initiative's flagship program, the Mandela Washington Fellowship for Young African Leaders, brings youth leaders to the United States to participate in a six-week leadership course at a partnering U.S. college or university. At the 2014 ALS, President Obama pledged that the Mandela Fellowship would be expanded from 500 participants to 1,000. He also announced that YALI would provide a set of online mentoring and networking resources for program fellows, and that the Administration would launch four Regional Leadership Centers (RLCs) to foster leadership development through trainings, networking forums, and related activities. The State Department's FY2017 budget request includes $20 million in Educational and Cultural Exchange (ECE) funding for YALI, with an additional $10 million in DA to support the RLCs, which are located in South Africa, Kenya, Ghana, and Senegal. Security Governance Initiative (SGI). Launched in 2014, SGI is a "joint endeavor between the United States and six African partners that offers a comprehensive approach to improving security sector governance and capacity to address threats." The initiative is focused on both civilian (e.g., police) and military security institutions, and on the cabinet ministries that oversee the security sector. The initial partners are Ghana, Kenya, Mali, Niger, Nigeria, and Tunisia. The Administration committed $65 million for SGI in FY2015 and $83 million per year thereafter, with no specified end-date. Country plans vary; some seek to enhance particular security agencies, while others focus on strategy formulation and planning, or interagency coordination. Objectives also vary; examples include border control and justice sector strengthening. The State Department's FY2017 request includes $14 million in Peacekeeping Operations (PKO) account funding for SGI, with additional resources expected to come from regional allocations from other accounts, such as International Narcotics Control and Law Enforcement (INCLE) funding. DOD Overseas Contingency Operations (OCO) funds have been identified as another source of requested SGI funding—DOD's FY2016 budget request included $47 million for SGI under the Counterterrorism Partnerships Fund (CTPF). African Peacekeeping Rapid Response Partnership (APRRP). Initiated in 2014, APRRP seeks to provide specific African countries with relatively high-level military capabilities for use in AU and U.N. peacekeeping deployments. Aid provided under APRRP may include equipment transfers and other support for military logistics, airlift, field hospitals, and formed police units. In the near term, APRRP is focused on six countries: Senegal, Ghana, Ethiopia, Rwanda, Tanzania, and Uganda. The Administration has committed $110 million per year for APRRP, starting in FY2015 and lasting three to five years. The FY2017 request includes that amount in PKO funding for APRRP. The United States has invested significant resources in promoting peace and stability in Africa and countering threats to U.S. interests, such as those posed by drug traffickers, pirates, and violent extremist groups. U.S. security assistance in Africa involves a range of activities, including military training and equipment programs, education and professionalization initiatives, and law enforcement assistance. U.S. security assistance has increasingly focused on building counterterrorism capacity, with significant new funding allocated through the CTPF, which was proposed by President Obama in 2014 and first authorized and funded by Congress in P.L. 113-291 and P.L. 113-235 . The Department of State and DOD each administer some types of security assistance. U.S. military advisors are also periodically deployed to work with African countries and regional organizations. The United States plays a key role in U.N. Security Council deliberations on African conflicts, notably, in recent years, on Burundi, CAR, the DRC, Mali, Somalia, and the Sudans. The United States is also a major funder of peacekeeping missions in the region, and has provided significant bilateral training, equipment, and logistical support to African militaries contributing troops to these missions. Much of this bilateral aid is provided under the State-Department-run African Contingency Operations Training and Assistance (ACOTA) program and the Global Peace Operations Initiative (GPOI). As described above, the APRRP provides additional, more advanced military capabilities to selected partner states. U.S. efforts have also sought to bolster the role of the AU and sub-regional entities in conflict mediation and peacekeeping efforts. The United States engages in a range of efforts, both military and civilian, to prevent and deter terrorism in Africa. The Obama Administration's 2015 National Security Strategy identified "violent extremists fighting governments in Somalia, Nigeria, and across the Sahel"—along with other ongoing conflicts in Africa—as "threats to innocent civilians, regional stability, and our national security." Consistent with the Administration's National Strategy for Counterterrorism , its Africa Strategy set out as a goal "disrupting, dismantling, and eventually defeating Al-Qa'ida and its affiliates and adherents in Africa," in part by strengthening the capacity of "civilian bodies to provide security for their citizens and counter violent extremism through more effective governance, development, and law enforcement efforts." In its FY2017 budget requests for foreign aid and DOD activities, the Obama Administration indicated that its counterterrorism partnership efforts in Africa sought to deny terrorists safe havens, operational bases, and recruitment opportunities. Specific efforts toward these ends included programs to build regional intelligence, military, law enforcement, and judicial capacities; strengthen aviation, port, and border security; stem terrorist financing; and counter the spread of extremist ideologies. Current U.S.-led regional counterterrorism efforts include two multifaceted interagency efforts: the Trans-Sahara Counter-Terrorism Partnership (TSCTP, established in 2005) in North-West Africa and the Partnership for Regional East Africa Counterterrorism (PREACT, established in 2009). TSCTP includes military and police train-and-equip programs and border security initiatives, justice sector support, counterradicalization programs, and public diplomacy efforts. It is led by the State Department's Africa Bureau, with USAID and DOD implementing components and playing a role in strategic guidance. Assistance to Lake Chad Basin states in countering Boko Haram has become a growing focus for TSCTP, with significant additional assistance provided under other programs. PREACT, modeled on TSCTP, is a smaller initiative that is part of a broader array of counterterrorism-related assistance efforts in East Africa, many of them bilateral. Some TSCTP and PREACT programs seek to encourage regional cooperation through multinational training events, while other TSCTP and PREACT assistance is provided to individual countries. Other U.S. regional security initiatives, such as the State Department Bureau of Counterterrorism's Regional Strategic Initiative (RSI), overlap with these programs and seek to cover some gaps, including in the Lake Chad Basin area. DOD, for its part, conducts regional operations in which U.S. military personnel work with local counterparts to improve intelligence, regional coordination, logistics, border control, and targeting, notably through surveillance assistance. U.S. Africa Command's (AFRICOM's) Theater Campaign Plan for FY2016-FY2020 identifies five key goals for the U.S. military in Africa: (1) neutralize Al Shabaab and transition the mandate of the AMISOM to the Somali government; (2) degrade violent extremist organizations in the Sahel-Maghreb and contain instability in Libya; (3) contain Boko Haram; (4) interdict illicit activity in the Gulf of Guinea and Central Africa; and (5) build African peacekeeping, humanitarian assistance, and disaster response capacities. Protecting U.S. personnel and facilities and securing U.S. access is characterized as an "enduring task" in the plan. The approach of AFRICOM, as outlined in the plan and in the command's 2016 Posture Statement, emphasizes counterterrorism cooperation with African "partners" and international allies (e.g., France and the United Kingdom), as well as with U.S. civilian agencies. The U.S. military periodically takes direct action against terrorist threats in sub-Saharan Africa, including through airborne or ground assault-based strikes on targeted terrorist group members in Somalia. It has also interdicted several suspected terrorists and extremist group interlocutors. The Obama Administration broadened its justification for direct U.S. military action in Somalia in 2015, indicating in a notification to Congress consistent with the War Powers Resolution that its operations in Somalia were carried out not only "to counter Al Qaeda and associated elements of Al Shabaab" (as previously reported), but also "in support of Somali forces, AMISOM forces, and U.S. forces in Somalia." The United States has not deployed combat troops to Somalia, but it does have U.S. military advisors posted in the country to provide support to African partners. The United States has also provided logistical and intelligence support to French military counterterrorism operations in the Sahel since 2013. A long-running contingency operation, Operation Enduring Freedom-Trans-Sahara (OEF-TS; funded annually at over $80 million), which supports TSCTP, does not limit its focus to counterterrorism, according to DOD's FY2017 budget request. Rather, it focuses on "overall security and cooperation" by "forming relationships of peace, security, and cooperation" among countries in the region. In East Africa, Operation Enduring Freedom-Horn of Africa (OEF-HOA) has a different scope, supporting activities at the U.S. military's only permanent base in Africa, in Djibouti; Special Operations Command operations in the Horn of Africa (and Afghanistan); and Intelligence, Surveillance, and Reconnaissance (ISR) operations in the region. Other ongoing operations include the deployment, since 2013, of up to 350 U.S. military personnel and surveillance assets to Niger and, since October 2015, of up to 300 U.S. military personnel and surveillance aircraft to Cameroon, to conduct intelligence, surveillance, and reconnaissance (ISR) operations. Since 2011, DOD has also provided logistics and advisory support to African forces, primarily from Uganda, to counter the LRA in Central Africa under Operation Observant Compass (OOC). DOD may provide support (up to $85 million globally) to forces (including irregular forces or nonstate groups) supporting counterterrorism operations in which U.S. special operations forces are engaged, including in Africa, as authorized via Section 1208 of the FY2005 National Defense Authorization Act ( P.L. 108-375 ), as amended. Recipients and funding levels are classified. Beyond counterterrorism missions, U.S. forces routinely conduct joint exercises with African militaries, and share disaster response, humanitarian assistance, maritime security, antipiracy, and counterterrorism skills, among others. The U.S. military has also played a role in encouraging security sector reform in some African countries, such as Liberia and DRC. A small number of U.S. military personnel are deployed on the continent with U.N peacekeeping operations. The 115 th Congress has commenced consideration of current and prospective U.S. policies toward Africa, as well as appropriations for U.S. foreign assistance, diplomacy, and military activities. These discussions are progressing in the context of the Trump Administration's release on March 16, 2017, of its FY2018 "budget blueprint," which suggests significant shifts in executive branch foreign policy priorities and foreign aid funding levels. The implications for U.S. Africa policy, U.S. diplomatic relations with African governments, and aid programs on the continent remain to be seen. Other legislative initiatives and oversight activities are also likely to shape U.S. policy toward Africa and toward specific countries, as was the case in the 114 th and previous Congresses. Congressional responses to emerging crises, such as famine concerns in three African countries, increasingly intractable conflicts in South Sudan and Mali (among others), transnational security threats, and the appropriate balance between U.S. diplomacy, development, and defense priorities in Africa, may also influence or direct U.S. policy.
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The 115th Congress and the Trump Administration are reviewing existing U.S. policies and programs in sub-Saharan Africa (henceforth, "Africa") as they establish their budgetary and policy priorities toward the region while also responding to emerging crises. Africa-specific policy questions did not feature prominently in the 2016 U.S. presidential campaign, and the views of the Trump Administration on many U.S.-Africa policy issues remain unspecified. The Obama Administration's Strategy Toward Sub-Saharan Africa identified its policy priorities as strengthening democratic institutions; spurring economic growth, trade, and investment; advancing peace and security; and promoting opportunity and development. Analysts continue to debate whether that Strategy reflected an appropriate mix and ranking of priorities, as well as the degree to which the Obama Administration's actions reflected its stated goals. Congressional action on trade and electrification projects in Africa in the 114th Congress suggested some shared priorities with the Obama Administration. The Obama Administration's efforts to promote greater private sector engagement and youth leadership in Africa won praise from various quarters. At the same time, analysts have probed whether the Obama Administration's emphasis on building democratic institutions in Africa was matched with appropriate resource allocations, and whether President Obama's stated support for democratic accountability was undermined by close U.S. partnerships with authoritarian-leaning states in East Africa and by a growing emphasis on security relationships. Africa is a top destination of U.S. foreign aid. Following significant increases during the George W. Bush Administration in the 2000s, civilian-administered aid levels allocated for African countries remained largely flat during the Obama Administration, reflecting overarching budgetary constraints among other considerations. The areas of emphasis nonetheless shifted in some ways, with new presidential development initiatives focusing on electrification, trade, agricultural development, and health system strengthening. U.S. military cooperation and Defense Department-administered security assistance spending in Africa also increased substantially, in line with new congressionally enacted authorities for defense spending as well as Administration-led peacekeeping and counterterrorism initiatives. The United States has long been a top bilateral donor of emergency humanitarian and disaster assistance in Africa, as well as the top financial contributor to U.N. peacekeeping operations, the majority of which are in Africa. The 114th Congress enacted several pieces of legislation that shaped U.S.-Africa policy and programs. These included the reauthorization of the African Growth and Opportunity Act (AGOA, P.L. 114-27), the Electrify Africa Act (P.L. 114-121), the Global Food Security Act (P.L. 114-195), the Eliminate, Neutralize, and Disrupt Wildlife Trafficking Act (P.L. 114-231), annual National Defense Authorization Acts (most recently, P.L. 114-328), and foreign aid and defense appropriations measures. Congress has also influenced U.S.-Africa policy through its oversight activities, and through Member statements and communications with the executive branch and African leaders. To inform further congressional consideration of U.S.-Africa policy issues and challenges, this report provides background on the following: Sub-Saharan Africa's development and economic challenges; U.S.-Africa trade, investment, and economic cooperation; Governance, democracy, and human rights issues; Peace and security issues; and U.S. aid to Africa and other selected U.S. responses to policy challenges.
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This report describes and analyzes annual appropriations for the Department of Homeland Security (DHS) for FY2016. It compares the enacted FY2015 appropriations for DHS, the Administration's FY2016 budget request, the appropriations proposed by Congress in response, and those enacted thus far. This report identifies additional informational resources, reports, and products on DHS appropriations that provide additional context for the discussion, and it provides a list of CRS policy experts whom clients may consult with inquiries on specific topics. The suite of CRS reports on homeland security appropriations tracks legislative action and congressional issues related to DHS appropriations, with particular attention paid to discretionary funding amounts. The reports do not provide in-depth analysis of specific issues related to mandatory funding—such as retirement pay—nor do they systematically follow other legislation related to the authorization or amending of DHS programs, activities, or fee revenues. Discussion of appropriations legislation involves a variety of specialized budgetary concepts. The Appendix to this report explains several of these concepts, including budget authority, obligations, outlays, discretionary and mandatory spending, offsetting collections, allocations, and adjustments to the discretionary spending caps under the Budget Control Act ( P.L. 112-25 ). A more complete discussion of those terms and the appropriations process in general can be found in CRS Report R42388, The Congressional Appropriations Process: An Introduction , by [author name scrubbed], and the Government Accountability Office's A Glossary of Terms Used in the Federal Budget Process . Except in summary discussions and when discussing total amounts for the bill as a whole, all amounts contained in the suite of CRS reports on homeland security appropriations represent budget authority and are rounded to the nearest million. However, for precision in percentages and totals, all calculations were performed using unrounded data. Data used in this report for FY2015 amounts are derived from the Department of Homeland Security Appropriations Act, 2015 P.L. 114-4 ) and the explanatory statement that accompanied H.R. 240 as printed in the Congressional Record of January 13, 2015, pages H275-H322. Contextual information on the FY2016 request is generally from the Budget of the United States Government, Fiscal Year 2016 , the FY2016 DHS congressional budget justifications, and the FY2016 DHS Budget in Brief . However, most data used in CRS analyses in reports on DHS appropriations is drawn from congressional documentation to ensure consistent scoring whenever possible. Data on the FY2016 budget request and Senate-reported recommended funding levels are from S. 1619 and S.Rept. 114-68 . Information on the House-reported recommended funding levels is from H.R. 3128 and H.Rept. 114-215 . Data for FY2016 are derived from P.L. 114-113 , the Omnibus Appropriations Act, 2016—Division F of which is the Homeland Security Appropriations Act, 2016—and the accompanying explanatory statement published in Books II and III of the Congressional Record for December 17, 2015. Generally, the homeland security appropriations bill includes all annual appropriations provided for DHS, allocating resources to every departmental component. Discretionary appropriations provide roughly two-thirds to three-fourths of the annual funding for DHS operations, depending how one accounts for disaster relief spending and funding for overseas contingency operations. The remainder of the budget is a mix of fee revenues, trust funds, and mandatory spending. Appropriations measures for DHS typically have been organized into five titles. The first four are thematic groupings of components: Title I, Departmental Management and Operations, the smallest of the first four titles, contains appropriations for the Office of the Secretary and Executive Management (OSEM), the Office of the Under Secretary for Management (USM), the Office of the Chief Financial Officer, the Office of the Chief Information Officer (CIO), Analysis and Operations (A&O), and the Office of the Inspector General (OIG). The Administration requested $1,396 million in FY2016 net discretionary budget authority for components included in this title. The appropriations request was $255 million (22.3%) more than was provided for FY2015. Senate-reported S. 1619 envisioned the components included in this title receiving $1,346 million in net discretionary budget authority. This would have been $50 million (3.6%) less than requested, but $205 million (18.0%) more than was provided in FY2015. House-reported H.R. 3128 envisioned the components included in this title receiving $1,217 million in net discretionary budget authority, a $179 million (12.8%) decrease from the request and $76 million (6.7%) above FY2015. Division F of P.L. 114-113 included $1,546 million in net discretionary budget authority for the components in this title, a $150 million (10.7%) increase from the request and $405 million (35.5%) above FY2015. Title II, Security, Enforcement, and Investigations, comprising roughly three-quarters of the funding appropriated for the department, contains appropriations for Customs and Border Protection (CBP), Immigration and Customs Enforcement (ICE), the Transportation Security Administration (TSA), the Coast Guard (USCG), and the Secret Service. The Administration requested $32,481 million in FY2016 net discretionary budget authority for components included in this title, as part of a total budget for these components of $39,431 million for FY2016. The appropriations request was $807 million (2.5%) more than was provided for FY2015. Senate-reported S. 1619 envisioned the components included in this title receiving $32,484 million in net discretionary budget authority. This would have been $3 million (0.01%) more than requested, and $810 million (2.6%) more than was provided in FY2015. House-reported H.R. 3128 envisioned the components included in this title receiving $32,182 million in net discretionary budget authority. This would have been $299 million (0.9%) less than requested, and $508 million (1.6%) more than was provided in FY2015. Division F of P.L. 114-113 included $33,062 million in net discretionary budget authority for the components in this title, a $581 million (1.8%) increase from the request and $1,388 million (4.4%) above FY2015. Title III, Protection, Preparedness, Response, and Recovery, the second-largest of the first four titles, contains appropriations for the National Protection and Programs Directorate (NPPD), the Office of Health Affairs (OHA), and the Federal Emergency Management Agency (FEMA). The Administration requested $6,222 million in FY2016 net discretionary budget authority for components included in this title, as part of a total budget for these components of $19,020 million for FY2016. The appropriations request was $267 million (4.5%) more than was provided for FY2015. Senate-reported S. 1619 envisioned the components included in this title receiving $6,291 million in net discretionary budget authority. This would have been $69 million (1.1%) more than requested, and $336 million (5.6%) more than was provided in FY2015. House-reported H.R. 3128 envisioned the components included in this title receiving $6,122 million in net discretionary budget authority. This would have been $100 million (1.6%) less than requested, and $167 million (2.8%) more than was provided in FY2015. Division F of P.L. 114-113 included $6,353 in net discretionary budget authority for the components in this title, a $131 million (2.1%) increase from the request and $398 million (6.7%) above FY2015. Title IV, Research and Development, Training, and Services, the second-smallest of the first four titles, contains appropriations for the U.S. Citizenship and Immigration Services (USCIS), the Federal Law Enforcement Training Center (FLETC), the Science and Technology Directorate (S&T), and the Domestic Nuclear Detection Office (DNDO). The Administration requested $1,554 million in FY2016 net discretionary budget authority for components included in this title, as part of a total budget for these components of $5,427 million for FY2016. The appropriations request was $251 million (13.9%) less than was provided for FY2015. Senate-reported S. 1619 envisioned the components included in this title receiving $1,451 million in net discretionary budget authority. This would have been $103 million (6.6%) less than requested, and $344 million (19.2%) less than was provided in FY2015. House-reported H.R. 3128 envisioned the components included in this title receiving $1,503 million in net discretionary budget authority. This would have been $51 million (3.3%) less than requested, and $302 million (16.3%) less than was provided in FY2015. Division F of P.L. 114-113 included $1,499 in net discretionary budget authority for the components in this title, a $55 million (2.2%) decrease from the request and $296 million (16.5%) below FY2015. A fifth title contains general provisions, the impact of which may reach across the entire department, impact multiple components, or focus on a single activity. Rescissions of prior-year appropriations—cancellations of budget authority that reduce the net funding level in the bill—are found here. The Administration proposed rescinding $255 million in prior-year appropriations as part of its FY2016 budget request. Senate-reported S. 1619 included $1,359 million in rescissions, while House-reported H.R. 3128 included $1,692 million. Division F of P.L. 114-113 included $1,506 million in rescissions. The following tables present comparisons of FY2015 enacted and FY2016 requested, House and Senate appropriations committee-reported, and enacted appropriations for the department by thematic grouping. References to titles refer to the organization of the funding in the FY2016 appropriations cycle, not the Administration's budget request. The tables summarize the appropriations provided for each component, subtotaling the resources provided through the appropriations legislation. Indented text and bracketed numbers indicate resources either provided through provisions separate from the base appropriations for the component, or that do not count as net discretionary budget authority (see below). A subtotal for each component of total estimated resources that would be available under the legislation and from other sources (such as fees, mandatory spending, and trust funds) for the given fiscal year is also provided. At the bottom of each table, three totals indicate the total for the title on its own, the total for title's components in the entire bill, and the projected total FY2016 funding for the title's components from all sources (such as fees not governed by the bill, trust funds, etc.). Most of the DHS budget is outside of the defense budget function (050). As a result, the department competes with the rest of the federal nondefense budget for discretionary spending allocations under the budget controls imposed by the Budget Control Act. The funding to be allocated among the appropriations subcommittees is not anticipated to rise at the same rate as envisioned in the Administration's budget request. House Homeland Security Subcommittee Chairman John Carter described the tension this creates at a subcommittee hearing on the request: To begin, the $1.5 billion increase [proposed for DHS] absorbs almost 75% of non-defense, discretionary spending available under the limits of the Budget Control Act of 2013. Mr. Secretary … the Congress intends to live within the confines of the law even if the Administration does not. As a result, I doubt DHS's budget will rise as steeply as the request proposes. The Administration proposed a 1.3% pay increase for all civilian federal employees and members of the military in its FY2016 budget request. Almost all DHS employees are considered civilians, with the significant exception of Coast Guard military personnel. The Senate Appropriations Committee report stated that "the committee assumes the COLA for civilian employees across the Department will be absorbed within amounts appropriated in this act." Likewise, the House Appropriations committee report indicated that funding was not provided for the civilian pay increase, but that if the Administration provides a civilian pay increase that it would "be absorbed within other amounts appropriated for FY2016." The House Appropriations Committee report indicated that the military pay raise was fully funded. The explanatory statement accompanying the omnibus did not provide further guidance or contradict any of the above directions. Executive Order 13715 issued by President Barack Obama on December 18, 2015, authorized a 1.3% pay adjustment for almost all federal civilian employees effective in January 2016. The FY2016 Homeland Security Appropriations Act included a general provision that had been carried in both House- and Senate-reported bills that prohibited the obligation of appropriated funds for any structural pay reform that affects more than 100 full-time positions or costs more than $5 million in a single year until the end of the 30-day period that begins when the Secretary notifies Congress about (1) the number of FTE positions affected by the change, (2) funding required for the change for the current year and through the Future Years Homeland Security Program, (3) the justification for the change, and (4) an analysis of the compensation alternatives to the change that the department considered. The Senate Appropriations Committee report stated that although Congress has provided for the increased personnel that the department has consistently requested, "DHS has failed to bring those funded positions on board for a myriad of reasons including delays in obtaining suitability determinations and a backlog in polygraphs." According to the committee, hiring difficulties are exacerbated by qualified applicants who have withdrawn from the process or accepted other positions by the time an offer of employment is made. Hiring times have increased department-wide (from 146 days in 2013 to 163 days in 2014) and at CBP (from 278 days in 2013 to 308 days in 2014). While noting that the U.S. Secret Service improved its hiring times (from 327 days in 2013 to 295 days in 2014), the committee report stated that the hiring process "still takes an inordinately long time." The Senate report directed the department to report on its strategy to reduce hiring times and time to hire statistics within 60 days after the act's enactment. In addition, DHS and its major components were directed to develop metrics to track the status of hiring actions, including measuring the time spent on actions within each step of the process. The USM was directed to provide a briefing on the development of the metrics within 90 days after the act's enactment. According to the House Appropriations Committee report, "Chronic and systemic personnel shortfalls and lengthy hiring times jeopardize DHS's homeland security mission" and attrition rates are outpacing hiring in several components of the department. The report stated that DHS expects to end FY2015 "more than 6,000 FTEs below the number for which funds were provided" and would have to hire more than 7,000 FTEs between July 2015 and September 30, 2015, to reach the FTE level requested for FY2016. Given these circumstances, the report states that, for FY2016, "the Committee is unconvinced DHS will be able to spend the funds requested in the budget" and therefore, "reduce[d] funding in various agencies to reflect a more realistic and achievable number of FTEs." Going forward, the House report mandated two actions. First, the USM was directed to prepare "a root cause analysis" of the attrition and hiring shortfalls, "develop a corrective action plan" that will include metrics to measure the outcomes of initiatives, and provide monthly updates, beginning on January 15, 2016, to the committee on the results of the initiatives. Second, the department was again directed to provide a report, on a strategy for reducing hiring times and provide data on those hiring times by component, by quarter, within 30 days after the act's enactment and thereafter, each quarter. The committee required that the report include additional content on hiring times and metrics. The explanatory statement accompanying the omnibus repeated the direction for DHS to produce a root cause analysis for the delays in hiring and a corrective action plan, and mandated that reporting on the corrective action plan and hiring metrics begin on January 15, 2016, and that monthly reports on the metrics continue until further notice. Outside the appropriations process, in September 2015, the Office of Personnel Management granted DHS special "Schedule A" authority to expedite the hiring of up to 1,000 cybersecurity professionals until June 30, 2016, or new streamlined regulations are implemented. Schedule A allows for streamlined and tailored recruiting and expedited hiring in cases where it is not practicable to apply competitive service qualification standards and requirements. The Senate Appropriations Committee report stated that the committee seeks "to understand how the Department proposes to balance real technology needs against manpower costs" and has requested "reports and briefings on the right balance of people, technology, and infrastructure" to support DHS operations. The House Appropriations Committee report asserts that "the lack of a rigorous and consistent methodology to determine" the department's personnel requirements and costs is a "strategic problem." To address this matter, the committee directed USM to require the OCFO "to conduct an analysis of force structure that identifies the operations in which DHS personnel are expected to perform, the effects they must achieve, the attributes the forces must possess, and what kind and size of force is needed to execute the operations successfully." The committee also directed that the OCFO provide quarterly briefings on the progress of the study and apply recommendations from its analysis to the FY2018 budget request, with personnel funding shortfalls noted. The explanatory statement accompanying the consolidated appropriations act directed the CFO to "conduct a department-wide force structure analysis to inform component-level staffing and budget requirements not later than the fiscal year 2019 budget request." Several DHS components have specific limitations placed on their funding for "reception and representation expenses." These limits range from $2,000 for the Office of the Under Secretary for Management in House-reported H.R. 3128 to $34,425 for Customs and Border protection in both Senate and House-reported bills. Thirteen such limitations, totaling $177,505, appear in Senate-reported S. 1619 , and 14 such limitations, totaling $166,955, appear in House-reported H.R. 3128 . Aside from the specific direction provided in the Senate- and House-reported legislation, both committee reports provided additional direction. The Senate Appropriations Committee report continued to require quarterly reports on obligations for all reception and representation expenses and stated that the funds should not be used "to purchase unnecessary collectibles or memorabilia." The House committee report directed the department to review representation allowances for all DHS agencies to ensure the equitable alignment of funds with responsibilities, and submit any proposed changes with the FY2017 budget request. The Homeland Security Appropriations Act, 2016, included thirteen specific allocations of official reception and representation expenses, totaling $169,655. No additional direction was provided in the explanatory statement. For additional perspectives on FY2016 DHS appropriations, see the following: CRS Report R44186, DHS Appropriations FY2016: Departmental Management and Operations ; CRS Report R44215, DHS Appropriations FY2016: Security, Enforcement and Investigations ; CRS Report R44182, DHS Appropriations FY2016: Protection, Preparedness, Response, and Recovery ; CRS Report R44183, DHS Appropriations FY2016: Research and Development, Training, and Services ; CRS Report R44048, Trends in the Timing and Size of DHS Appropriations: In Brief ; CRS Report R44051, Comparing DHS Appropriations by Component, FY2016: Fact Sheet ; and CRS Report R44052, DHS Budget v. DHS Appropriations: Fact Sheet . Readers also may wish to consult CRS's experts directly. The following table lists names and contact information for the CRS analysts and specialists who contribute to CRS DHS appropriations reports: Budget Authority, Obligations, and Outlays Federal government spending involves a multistep process that begins with the enactment of budget authority by Congress. Federal agencies then obligate funds from enacted budget authority to pay for their activities. Finally, payments are made to liquidate those obligations; the actual payment amounts are reflected in the budget as outlays. Budget authority is established through appropriations acts or direct spending legislation and determines the amounts that are available for federal agencies to spend. The Antideficiency Act prohibits federal agencies from obligating more funds than the budget authority enacted by Congress. Budget authority also may be indefinite, as when Congress enacts language providing "such sums as may be necessary" to complete a project or purpose. Budget authority may be available on a one-year, multiyear, or no-year basis. One-year budget authority is only available for obligation during a specific fiscal year; any unobligated funds at the end of that year are no longer available for spending. Multiyear budget authority specifies a range of time during which funds may be obligated for spending, and no-year budget authority is available for obligation for an indefinite period of time. Obligations are incurred when federal agencies employ personnel, enter into contracts, receive services, and engage in similar transactions in a given fiscal year. Outlays are the funds that are actually spent during the fiscal year. Because multiyear and no-year budget authorities may be obligated over a number of years, outlays do not always match the budget authority enacted in a given year. Additionally, budget authority may be obligated in one fiscal year but spent in a future fiscal year, especially with certain contracts. In sum, budget authority allows federal agencies to incur obligations and authorizes payments, or outlays, to be made from the Treasury. Discretionary agencies and programs, and appropriated entitlement programs, are funded each year in appropriations acts. Discretionary and Mandatory Spending Gross budget authority , or the total funds available for spending by a federal agency, may be composed of discretionary and mandatory spending. Discretionary spending is not mandated by existing law and is thus appropriated yearly by Congress through appropriations acts. The Budget Enforcement Act of 1990 defines discretionary appropriations as budget authority provided in annual appropriations acts and the outlays derived from that authority, but it excludes appropriations for entitlements. Mandatory spending , also known as direct spending , consists of budget authority and resulting outlays provided in laws other than appropriations acts and is typically not appropriated each year. Some mandatory entitlement programs, however, must be appropriated each year and are included in appropriations acts. Within DHS, Coast Guard retirement pay is an example of appropriated mandatory spending. Offsetting Collections Offsetting funds are collected by the federal government, either from government accounts or the public, as part of a business-type transaction such as collection of a fee. These funds are not considered federal revenue. Instead, they are counted as negative outlays. DHS net discretionary budget authority , or the total funds that are appropriated by Congress each year, is composed of discretionary spending minus any fee or fund collections that offset discretionary spending. Some collections offset a portion of an agency's discretionary budget authority. Other collections offset an agency's mandatory spending. These mandatory spending elements are typically entitlement programs under which individuals, businesses, or units of government that meet the requirements or qualifications established by law are entitled to receive certain payments if they establish eligibility. The DHS budget features two mandatory entitlement programs: the Secret Service and the Coast Guard retired pay accounts (pensions). Some entitlements are funded by permanent appropriations, and others are funded by annual appropriations. Secret Service retirement pay is a permanent appropriation and, as such, is not annually appropriated. In contrast, Coast Guard retirement pay is annually appropriated. In addition to these entitlements, the DHS budget contains offsetting Trust and Public Enterprise Funds. These funds are not appropriated by Congress. They are available for obligation and included in the President's budget to calculate the gross budget authority. 302(a) and 302(b) Allocations In general practice, the maximum budget authority for annual appropriations (including DHS) is determined through a two-stage congressional budget process. In the first stage, Congress sets overall spending totals in the annual concurrent resolution on the budget. Subsequently, these totals are allocated among the appropriations committees, usually through the statement of managers for the conference report on the budget resolution. These amounts are known as the 302(a) allocations . They include discretionary totals available to the House and Senate Committees on Appropriations for enactment in annual appropriations bills through the subcommittees responsible for the development of the bills. In the second stage of the process, the appropriations committees allocate the 302(a) discretionary funds among their subcommittees for each of the appropriations bills. These amounts are known as the 302(b) allocations . These allocations must add up to no more than the 302(a) discretionary allocation and form the basis for enforcing budget discipline, since any bill reported with a total above the ceiling is subject to a point of order. The 302(b) allocations may be adjusted during the year by the respective Appropriations Committee issuing a report delineating the revised suballocations as the various appropriations bills progress toward final enactment. No subcommittee allocations are developed for conference reports or enacted appropriations bills. Table A-1 shows comparable figures for the 302(b) allocation for FY2015, based on P.L. 114-4 , the President's request for FY2016, House and Senate subcommittee allocations for the Homeland Security appropriations bills for FY2016, and the allocation that would have been needed to accommodate the FY2016 enacted Homeland Security Appropriations Act, 2016. The Budget Control Act, Discretionary Spending Caps, and Adjustments The FY2012 appropriations bills were the first appropriations bills governed by the Budget Control Act, which established discretionary security and nonsecurity spending caps for FY2012 and FY2013. The bill also established overall caps that govern the actions of appropriations committees in both chambers. Subsequent legislation, including the Bipartisan Budget Act of 2013, amended those caps. For FY2015, the overall cap on discretionary spending is $1,014 billion. Separate limitations are made for defense and nondefense spending—roughly $521 billion and $492 billion, respectively. Most of the budget for DHS is considered nondefense spending. In addition, the Budget Control Act allows for adjustments that would raise the statutory caps to cover funding for overseas contingency operations/Global War on Terror, emergency spending, and, to a limited extent, disaster relief and appropriations for continuing disability reviews and control of health care fraud and abuse. Three of the four justifications outlined in the Budget Control Act for adjusting the caps on discretionary budget authority have played a role in DHS's appropriations process. Two of these—emergency spending and overseas contingency operations/Global War on Terror—are not limited. The third justification—disaster relief—is limited. Under the Budget Control Act, the allowable adjustment for disaster relief is determined by the Office of Management and Budget (OMB), using the following formula: Limit on disaster relief cap adjustment for the fiscal year = Rolling average of the disaster relief spending over the last ten fiscal years (throwing out the high and low years) + the unused amount of the potential adjustment for disaster relief from the previous fiscal year. For FY2014, OMB determined the allowable adjustment for disaster relief was $12,143 million, of which only $5,717 million was exercised. In February 2015, OMB noted the FY2015 allowable adjustment for disaster assistance was $18,430 million: $11,913 million from the rolling average and $6,517 million in carryover from FY2014. FY2015 was the first year in which more than $1 billion of allowable adjustment for disaster relief carried over from the previous fiscal year. The disaster relief allowable adjustment for FY2016 was $14,125 million.
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This report discusses the FY2016 appropriations for the Department of Homeland Security (DHS) and provides an overview of the Administration's FY2016 request. The report makes note of many budgetary resources provided to DHS, but its primary focus is on funding approved by Congress through the appropriations process. It also includes an Appendix with definitions of key budget terms used throughout the suite of Congressional Research Service reports on homeland security appropriations. It also directs the reader to other reports providing context for and additional details regarding specific component appropriations and issues engaged through the FY2016 appropriations process. The Administration requested $41.4 billion in adjusted net discretionary budget authority for DHS for FY2016, as part of an overall budget that the Office of Management and Budget estimates to be $64.8 billion (including fees, trust funds, and other funding that is not annually appropriated or does not score against discretionary budget limits). The request amounted to a $1.7 billion, or 4.4%, increase from the $39.7 billion enacted for FY2015 through the Department of Homeland Security Appropriations Act, 2015 (P.L. 114-4). The Administration also requested an additional $6.7 billion not reflected above for the Federal Emergency Management Agency (FEMA) in disaster relief funding, as defined by the Budget Control Act (BCA, P.L. 112-25), and a $160 million transfer from the Navy to the Coast Guard for overseas contingency operations (OCO) funding. Neither the disaster relief funding nor the OCO funding is considered when calculating the total amount of adjusted net discretionary budget authority, as neither count against the discretionary spending limit. On June 18, 2015, the Senate Committee on Appropriations reported out S. 1619, accompanied by S.Rept. 114-68. S. 1619 included $40.2 billion in adjusted net discretionary budget authority for FY2016. This was $1.2 billion (2.9%) below the level requested by the Administration, but over $0.5 billion (1.4%) above the enacted level for FY2015. The Senate committee-reported bill included the Administration-requested levels for disaster relief funding and OCO funding covered by BCA adjustments—the latter as an appropriation in the DHS appropriations bill rather than the requested transfer. On July 14, 2015, the House Committee on Appropriations reported out H.R. 3128, accompanied by H.Rept. 114-215. H.R. 3128 included $39.3 billion in adjusted net discretionary budget authority for FY2016. This was almost $2.1 billion (5.0%) below the level requested by the Administration, and $337 million (0.8%) below the FY2015 enacted level. While the House-reported bill included the Administration-requested level for disaster relief funding, overseas contingency operations funding for the Coast Guard covered by BCA adjustments was provided in the House-passed Department of Defense appropriations act as a transfer from the Navy—therefore it is not included in the total funding in this bill for DHS. On December 18, 2015, the President signed into law P.L. 114-113, the Consolidated Appropriations Act, 2016, Division F of which was the Department of Homeland Security Appropriations Act, 2016. The act included almost $41.0 billion in adjusted net discretionary budget authority for DHS for FY2016, almost $1.3 billion more than was provided for FY2015, and $443 million less than was requested. The enacted bill included the requested overseas contingency operations and disaster relief funding as well. This report will be updated in the event a supplemental appropriation is provided for DHS for FY2016.
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This CRS Report discusses renewal of the peaceful nuclear cooperation agreement between the United States and the People's Republic of China (PRC). The current agreement was signed in 1985 and implemented in 1998. The agreement is set to expire on December 30, 2015, and a new agreement was submitted for congressional review on April 21, 2015. The required congressional review period ended on July 31, 2015, and the agreement may enter into force. The discussion in this report focuses on congressional roles in crafting and carrying out the agreement. Such agreements are subject to Section 123 of the Atomic Energy Act of 1954 as amended (AEA, P.L. 95-242 , 42 U.S.C. 2011 et seq.) and commonly are called "123 agreements." They are a prerequisite for any significant nuclear cooperation with another country, such as exports of nuclear power plants and components and the transfer of nuclear material. The first such agreement with the PRC was concluded in the mid-1980s. On July 24, 1985, President Reagan submitted to Congress the "Agreement Between the United States and the People's Republic of China Concerning Peaceful Uses of Nuclear Energy." President Clinton, on January 12, 1998, signed certifications (as required by P.L. 99-183 ) on China's nuclear nonproliferation policy and practices to implement the agreement. Clinton also issued a certification and waived a sanction imposed after the 1989 Tiananmen Crackdown (as required by P.L. 101-246 ). Congressional review ended on March 18, 1998, allowing the agreement to be implemented. The Obama Administration has submitted the new U.S.-China nuclear cooperation agreement to Congress for the required review period. According to President Obama's letter to Congress, the agreement meets all the terms of the Atomic Energy Act and does not require any exemptions from the law's requirements. Therefore, the agreement could enter into force after a 30-day consultation period and a review period of 60 days of continuous session unless Congress enacted a joint resolution of disapproval. Congress also has the option of adopting either a joint resolution of approval with (or without) conditions, or stand-alone legislation that could approve or disapprove the agreement. Any congressional efforts to block the agreement would be subject to presidential veto. The agreement reached the end of the review period on July 31. In a Senate Foreign Relations Committee hearing held on May 12, Chairman Bob Corker said that "there may be a series of conditions that the Senate may want to place on this particular agreement" and that the members of the committee would be considering the merits of that option. Two pieces of legislation have been introduced regarding this agreement. House Joint Resolution 56 ( H.J.Res. 56 ), introduced in May by Representative Joe Wilson and co-sponsored by Representative Brendan Boyle, would have approved the U.S.-China Section 123 agreement. Senators Marco Rubio and Tom Cotton introduced S.J.Res. 19 on July 15, which expressed "disfavor" of the proposed agreement. This resolution was automatically discharged from the Senate Foreign Relations Committee and placed on the Senate Legislative Calendar under General Orders. Since no action was taken before the congressional review period for this agreement ended on July 31, the agreement may enter into force. According to a 2015 Department of Defense report, China's nuclear arsenal consists of 50-60 Intercontinental Ballistic Missiles. This arsenal also has intermediate-range and medium-range ballistic missiles, although the report does not provide a specific number. In addition, China is producing submarines which will eventually carry nuclear-armed ballistic missiles, the report says. A nongovernmental report states that China "has approximately 250 [nuclear] warheads in its stockpile." China declared a unilateral moratorium on nuclear testing in 1996 and has signed, but not ratified, the Comprehensive Test Ban Treaty. China acceded to the Nuclear Nonproliferation Treaty (NPT) in 1992 as a nuclear-weapon state. Beijing also has a safeguards agreement with the International Atomic Energy Agency (IAEA) which entered into force in 1989. China's Additional Protocol to that agreement entered into force in 2002. According to the safeguards agreement, the IAEA "shall have the right to apply safeguards ... on all source or special fissionable material in facilities" on a list of facilities that China has provided to the agency. As a nuclear-weapon state, China is entitled to withhold some nuclear facilities from safeguards. China is also to "maintain a system of accounting for and control of all nuclear material subject to safeguards" under the agreement. Prior to China's conclusion of its IAEA safeguards agreement, a 1987 Memorandum of Understanding with the United States provided for "exchanges of information and visits," which are designed to be effective in ensuring that any nuclear material, facilities, or components provided pursuant to the existing nuclear cooperation agreement "shall be utilized solely for intended peaceful purposes." In the President's letter of transmittal to Congress, he says that the U.S.-China 123 agreement "will advance the nonproliferation and national security interests of the United States." Once a Section 123 agreement is in place, the Nuclear Regulatory Commission or the Department of Energy approves licenses for specific transfers. The agreement does not permit the transfer of restricted data or sensitive nuclear technology. It does allow for the enrichment up to a level less than 20% U-235 and reprocessing of U.S.-obligated material at safeguarded or safeguards-eligible sites. The agreement's duration is 30 years. Either country may terminate the agreement with one year's notice. The proposed agreement includes an Agreed Minute, which lays out steps that are to be pursued if either side has concerns about the application of International Atomic Energy Agency (IAEA) safeguards on transferred material, including facility design review, exchange of records to ensure material accounting, and the designation of individuals who may access and inspect material accountancy systems. This is to ensure that fuel and other transferred technology remain in peaceful use. The Agreed Minute also addresses byproduct material, and says that there will be annual information exchanges on byproduct material, including tritium, subject to the agreement. Any byproducts shall only be used for peaceful purposes under Article 8 of the agreement. The Agreed Minute includes a section on retransfers and technology exchanges. Retransfers to a third country are still subject to the requirements of the original supplier country and will need to have written consent. The United States and China are to implement a process for "obtaining government assurances needed for certain technology or information transfers." This includes a Pre-Approved Activity and Nuclear Technology List (based on the Nuclear Suppliers Group (NSG) trigger list) and a Pre-Approved Entity List. For example, if China or the United States authorizes a transfer of a technology on the preapproved list to an entity on the preapproved list, it will notify the other party of this transfer. These lists will be updated on a yearly basis. This transfer will still be subject to transfer conditions. These measures are to give additional assurance for U.S. consent rights on further transfers within and outside of China. The renewal of the U.S.-China peaceful nuclear cooperation agreement raised significant issues for the 114 th Congress. This section outlines primarily economic and nonproliferation concerns. The U.S. nuclear industry lobbied Congress vigorously in the 1990s to implement the U.S.-China 123 agreement, contending that China's planned growth in nuclear power generation would provide tremendous opportunities for U.S. businesses. The U.S. firm Westinghouse (now mostly owned by Toshiba of Japan) signed a contract in 2007 to supply its most advanced reactor, the AP1000, to China. Westinghouse also agreed to transfer its reactor technology to China so that Chinese firms could eventually build them. Some in Congress expressed concern about the technology transfer arrangement, but the AP1000 technology transfer is now well underway. The first four Westinghouse reactors are under construction, and 32 more are planned, with Chinese firms to take over an increasing share of the work. China has developed a larger version of the AP1000, as allowed by the Westinghouse technology transfer agreement, and is reportedly about to start construction of the first unit. The PRC's nuclear power expansion program is the most aggressive in the world. Although China's 26 operating power reactors currently account for less than 2% of the country's electric generating capacity, the PRC has an additional 23 reactors under construction and plans to build up to 100 more by 2030. For comparison, the United States has a total of 99 power reactors as of June 2015. The PRC announced in December 2014 that it would spend about $11.2 billion annually on reactor construction during the next 10 years, providing a large potential market for nuclear equipment suppliers around the world. The Nuclear Energy Institute (NEI), the major U.S. nuclear industry trade association, called "timely renewal" of U.S. nuclear cooperation agreements with China and other countries "critical to continuation of nuclear trade between U.S. firms and firms in these nations." A December 2014 study by the Department of Commerce ranked China as the top export market for U.S. nuclear goods and services. According to the study, "Although there is strong foreign competition, the size of China's market is so large and the pace at which it is building new reactors and facilities is so swift that China will remain a strong and dynamic market for U.S. exports for years to come in all areas of the civil nuclear supply chain." The value of U.S. nuclear exports to China and resulting U.S. employment are difficult to quantify. According to NEI, "Major Chinese contracts awarded to U.S. nuclear suppliers have created billions in U.S. exports and tens of thousands of American jobs," as well as employment providing engineering, construction, and other services. Westinghouse's 2007 sale of four AP1000 reactors to China was announced at a value of $8 billion. Under an engineering and procurement agreement and a separate technology licensing agreement, "Westinghouse will provide nuclear fuel and safety-related major components, as well as information on design, operation and plant maintenance," according to the law firm Baker Donelson, which represents the nuclear industry. Approximately 30 percent of the work outlined under current contracts is being performed in the United States by Westinghouse or its subcontractors and suppliers, which has created or is sustaining approximately 8,000 direct jobs and another approximately 20,000 indirect and induced jobs in twenty U.S. states, with significant sourcing from Pennsylvania, South Carolina, Connecticut, Utah, Minnesota, and New Hampshire. Westinghouse has acknowledged that the technology-transfer provisions in the contract would reduce U.S. participation in Chinese AP1000 projects over time, much as has occurred in a similar reactor contract signed with South Korea in the mid-1980s. U.S. firms initially provided most of the nuclear-related components of the plants supplied under the deal, valued at several hundred million dollars per reactor, and by 2006, U.S. firms were continuing to provide about $100 million in components and services for each new South Korean reactor, according to Westinghouse. South Korea's $20 billion sale of four of its U.S.-derived reactors to the United Arab Emirates in 2010 included $2 billion in U.S. participation. According to Baker Donelson, Currently Westinghouse is in discussions in China for contracts for the next wave of up to 20 additional AP1000 units. This would result in 2,000 to 2,500 direct jobs and 5,000-6,000 in indirect/induced USA jobs, for a total of 7,000-8,000 jobs in the U.S. Although China has indigenized significant manufacturing capabilities as part of their self-reliance program, a key reason for renewing the Section 123 agreement is that certain products and services necessary to fulfill that program cannot be procured solely in China. This means that the Chinese will have to use some of the suppliers that were used on the initial AP1000 plants, many of whom are located in the United States. China's plans to export nuclear power plants based on Westinghouse technology have raised a number of concerns. A key question is the level of U.S. control that would continue to be exercised over the export of reactors based on U.S. designs and the use of nuclear materials produced by those reactors. The potential for Chinese dominance of the world nuclear power market with U.S. help is also an issue. A related area of concern is the extent to which U.S. nuclear power technology could be transferred to the Chinese naval reactor program, particularly the unique sealed pumps used by the AP1000. (See " Naval Reactors " section, below.) According to Baker Donelson, the Westinghouse technology transfer agreement for the AP1000 reactor grants the Chinese only a "nonexclusive license to use that technology in China," with Westinghouse retaining all its intellectual property rights. The agreement allows the Chinese to modify the AP1000 design but they cannot export such variants "unless they do so with Westinghouse under a marketing alliance." However, the Westinghouse agreement does give China the right to export a "large passive plant," essentially a larger version of the AP1000. Such plants could be sold to any country except the United States and Japan, subject to U.S. export control laws, according to Baker Donelson. Westinghouse would have the right to participate in such export projects to the extent that they incorporated AP1000 technology. If China did not include Westinghouse in such exports, then Westinghouse would have to be compensated for any of its technology that was used. China is currently developing a "large passive plant," as envisioned by the Westinghouse agreement. The first of these reactors, called the CAP1400, is to begin construction in China in 2015, with exports planned to follow. Aggressive Chinese exports of nuclear technology, particularly to countries that do not currently have nuclear power, could pose proliferation risks. China's policies for ensuring that countries that import its reactors are fully compliant with international safeguards will be of particular concern. Moreover, even fully safeguarded nuclear power programs could raise U.S. concerns if they create a perceived need to develop fuel cycle facilities such as uranium enrichment and spent fuel reprocessing plants, which can be used to produce nuclear weapons material. Without Westinghouse's advanced reactor technology, China was not generally believed to have a reactor that could compete in world markets. Therefore, the AP1000 technology transfer appears to be crucial to China's planned nuclear export program. Transfers of nuclear technology to a foreign country require authorization by the Secretary of Energy under 10 C.F.R. Part 810. Such "Part 810 authorizations" must be based on assurances from the recipient government that the technology will be used for peaceful purposes only and will not be retransferred without approval of the supplying country, as explained by this statement from the Export.gov website: Government-to-government assurances obtained by either the Department of State or the Department of Energy are required for the 810 approval and 110 licensing process. The assurances for 810 approvals affirm that the recipient government pledges to use the acquired technology exclusively for peaceful purposes and will not re-transfer it to another country without the consent of the supplier-country government. As discussed above, the Agreed Minute to the 123 Agreement prohibits China or the United States from retransferring any technology received from the other country to a third country without the agreement of the country that originally provided the technology. It goes on to specify: Prior to any such transfer of items, technology, or information subject to this Agreement, the Parties shall by mutual agreement define the conditions ("transfer conditions'") in accordance with which such items, technology, or information may be transferred to the jurisdiction of a third country or destination beyond the territorial jurisdiction of the transferring Party. Any transfer to which the non-transferring Party consents in writing shall be subject to the transfer conditions agreed to by the Parties. Increased nuclear safety and reduced carbon emissions have been cited as reasons to support the extension of the U.S.-China nuclear cooperation agreement. "U.S. equipment and technology exports have enabled China to deploy the safest technologies, including a U.S. advanced reactor design that has been standardized for most of China's planned nuclear power stations," according to NEI. On carbon emissions, NEI asserted, "Nuclear power is planned to carry the largest share of China's non-emitting generating capacity additions through 2030. Ending U.S. nuclear cooperation would disrupt China's nuclear development plans and set back its efforts to limit carbon emissions." The Westinghouse AP1000 reactor technology that is being transferred to China incorporates "passive" safety features that are intended to reduce the likelihood of radioactive releases by orders of magnitude below that of existing commercial nuclear power plants. In approving the design in the United States, the Nuclear Regulatory Commission noted that it "includes many features that are not found in the designs of currently operating reactors," most significantly "the use of safety systems for accident prevention and mitigation that rely on passive means, such as gravity, natural circulation, condensation and evaporation, and stored energy." To the extent that the AP1000 and larger reactors derived from it would displace older designs in the Chinese nuclear power program, the likelihood of accidents could be reduced. A probabilistic risk assessment by Westinghouse asserted that the risk of nuclear core damage in the AP1000 would be 1% of the level of risk at existing nuclear power plants and 5% of the risk considered acceptable for advanced reactor designs. Targets for controlling carbon emissions were jointly announced by China and the United States on November 11, 2014. The United States agreed to cut its net emissions of greenhouse gases by 26%-28% below 2005 levels by 2025, while China agreed to halt its rapid rise in carbon dioxide emissions by no later than 2030. In addition, China agreed to increase its non-fossil-fuel energy share to 20% by 2030, which "will require China to deploy an additional 800-1,000 gigawatts of nuclear, wind, solar and other zero emission generation capacity by 2030," according to the White House. The agreement could provide further impetus to China's already-ambitious nuclear growth. However, the potential safety and environmental benefits of expanded nuclear power in China are questioned by some environmental groups and analysts. They contend that efforts to reduce carbon emissions should be focused on energy efficiency and renewable energy, which avoid nuclear power's risks of radioactive releases, waste management issues, and nuclear weapons proliferation. Analysts point out that Chinese installation of new wind and solar capacity currently exceeds nuclear: announced capacity additions for 2014 totaled "56.6 GW [gigawatts] of non-fossil fueled generating capacity, comprising 20 GW of hydro, 18 GW of wind, 10 GW of solar, and 8.6 GW of nuclear power." Article 6 of the new Section 123 agreement gives consent for conversion, enrichment to less than 20% U-235, fabrication of low-enriched uranium fuel, post-irradiation examination, and blending or downblending of uranium to produce low enriched uranium. Article 6(2) says the parties agree that reprocessing can take place at IAEA safeguarded facilities, subject to further agreement on physical protection, environmental protection, and other arrangements. This type of prior agreement is generally referred to as "advance consent." This kind of permission for reprocessing U.S.-obligated spent fuel has been included in Section 123 agreements with India and Euratom. As with the agreements with India and Euratom, any reprocessing of U.S.-obligated material could take place only at facilities that are under or are eligible for IAEA safeguards. This agreement also includes provisions for tracking the material, data exchange, and visits to sites (see " Highlights of New Agreement "). China now plans to reprocess most of its spent fuel domestically for reuse as mixed oxide (MOX) fuel and is now building commercial reprocessing facilities. The proposed text explicitly says that any material separated through reprocessing under this agreement may be used only at agreed facilities. The resulting material may not be used for military use. Some analysts have raised concerns that the possible reprocessing of spent nuclear fuel from reactors built under the U.S.-China 123 agreement could help increase Chinese stockpiles of plutonium for weapons purposes. This was a key issue in the congressional debate when Congress first reviewed the agreement. Under the 1985 Section 123 agreement, China could potentially have sought agreement to reprocess spent fuel from U.S.-designed reactors for peaceful purposes, but no such arrangements were made. Section 5(2) of the agreement said the parties "will consult immediately and will seek agreement within six months on long-term arrangements for such activities." The Nuclear Proliferation Assessment Statement (NPAS) that accompanied that agreement's submission to Congress interprets Article 5(2) as follows: "China cannot unilaterally proceed with reprocessing, enrichment, or alteration in the face of U.S. objection." As detailed below, Congress was concerned that the language in the agreement did not clearly state U.S. consent rights. One of the presidential certifications required in P.L. 99-183 said that "the obligation to consider favorably a request to carry out activities described in Article 5(2) of the Agreement shall not prejudice the decision of the United States to approve or disapprove such a request." In President Clinton's certification, he said, "The U.S consent rights provided for in Article 5(2) of the Agreement satisfy this standard because the specific language used ensures that the United States must exercise an approval right before the activity in question is carried out." As noted, U.S. nuclear technology transferred to China is to be used only for peaceful purposes and reprocessing must be done at safeguarded or safeguard-eligible facilities. However, some observers point out that if China in the future decided to disregard those restrictions or change the safeguards status at particular facilities, China could potentially use plutonium produced during the normal operation of commercial reactors for weapons. Such "reactor grade" plutonium has high levels of plutonium isotopes that are undesirable for weapons, but it is widely accepted that such use is possible. Alternatively, U.S.-designed commercial reactors (as well as any other reactor in China) could be refueled more frequently than normal to minimize the buildup of undesirable isotopes, resulting in plutonium better suited for weapons. This point of view was summarized in a recent issue paper from the Nonproliferation Policy Education Center (NPEC), which questioned whether "it is sound policy to allow reprocessing of material generated in U.S. designed reactors in China if there is reason to believe that timely warning of a massive military diversion of weapons-usable plutonium from China's 'civilian nuclear sector' is not possible even if the reprocessed separated plutonium is under IAEA safeguards or is otherwise inspected." This study purports that over the next 30 years, China may want to accelerate a nuclear weapons build-up. However, such a scenario appears to be improbable. If China were to cease implementation of its IAEA safeguards agreement, China and the United States would consult and establish a mutually acceptable alternative," according to Article 9(3) of the nuclear cooperation agreement. Under Article 12, if a dispute cannot be settled, then cooperation under the agreement could cease or be temporarily suspended. Moreover, China seems unlikely to use nuclear material from U.S.-supplied reactors for its nuclear arsenal for several reasons. First, China will likely not increase its nuclear arsenal significantly in the near future. According to a 2015 report from the Department of Defense, "China will likely continue to invest considerable resources to maintain a limited, but survivable, nuclear force." Second, Beijing has sufficient amounts of fissile material for nuclear weapons; according to a 2001 Defense Department report, "China currently is not believed to be producing fissile material for nuclear weapons, but has a stockpile of fissile material sufficient to improve or increase its weapons inventory." Beijing's military stockpile of plutonium is an estimated 1.8 metric tons. Moreover, China mines and imports uranium, so it is unclear that it would need additional sources of uranium. Last, it is worth noting that the U.S. reactors likely to be exported to China would be light water reactors; no country has used these types of reactors to produce plutonium for their nuclear weapons. As noted, reactor-grade plutonium is undesirable for nuclear weapons. Indeed, some analysts argue that it would not be necessary for China to use spent fuel for weapons plutonium. Carnegie Endowment analyst Mark Hibbs writes, "China since 1964 is a nuclear weapons state with inventories of military-grade plutonium and uranium that were produced in dedicated Chinese military reactors and reprocessing plants. It is extremely unlikely that China would violate a bilateral accord with the United States to divert U.S.-obligated civilian nuclear materials to produce future nuclear weapons." This weapons plutonium was produced by two reactors: the oldest was shut down in 1984 and the second is believed to have produced plutonium through 1991. Australia's experience with uranium exports to China is perhaps instructive. According to the Australian Safeguards and Non-Proliferation Office's most recent report, all Australian-obligated nuclear material is "satisfactorily accounted for" and no such material "was used for non-peaceful purposes in 2013." Past such reports conclude similarly. Australia's nuclear cooperation agreement with China entered into force in February 2007. The agreement provides for new bilateral monitoring measures on U.S.-obligated material that did not exist under the previous agreement. Congress may wish to examine how the United States will successfully verify Chinese assurances that reprocessing of U.S.-obligated material will be used only for peaceful purposes. Concern has been raised about the potential misuse of U.S. nuclear power technology by the Chinese naval reactor program, particularly the unique sealed pumps used by the AP1000. According to the NPAS, "China's strategy for strengthening its military involves the acquisition of foreign technology as well as greater civil-military integration, and both elements have the potential to decrease development costs and to accelerate military modernization. This strategy requires close scrutiny of all end users of U.S. technology under the proposed Agreement." Before technology transfers are approved by the United States, government-to-government assurances are required, in which "the recipient government pledges to use the acquired technology exclusively for peaceful purposes." In its consideration of the Section 123 agreement, Congress also reviews the unclassified NPAS and its classified annexes that were submitted as supporting documents. The NPAS gives a broad overview of China's adherence to multilateral nonproliferation treaties and agreements as well as cooperation with the United States to improve these systems. Since the original nuclear cooperation agreement was concluded, China has joined the Nuclear Nonproliferation Treaty, become a member of the Nuclear Suppliers Group (NSG), and made nuclear security improvements to its civilian sector. As noted, its civilian reactors are under voluntary International Atomic Energy Agency (IAEA) safeguards. In the past decade, China has also cooperated with the United States on the detection of illicit nuclear materials at ports and border points. However, there are still concerns about China's nonproliferation record, especially its ability to prevent Chinese-based companies and individuals from exporting dual-use goods relevant to nuclear weapons programs, particularly to Iran and North Korea. The Chinese government apparently ended its direct involvement in the transfer of nuclear- and missile-related items, although entities in China have, according to the U.S. government, continued to transfer such items. In the past, the Chinese government has transferred nuclear and missile technology, which has raised proliferation concerns. For example, China exported missiles to Pakistan, Saudi Arabia, and Iran. "Chinese firms" also "provided some important missile-related items and assistance to several countries of concern, such as Iran, Libya, and North Korea," according to a 2001 Department of Defense report. China has also provided assistance to Pakistan's nuclear weapons program. The 2001 Defense Department report states that "China supplied Pakistan with nuclear material and expertise and has provided critical assistance in the production of Pakistan's nuclear facilities." China may also have provided "nuclear weapons design information" to Pakistan. China previously engaged in nuclear cooperation with Iran, although such cooperation appears to have ended. China supplied Iran with two small nuclear reactors for research in the early 1990s, but also provided nuclear technology to Tehran that drew U.S. proliferation concerns. For example, China supplied gaseous uranium hexafluoride in 1991, which Iran used to conduct research on centrifuges to be used for enriching uranium. President Clinton stated in a January 1998 letter to Congress that China had "made substantial strides in joining the international nonproliferation regime, and in putting in place a comprehensive system of nuclear-related, nationwide export controls, since the nuclear cooperation agreement was concluded in 1985." The letter cited China's May 1996 pledge to refrain from assisting unsafeguarded nuclear facilities and 1997 changes to Chinese nuclear export policy. Other Chinese nonproliferation efforts included pledging in 1994 to refrain from transferring certain longer-range missiles and curtailing sensitive nuclear cooperation with Iran. According to U.S. government reports and official statements, China subsequently increased its restraint regarding WMD (weapons of mass destruction)-related transfers and has improved its export controls. Then-Deputy Assistant Secretary of State Robert Einhorn testified in 1998 that Beijing had begun to take "concrete actions—in terms of sales to third countries rejected or canceled, detailed regulations and control lists adopted and publicized, and active participation in international regimes initiated." Furthermore, then-Director of Central intelligence George Tenet testified in 2000 that there had been "some improvement in China's proliferation behavior, particularly on the nuclear side in terms of the technology they transfer to other countries." Similarly, the Defense Department reported in 2001 that "China's proliferation behavior has improved in the last several years." Regarding government involvement in proliferation, a 2004 U.S. intelligence community report stated that "Beijing has largely curtailed government-sanctioned [nuclear] assistance to most countries." Deputy Assistant Secretary of State Vann Van Diepen stated that China is "no longer ... selling complete MTCR-class missile systems" or "complete production capabilities" for such missiles "like we did in the '80s and '90s," adding that "these are not activities that are being done at the behest of the Chinese government." China's behavior concerning transfers to Iran's nuclear program provides an illustrative example of Beijing's proliferation policy changes. As noted, China agreed in 1997 to cancel the transfer of a uranium conversion facility to Iran. Beijing also suspended the sale of two nuclear power reactors to Iran and pledged to refrain from engaging in new nuclear projects with that country. A review of public U.S. intelligence community reports covering 1997-2011 regarding the proliferation of items related to weapons of mass destruction indicates that neither Chinese entities nor the Chinese government engaged in nuclear cooperation with Iran during that period. However, Chinese entities have continued to engage in proliferation. The Defense Intelligence Agency warned in February 2015 that "China will continue to be a source of dual-use WMD applicable goods, equipment, and materials to countries of concern, like Iran, North Korea, and Syria." Furthermore, the NPAS states that Despite updates to regulations and improved actions in some areas, proliferation involving Chinese entities remains a significant concern. The U.S. Government has sanctioned multiple Chinese companies and individuals for proliferation activity since 1997. Chinese state-owned enterprises (SOEs) ... have been sanctioned for proliferation on multiple occasions. SOEs have improved their proliferation records, though private small- and medium-sized companies make up the majority of Chinese firms currently subject to proliferation sanctions, most of which are proliferating dual-use materials and technologies. Regarding current missile proliferation concerns, Deputy Assistant Secretary Van Diepen stated in a June 2012 interview that "there's a substantial problem of Chinese entities providing missile technology to programs in places like Iran and North Korea." A 2014 State Department report stated that "Chinese entities continued to supply missile programs in countries of concern" in 2013. Also, the 2011 Director of National Intelligence Worldwide Threat Assessment said, "North Korea and entities in Russia and China continue to sell technologies and components in the Middle East and South Asia that are dual use and could support WMD and missile programs." With respect to Chinese export controls, Assistant Secretary of State Thomas Countryman stated during a May 12, 2015, Senate Foreign Relations Committee hearing that China does not "yet have the level of political commitment that will enable them to spend the resources you need to effectively control the export from the second biggest economy in the world," adding that Beijing "does not have currently the bureaucratic enforcement capability, and does not yet have all the legislation it ought to have in order to adequately control dual-use exports." Beijing "has the ability to decide to devote more resources, efforts, and priority to crack down on these activities," according to Van Diepen. While some experts assess that Chinese government-owned companies have improved strategic export controls since a national law was passed in 2002, Chinese individuals and companies remain under U.S. sanctions related to proliferation of WMD. Concerns persist about Chinese willingness as well as ability to detect and prevent illicit transfers. Congress may wish to question what progress has been made on this issue. China's construction of civil nuclear reactors in Pakistan has been another source of congressional concern. Beijing has constructed two power reactors in Pakistan and has agreed to build three more. All of these reactors will be under IAEA safeguards. Construction of the latter reactors apparently violates the Nuclear Suppliers Group (NSG) guidelines because Pakistan does not have IAEA safeguards on all of its nuclear facilities. Assistant Secretary of State Countryman explained during the May 2015 hearing that, when China became a member of the NSG in 2004, "there was a consensus from other members to grandfather construction of plants in Pakistan which China had initiated. However, there was not agreement that that was an open-ended clause." The NPAS described "China's ongoing construction of new nuclear power plants in Pakistan" as "inconsistent with its [NSG] commitments." The question for U.S. policymakers since the Reagan Administration in the 1980s has been whether nuclear cooperation with the PRC would be necessary to advance U.S. diplomatic, security, and economic interests. There were tensions in the framework for bilateral relations that affected U.S. consideration of peaceful nuclear cooperation. While the PRC under the rule of the Communist Party of China already possessed nuclear weapons, the PRC also has had a record of nuclear proliferation to countries such as Pakistan and Iran. The United States and the PRC have not been allies. Nonetheless, in 1970, President Nixon began a rapprochement with Communist Party ruler Mao Zedong, and both countries cooperated in various areas during the Cold War until the disintegration of the Soviet Union in 1991. Nuclear cooperation involves weighing risks and benefits. The risks include nuclear proliferation and upgrading technology and knowledge that also might have military uses. The benefits involve expanding engagement, building mutual confidence, and enabling U.S. businesses to compete for potentially lucrative nuclear power contracts. Increased nuclear power in China also could help reduce its emissions of greenhouse gases. Key developments in the U.S.-China nuclear cooperation agreement were timed for diplomatic summits between U.S. Presidents and PRC leaders. On April 30, 1984, President Reagan witnessed the initialing of the nuclear cooperation agreement. Secretary of Energy John Herrington signed the agreement on July 23, 1985. On July 24, 1985, President Reagan submitted the agreement to Congress. Consideration of whether a presidential certification (as required by P.L. 99-183 on China's nuclear nonproliferation policy and practices) would be the centerpiece of a summit in 1997 advanced the agreement's implementation. President Clinton, on January 12, 1998, signed certifications to implement the agreement. The President also waived a sanction imposed after the 1989 Tiananmen Crackdown (in P.L. 101-246 ). Congressional review ended on March 18, 1998, allowing the agreement to be implemented. Almost 13 years passed between the time that President Reagan submitted the agreement to Congress in July 1985 and its implementation in March 1998 under the Clinton Administration. Congress played an important role in determining implementation of the agreement, including holding hearings, crafting legislation, and requiring and reviewing presidential certifications. One of the primary congressional actions was P.L. 99-183 , the Joint Resolution Relating to the Approval and Implementation of the Proposed Agreement for Nuclear Cooperation Between the United States and the People's Republic of China (December 16, 1985), which required a presidential certification and a report followed by a period of 30 days of continuous session of Congress before the agreement could be implemented. After the 1989 Tiananmen Crackdown, Congress enacted sanctions in P.L. 101-246 , the Foreign Relations Authorization Act for Fiscal Years 1990 and 1991 (February 16, 1990), suspending nuclear cooperation with China and requiring an additional presidential certification on the PRC's nuclear nonproliferation assurances. In January 1983, U.S. officials negotiating a nuclear cooperation agreement with China linked possible U.S. nuclear exports to China with its reported nuclear proliferation practices, particularly in Pakistan. Before an agreement was finalized, Senators Gordon Humphrey, William Roth, and William Proxmire wrote to Secretary of State George Shultz in December 1983. They urged that an agreement be drafted so that none of the provisions of the Nuclear Nonproliferation Act of 1978 would be waived. They also wrote that the agreement should include explicit pledges by China not to transfer any nuclear weapons equipment or information to any nation; to support the U.S. requirement for recipients to accept the International Atomic Energy Agency's (IAEA's) safeguards on nuclear exports; and to enter into an agreement with the IAEA to place China's civilian nuclear activities under IAEA safeguards with terms identical to those of the U.S.-IAEA safeguards agreement. Reported concerns about China also included its nuclear proliferation activities in Argentina and South Africa. In preparation for President Ronald Reagan's first visit to the PRC in April 1984 to improve the bilateral relationship, U.S. officials sought an agreement on civil nuclear cooperation as the "deliverable" that caught the most attention. Begun in 1981, negotiations intensified before the visit over the U.S. requirement (under the Atomic Energy Act) for China to obtain U.S. prior approval before reprocessing, enrichment, or other alteration of transferred nuclear material. China objected to perceived infringement of its sovereignty. At the end of his visit, on April 30, 1984, President Reagan witnessed the initialing of the nuclear cooperation agreement. The President said that he was "particularly proud" of the agreement, saying that "it will open broad opportunities for joint work in development of the energy base which China needs for her modernization." According to a summary of the terms provided by officials to the New York Times , China agreed that it would not enrich or reprocess fuel from U.S.-built reactors or store materials without U.S. consent; and the United States agreed not to use its control rights to inhibit the growth of China's nuclear industry out of commercial rivalry. China also took steps in response to U.S. concerns about nuclear proliferation during negotiations for the agreement. While at the time China opposed the Nuclear Nonproliferation Treaty (NPT), China applied for membership in the International Atomic Energy Agency (IAEA) in September 1983 and became a member on January 1, 1984. The PRC did not accede to the NPT until March 9, 1992. Also, China joined the Zangger Committee in October 1997 and the Nuclear Suppliers Group (NSG) in May 2004. In 2004, the Bush Administration supported China's application to join the NSG, despite congressional concerns about China's failure to apply the NSG's "full-scope safeguards" to its nuclear projects in Pakistan. Since 1992, the NSG has required "full-scope safeguards," or IAEA inspections of all other declared nuclear facilities in addition to the facility importing supplies to prevent diversions to weapon programs. In making China's first address to the IAEA conference in September 1984, the PRC Minister of Nuclear Industry said, "China will, in exporting its nuclear materials and equipment, request the recipient countries to accept safeguards in line with the principles established in the agency's statutes. In the same view, when importing nuclear materials and equipment, China will also make sure that they are used for peaceful purposes." China did not offer to place its civilian nuclear facilities under IAEA safeguards, the only nuclear weapon state that remained outside such arrangements. Also, PRC Premier Zhao Ziyang issued a statement when he visited the United States in January 1984 that "we do not engage in nuclear proliferation ourselves, nor do we help other countries develop nuclear weapons." That promise left a question about any future activities. Later, on January 19, 1985, PRC Vice Premier Li Peng issued an additional nonproliferation pledge, saying that the PRC "does not and will not in the future help any non-nuclear states to develop nuclear weapons" and that China would abide by commitments to the IAEA. Still, questions remained about whether there would be written pledges and whether any such assurances would be publicly issued by China, itself, rather than the United States expressing its interpretation of an understanding reached with China either verbally or in writing. Although the agreement was initialed during Reagan's visit to China in April 1984, the President did not submit it to Congress until July 1985, apparently timed for a visit by PRC President Li Xiannian, who arrived in Washington, DC, on July 22, 1985, and was invited to a state dinner at the White House. Prior to this visit, Administration officials briefed Congress and the press about supposed new written assurances from China about nuclear nonproliferation. Members included Senator Alan Cranston, who had reported in May 1984 that PRC nuclear technicians were in Pakistan at a suspected nuclear weapon facility. The Administration, however, did not release the written assurance and said that the language of the agreement remained largely the same. Secretary of Energy John Herrington and Li Peng signed the agreement on July 23, 1985. Although President Reagan's top officials approved the agreement, there were acknowledgments of problems in the agreement as well as disagreements within the Administration. Kenneth Adelman, Director of the Arms Control and Disarmament Agency (ACDA), wrote in his memorandum for the President that "the proposed Agreement meets all the applicable requirements of the Atomic Energy Act and the Nuclear Non-Proliferation Act and its entry into force will substantially benefit U.S. non-proliferation objectives." Nonetheless, Adelman first acknowledged that the subject agreement is unique among agreements for peaceful nuclear cooperation concluded since the 1978 Nuclear Non-Proliferation Act. It is the first such agreement with a nuclear-weapon state; and it is with a country that has not, until recently , supported non-proliferation measures. Although the agreement was initialed in April 1984, we needed to clarify certain matters related to implementation of China's nuclear policies. Those discussions concluded successfully last month. A major threat to our non-proliferation objectives is the potential for "maverick" suppliers to undercut the safeguards and other controls established through international cooperation and consensus. In the past , China's policies were a cause for concern because it neither adhered to that consensus nor accepted other non-proliferation norms." [emphasis added] Adelman also noted that a few of the major provisions in the agreement were subject to long and difficult negotiations . We have had detailed discussions on what it means in practice not to assist other countries to acquire nuclear explosives.... We understand that China's policy will be implemented in a manner consistent with those basic non-proliferation practices common to the United States and other major suppliers.... The United States sought China's acceptance of IAEA safeguards on U.S. supply under the agreement, but they adamantly refused to accept that condition . [emphasis added] Finally, Adelman argued that the agreement for U.S. exports provided for "mutually acceptable arrangements," in the future, " to be established prior to approval of U.S. exports" that "will include exchanges of information and visits by U.S. government personnel to relevant sites in China where material or equipment subject to the agreement will be stored or used." He also contended that "reprocessing of U.S. origin material cannot take place without U.S. consent ." He concluded that "it will be important to ensure that the specific arrangements provide adequate confidence that any material or equipment subject to the agreement will be used only for purposes consistent with the agreement." [emphasis added] Adelman also submitted ACDA's "Nuclear Proliferation Assessment Statement" that detailed the Reagan Administration's justification for the agreement with China, pursuant to Section 123a of the Atomic Energy Act. ACDA reached "a favorable net assessment of the adequacy of the provisions of the proposed agreement to ensure that any assistance furnished thereunder will not be used to further any military or nuclear explosive purpose." It also concluded that execution of the proposed agreement "would advance the non-proliferation program, policy, and objectives of the United States." In contrast, Thomas Roberts, Acting Chairman of the Nuclear Regulatory Commission (NRC), wrote a memorandum to President Reagan that offered a different assessment. He referred to reviewing not only the State Department's proposed agreement but also an accompanying "Agreed Minute." He wrote that he agreed with the State Department that the agreement met the legal requirements of Section 123 of the Atomic Energy Act and the Nuclear Non-Proliferation Act. However, Roberts wrote of concerns about "the adequacy of certain assurances provided by the PRC." He wrote that, We also note that, although we believe the requirements of Section 123 are satisfied, we would have preferred that the agreement contain a clear statement of U.S. consent rights for the subsequent reprocessing or enrichment of U.S.-supplied nuclear reactor fuel or fuel used in U.S.-supplied reactors. Such a statement would eliminate the potential for future misunderstandings. Our final observation is that the Agreement contains a provision which would expressly qualify the authority of the Congress to enact subsequent legislation affecting the activities covered by the Agreement. Previous agreements for cooperation with other countries have not contained such a provision. The provision could reduce the flexibility of the United States in the future. On July 24, 1985, President Reagan submitted to Congress the "Agreement Between the United States and the People's Republic of China Concerning Peaceful Uses of Nuclear Energy," pursuant to Sections 123(b) and 123(d) of the Atomic Energy Act of 1954, as amended. In his transmittal message, Reagan did not refer to the NRC's concerns (the memorandum cited above was classified at the time). He noted that the proposed agreement was the first peaceful nuclear cooperation agreement with a Communist country and the only such agreement with another nuclear-weapon state (because cooperation with the United Kingdom and France was covered by U.S. agreements with the European Atomic Energy Community, or EURATOM). The President first cited China's "ambitious plans" for a "substantial number of nuclear power stations." He pointed to China's steps to "clarify" its nonproliferation and nuclear export policies, including Premier Zhao's statement, but Reagan did not mention PRC practices. He referred to bilateral "talks" rather than statements or agreements and said that "we can expect" that China's policy of not assisting a non-nuclear weapon state to acquire nuclear explosives will be implemented in a manner consistent with the basic nonproliferation practices common to the United States and other suppliers. As benefits for U.S. interests, the President wrote that the agreement would "have a significant, positive impact on overall U.S.-China relations"; "provide the United States and its companies an opportunity to participate in another aspect of China's energy programs, with possible substantial economic benefit"; and "further the non-proliferation and other foreign policy interests of the United States." Reagan argued that the agreement would not constitute an "unreasonable risk" to common defense and security. He noted that he was submitting the agreement to Congress "without exempting it from any requirement" in Section 123(a) of the Atomic Energy Act. The agreement's submission began the periods of congressional review: 30 days of continuous session under Section 123(b) to be followed by 60 days of continuous session under Section 123(d) of the Atomic Energy Act (P.L. 83-703). Chaired by Representative Dante Fascell, the House Foreign Affairs Committee held a hearing on July 31, 1985. Secretary of Energy John Herrington, ACDA Director Kenneth Adelman, Ambassador for Non-proliferation Richard Kennedy, and Assistant Secretary of State Paul Wolfowitz testified. Members debated a number of issues, raised in particular by Representative Edward Markey, Chairman of the House Energy and Commerce Subcommittee on Energy Conservation and Power, who testified and submitted his legal analysis of the proposed agreement. Safeguards and Prior Approvals : Representative Markey raised objections about the agreement, saying that it contained the same "lax terms" as the draft that was initialed in 1984: objections based on a lack of guarantee that safeguards will be maintained for U.S. nuclear materials and equipment to ensure peaceful use; lack of a guarantee of prior approval by the United States of any reprocessing, enrichment, or alteration of nuclear material; and concerns about China's nuclear exports and technical assistance with other countries. He asserted that, Instead of obtaining a tightening of the language of the agreement, the Administration reportedly has spent the last year providing itself with classified assurances that the shadowy Chinese technicians purportedly working at Pakistan's renegade Kahuta uranium enrichment plant have disappeared, and that China is no longer exporting unsafeguarded supplies of heavy water and low-enriched uranium to other threshold nuclear-weapon states such as Argentina and South Africa. It is not enough that the Administration satisfy itself on this count. Unilateral Understanding of Verbal Assurances : Representative Markey also contended that the assurances from China were actually assurances in a secret memorandum or "Non-Paper" of the State Department. In his written statement, he reported that "Ambassador Kennedy reportedly resorted to the device of writing down his own (classified) understanding of China's new improved nonproliferation policy. While declining to sign this ingenious document, responsible Chinese officials reportedly nodded their assent, and Kennedy raced back to Washington to report this triumph of diplomacy to the President." Ambassador Kennedy testified that the Chinese "understood" U.S. legal requirements, "said" they had no "plans" to undertake activities in question, and were concerned about whether the United States would give a timely response. Kennedy also testified that the Chinese made it "clear" that when they "say" that they will not assist other countries to develop nuclear weapons, "this also applies to all nuclear explosives," acknowledging that it was in question. (During a meeting of the committee to mark up legislation in November 1985, Deputy Assistant Secretary of State James Devine confirmed Representative Dan Burton's assertion of confidential summaries of discussions that were not in writing. Devine said that the PRC "assured us orally that they would ... require safeguards on their own exports.") Compliance with Atomic Energy Act : Representative Markey further testified that the proposed agreement did not reconcile with all the requirements of the Atomic Energy Act, and so the President should re-submit the agreement with exemption from the criteria for safeguards and prior consent, as stipulated in the "Proxmire Amendment" to the Export Administration Act that amended the Atomic Energy Act. Exception for China : Representative Markey differed with the Administration on whether China should be treated as an exception concerning the question of safeguards, stating that "we insisted that the United Kingdom, a weapons state and our closest ally, accept [safeguards] as part of our nuclear cooperation agreement. So why not the Chinese?" He said that "under the provisions of the Atomic Energy Act, the People's Republic, as a nuclear weapons state, is exempted from the IAEA safeguards requirement. However, contrary to the agreement's erroneous implication, China is not altogether exempted from safeguards requirements." Prejudice : Representative Markey objected to the lack of a guarantee of U.S. prior approval for any reprocessing or enrichment of nuclear materials by China, along with language to consider the activities "favorably." Legislative options for Congress included requesting the President to re-submit the agreement; passing a resolution to disapprove the proposed agreement; passing a resolution to approve it; or passing a resolution to approve it with conditions. H.Res. 269 . On September 20, 1985, Representative Markey introduced H.Res. 269 to request the President to re-submit the proposed agreement with exemptions from Sections 123a(1) and 123a(7) of the Atomic Energy Act. H.R. 3537 . On October 9, 1985, Representative Edward Feighan introduced H.R. 3537 to ensure adequate verification of peaceful uses of nuclear exports to the PRC (modeled on IAEA safeguards). The Administration opposed the bill. S. 1754 . Also on October 9, 1985, Senator John Glenn introduced S. 1754 to ensure adequate verification of peaceful uses of nuclear exports to the PRC (modeled on IAEA safeguards). The Administration also opposed this bill. Senator Dave Durenberger, Chairman of the Committee on Intelligence, supported the bill. In a floor speech on October 21, 1985, Senator Alan Cranston reported questions about China's assistance for Iran's nuclear program. Senators Richard Lugar and Jesse Helms reportedly supported the Administration. H.J.Res. 404 . On October 1, 1985, Representative Fascell introduced by request H.J.Res. 404 , a joint resolution to approve the proposed agreement. On November 13, 1985, the House Foreign Affairs Committee met to mark up the resolution. Representative Don Bonker offered an amendment, favoring the agreement with conditions. The language added requirements for a presidential certification before the issuance of export licenses or approval of retransfers and a waiting period of 30 days of continuous session of Congress. The President was to certify that (1) the verification was designed effectively to ensure the peaceful use of U.S. exports; (2) China provided additional details about its nuclear nonproliferation policies and all information was in conformity with Section 129 of the Atomic Energy Act (prohibiting nuclear exports to any country that engaged in nuclear proliferation); and (3) the obligation to consider activities favorably shall not prejudice U.S. decisionmaking. The amendment also declared that each proposed export would be subject to U.S. laws and regulations in effect at the time of each export. The language also called for a presidential report detailing in unclassified form the PRC's past and current nonproliferation policies as well as practices. Finally, the amendment stated that the agreement with China would not provide a precedent for negotiating other agreements. Representative Howard Wolpe objected to the language as a unilateral attempt to address the agreement's "deficiencies" with U.S. interpretations. Representative Solarz defended the language, which the Administration accepted, because China already possessed nuclear weapon capability and would have "additional incentives" to refrain from nuclear proliferation. The committee adopted the amendment by voice vote. The committee's report on the bill, H.Rept. 99-382, noted that while U.S. nuclear cooperation with the PRC will in no way further its ability to use nuclear energy for military or explosive uses, the committee "has long been concerned by reports of Chinese nuclear assistance to Pakistan's clandestine nuclear program." On November 20, 1985, the Foreign Affairs Committee reported H.J.Res. 404 (H.Rept. 99-382). The House subsequently passed S.J.Res. 238 in lieu. S.J.Res. 238 ( P.L. 99-183 ) . Meanwhile, the Senate Foreign Relations Committee passed a resolution identical to that of the Foreign Affairs Committee, S.J.Res. 238 , the Joint Resolution Relating to the Approval and Implementation of the Proposed Agreement for Nuclear Cooperation Between the United States and the People's Republic of China. The Senate passed (by voice vote) S.J.Res. 238 on November 21, 1985. The House then passed it (307-112) on December 11, 1985. President Reagan signed it on December 16, 1985 (as P.L. 99-183 ). The agreement took effect on December 30, 1985. In his statement upon signing the bill, the President noted that he was required to submit a one-time certification and a one-time report, with the decision about certification assigned "exclusively to the President." However, President Reagan did not issue the certification. On June 4, 1989, Deng Xiaoping and other PRC leaders used the People's Liberation Army (PLA) to suppress peaceful demonstrators in Beijing (commonly called the Tiananmen Crackdown in reference to the square that was the focal point of nationwide protests for political liberalization). The military crackdown killed or wounded hundreds, if not thousands, of demonstrators, and mass arrests, executions, and summary imprisonment of demonstrators and sympathizers ensued. As part of the U.S. response, on June 21, 1989, Representative Markey sought to limit nuclear cooperation with the PRC by introducing language to H.R. 2655 , to amend the Foreign Assistance Act. The language sought to ban the issuance of export licenses and nuclear cooperation unless the President (1) has made certifications and submitted the report required by P.L. 99-183 ; (2) has certified to Congress that the PRC government ended martial law and that the human rights situation has "significantly improved"; and (3) has certified to Congress that the PRC government has provided the United States with a "written declaration that it is not directly or indirectly assisting any nation in testing, developing, or acquiring nuclear explosive devices or the materials and components for such devices." On June 29, Representative Dante Fascell introduced sanctions on China in an en bloc amendment ( H.Amdt. 107 ) to H.R. 2655 , which passed the House by 418-0. H.R. 2655 was passed in the House but not the Senate. In the Senate, on July 14, 1989, Senators George Mitchell and Robert Dole introduced an amendment ( S.Amdt. 271 ) to S. 1160 , the Foreign Relations Authorization Act for FY1990, seeking to impose additional sanctions against the PRC. Those sanctions included the limitation of nuclear cooperation. The Senate passed the amendment by 81-10. On July 21, the Senate incorporated the bill in the House version ( H.R. 1487 ) and passed it in lieu of S. 1160 . In the end, Congress legislated comprehensive sanctions in response to the Tiananmen Crackdown in H.R. 3792 , the Foreign Relations Authorization Act for Fiscal Years 1990 and 1991 (introduced on November 21, 1989, and enacted as P.L. 101-246 on February 16, 1990). Section 902(a)(6) of P.L. 101-246 suspended nuclear cooperation with China until the President (1) certified to Congress that the PRC "has provided clear and unequivocal assurances to the United States that it is not assisting and will not assist any non-nuclear weapon state, either directly or indirectly, in acquiring nuclear explosive devices or the materials and components for such devices"; (2) makes the certifications and submits the report required by P.L. 99-183 ; and (3) makes a report under subsection (b)(1) or (2), reporting that the PRC government has made progress in political reforms or that it is "in the national interest" of the United States to terminate a suspension or disapproval. Presidents Reagan and George H. W. Bush did not issue the certifications to implement the agreement. After the deterioration in bilateral ties after the Tiananmen Crackdown of 1989, the relationship with China again deteriorated in the Taiwan Strait Crisis of 1995-1996. Questions persisted about U.S. sanctions for PRC nuclear proliferation activities in Pakistan and Iran. President Clinton's 1998 certification to Congress conceded that "the United States [had] decided not to proceed with implementation of the 1985 nuclear cooperation agreement because of continuing questions about contacts between Chinese entities and elements associated with the Pakistani nuclear weapons program." He also noted that "nuclear cooperation between China and Iran dates from June 1985." By the spring of 1997, Washington and Beijing discussed efforts to improve ties, including the first formal U.S.-PRC summit in the United States in 12 years. Those discussions included China's request for implementation of the agreement. The Clinton Administration considered a presidential certification for implementation as the "centerpiece" of a state visit by PRC ruler Jiang Zemin to Washington, DC, in October 1997. (Jiang was the Communist Party General-Secretary, Central Military Commission Chairman, and PRC President.) In Congress, Representatives Markey and Solomon led a total of 62 Members to write a letter to President Clinton in July 1997, urging him not to certify. Chaired by Representative Benjamin Gilman, the House International Relations Committee held a hearing on the agreement on October 7, 1997. In the Senate, the Committee on Energy and Natural Resources, chaired by Senator Frank Murkowski, held a hearing on October 23, 1997. On November 5, 1997, the House passed (by 393-29) an amendment sponsored by Representative Gilman to extend congressional review for implementation of the agreement from 30 to 120 days and provide for expedited review procedures. The language amended H.R. 2358 , the Political Freedom in China Act of 1997, which passed the House on November 5, 1997. Meanwhile, U.S. firms, such as Westinghouse Electric Corporation, Bechtel Power Corporation, and Stone and Webster Engineering, lobbied Congress to allow them to bid in a market worth as much as $50 billion. On the eve of the U.S.-China summit in October 1997, the PRC advanced its nuclear nonproliferation policy by joining the Zangger Committee (the NPT's Exporters' Committee) on October 16 and promising in writing not to begin new nuclear projects in Iran (in a confidential letter to Secretary of State Madeleine Albright). At the summit on October 29, 1997, the U.S. Department of Energy (DOE) and the PRC State Planning Commission signed an "Agreement of Intent on Cooperation Concerning Peaceful Uses of Nuclear Technology." Later, at a summit in Beijing in June 1998, DOE and the PRC State Planning Commission signed an Agreement on Cooperation Concerning Peaceful Uses of Nuclear Technologies, including bringing PRC scientists to U.S. national laboratories, universities, and nuclear reactor facilities. On January 12, 1998, President Clinton signed certifications (as required by P.L. 99-183 ) on China's nuclear nonproliferation policy and practices to implement the 1985 Nuclear Cooperation Agreement. The President also issued the certification and waived a sanction imposed after the Tiananmen Crackdown (in P.L. 101-246 ). President Clinton submitted his certifications to Congress, contending that "the Agreement will have a significant, positive impact in promoting U.S. nonproliferation and national security interests with China and in building a stronger bilateral relationship with China based on respect for international norms." Under Section 902(b)(2) of P.L. 101-246 (waiver authority), President Clinton reported that it was in the "national interest" to terminate the suspension of nuclear cooperation: "it is in the U.S. national interest to consolidate and build on the progress China has made in the nonproliferation area, and the implementation of the Agreement for Cooperation between the U.S. and the People's Republic of China Concerning the Peaceful Uses of Nuclear Energy will establish a promising framework for doing so"; "it is also in the U.S. national interest to build stronger, mutually advantageous bilateral relations with China based on respect for international norms"; "the United States also has an economic national interest ... The Agreement will enable U.S. companies to compete for contracts in the world's fastest growing nuclear energy market." In making his certification, Clinton submitted to Congress: Presidential Determination No. 98-10 (Memorandum for the Secretary of State, "Certification Pursuant to Section (b)(1) of P.L. 99-183 and to Section 902 (a)(6)(B) of P.L. 101-246 ") dated January 12, 1998; Unclassified Report on the PRC's Nonproliferation Policies, Practices, and Assurances Required by P.L. 99-183 ; U.S.-PRC Memorandum of Understanding on Exchanges of Information and Visits (initialed on June 23, 1987) and Side Notes on Protection of Business Confidential Information (signed on October 22, 1997); Basis for certification under Section (b)(1)(A) of P.L. 99-183 ; Rationale for Report Required by P.L. 101-246 . During debate on the agreement, some Members of Congress, the nonproliferation community, and other interests were skeptical that PRC nonproliferation policies and practices had changed sufficiently to warrant the certifications and that they served U.S. interests. They also pointed out that China had not joined the Nuclear Suppliers Group (NSG), which required full-scope safeguards. The House International Relations Committee held a hearing on February 4, 1998, in which Robert Einhorn, Deputy Assistant Secretary of State for Nonproliferation, testified for the Clinton Administration. Einhorn testified to Congress that We must, therefore, approach implementation of the agreement with a healthy skepticism. President Reagan's advice to trust but verify is clearly warranted here. So we will be monitoring China's behavior carefully, and the Chinese will know that any actions inconsistent with their commitments will jeopardize future cooperation. Congressional review ended on March 18, 1998, with no legislation to block the agreement, allowing it to be implemented. U.S. firms may apply for Export-Import Bank financing and licenses from the NRC and DOE for nuclear exports to China, and foreign firms may apply to re-export U.S. technology. On March 19, 1998, 13 Members in the House led by Representative Markey wrote to President Clinton to urge him to terminate implementation of the agreement. Also, as amended by Representative Gilman, Section 1523 of the National Defense Authorization Act for FY1999 ( P.L. 105-261 ), enacted on October 17, 1998, requires the President to notify Congress "upon" granting licenses by the NRC for nuclear exports or re-exports to a non-NATO country that has detonated a nuclear explosive device (e.g., China). As required, the State Department, on June 9, 2000, issued the first notification to Congress that the NRC issued a license on February 3, 2000, for the export of tantalite ore to China. President Clinton had submitted his certification with a Memorandum of Understanding (pursuant to Article 8 of the agreement) that was initialed in Washington, DC, on June 23, 1987, but not signed. The President contended that this initialed Memorandum provided for arrangements that met the certification standard of P.L. 99-183 that the arrangements be designed to be effective in ensuring peaceful uses of nuclear material, facilities, or components. Concerning "consultations," Article 8(2) of the agreement stated that the cooperation would be between two nuclear-weapon states and that bilateral safeguards "are not required." It called for "diplomatic channels to establish mutually acceptable arrangements for exchanges of information and visits to material, facilities, and components." The Memorandum called for annual visits to reactors. In the event of discrepancies, it called for the parties to "consult" to make "mutually acceptable" arrangements for the addition or reduction of visits, in place of safeguards. In February 1998, the Office of Arms Control and Nonproliferation of the Department of Energy published the "Proposed Subsequent Arrangement Concerning Reciprocal Arrangements for Exchanges of Information and Visits Under the Agreement for Cooperation for Peaceful Uses of Nuclear Energy" between the United States and the PRC, noting that it sought to sign the initialed Memorandum which provided the "framework" for arrangements. The United States and the PRC signed the Memorandum of Understanding on May 6, 1998, and DOE published it. Given the PRC's nuclear cooperation with Pakistan that raised questions of U.S. sanctions, the Clinton Administration apparently did not have adequate assurances from the PRC that it would not re-transfer and divert U.S. nuclear technology to another country, potentially for military use. The Administration continued negotiations with China on this issue after the agreement's implementation. According to a reported NRC memorandum of April 4, 2000, DOE officials had held up 16 applications for authorization to export U.S. technology since 1998, due to disagreement about assurances, including a U.S. demand for a blanket assurance and a PRC offer of case-by-case assurances. Those cases were called "Part 810 cases" in reference to the DOE's export controls that are regulated by Part 810 of Title 10 of the Code of Federal Regulations. On September 16, 2003, in Vienna, Austria, Secretary of Energy Spencer Abraham and the chairman of China's Atomic Energy Authority apparently agreed to assurances from China that U.S. nuclear technology would not be retransferred by China to third parties without prior U.S. consent. The understanding, however, was reached in an exchange of diplomatic notes to "establish a process for determining what nuclear technologies require government-to-government nonproliferation assurances and set forth procedures for exchanging the assurances." Afterwards, the Bush Administration continued to seek assurances to prevent unauthorized re-transfers by China. In September 2004, the State Department publicly stated that the exchange of diplomatic notes in September 2003 followed as a "second significant event" the 1998 implementation of the agreement, which permitted transfers of nuclear reactor fuel and components "based on case-by-case review." Then, the diplomatic notes "confirmed conditions and assurances governing transfers of nuclear technology which are not covered by the agreement, and those notes provided as well for a case-by-case review." The NRC issued licenses for export of nuclear reactor components under the nuclear cooperation agreement, while the DOE authorized transfers of nuclear technology to China for its civilian nuclear power program based on the PRC's "written nonproliferation assurances." The Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA) of 2010 ( P.L. 111-195 ), which became law July 1, 2010, contains additional restrictions on licensing nuclear exports to countries with entities that have been sanctioned for conducting certain types of energy-related transactions with Iran. Section 102(a) of CISADA prohibits the issuance of nuclear export licenses under a 123 Agreement for any country whose nationals have engaged in activities with Iran relating to the "acquisition or development of nuclear weapons or related technology, or of missiles or other advanced conventional weapons that are designed or modified to deliver a nuclear weapon." The President can waive the provision by making a determination and notification to the appropriate congressional committees that the country did not know or have reason to know about the activity, or if the country is taking "all reasonable steps" to prevent recurrence and penalize the person involved.
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Negotiated by the Reagan Administration nearly 30 years ago, the current U.S. peaceful nuclear cooperation agreement with the People's Republic of China (PRC) is set to expire on December 30, 2015. President Obama submitted a new 30-year U.S.-China nuclear cooperation agreement for congressional review on April 21, 2015. Among other provisions, the agreement would allow for uranium enrichment up to a level less than 20% U-235 and Chinese reprocessing of U.S.-obligated material at safeguarded facilities. The required congressional review period ended on July 31. Such agreements are often called "123 agreements" because they are required by Section 123 of the Atomic Energy Act of 1954, as amended (P.L. 95-242). They are a prerequisite for any significant nuclear cooperation with another country, such as exports of nuclear power plants and components and the transfer of nuclear material. Since the original agreement was concluded before China was a member of the Nuclear Nonproliferation Treaty (NPT), some changes to the text were required. The recently submitted renewal agreement complies with the relevant provisions of the Atomic Energy Act and therefore was subject to a review period totaling 90 days of continuous session. If no resolution of disapproval is passed into law before that deadline, then the agreement may enter into force. No resolution of disapproval was passed. Almost 13 years passed between the time President Reagan submitted the current 123 agreement to Congress in July 1985 and its implementation in March 1998 under President Clinton. While Congress did not reject the agreement outright, it passed a Joint Resolution, P.L. 99-183, which required that certain nonproliferation-related certifications be made by the President before the agreement could be implemented. P.L. 99-183 required a presidential certification and a report followed by a period of 30 days of continuous session of Congress. After the 1989 Tiananmen Crackdown, Congress enacted sanctions in P.L. 101-246, the Foreign Relations Authorization Act for Fiscal Years 1990 and 1991, suspending nuclear cooperation with China and requiring an additional presidential certification on the PRC's nuclear nonproliferation assurances. Ahead of a summit with the PRC, President Clinton, on January 12, 1998, signed certifications (as required by P.L. 99-183) on China's nuclear nonproliferation policy and practices. Clinton also issued a certification and waived a sanction imposed under P.L. 101-246. Congressional review ended on March 18, 1998, allowing the agreement to be implemented. U.S. nuclear commerce with China has expanded in the past decade. On February 28, 2005, Westinghouse submitted an initial bid to sell four nuclear power reactors to China, as supported by the Bush Administration. In Beijing in December 2006, Energy Secretary Samuel Bodman signed a bilateral Memorandum of Understanding that granted the deal to Westinghouse. The first four Westinghouse reactors under the deal are now being constructed, with six more planned and as many as 30 more proposed. At the same time, some Members of Congress continue to question whether China is fulfilling its nonproliferation commitments, particularly regarding transfers to North Korea by Chinese entities. Proliferation sanctions on Chinese companies and individuals remain in place, and the United States cooperates with China in improving export control and detection systems. In addition, China continues to develop its own nuclear arsenal. Along with the text of the agreement, the President submitted a Nuclear Proliferation Assessment Statement that evaluates these issues. As Congress reviewed the terms of this agreement, it also examined the PRC's record on nuclear proliferation. A key issue for the U.S. nuclear industry is its continued participation in the construction of new Chinese nuclear power plants.
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The steady growth within U.S. borders of new immigrant populations, whose primary language is other than English, has created a public policy divide on issues of language diversity. On one side, opposition to expanded foreign language use has led at least 30 states to enact statutes or amend state constitutions to declare English the official state language. Federal statutes and the U.S. Constitution, however, have traditionally afforded some legal protection to minority language rights. For example, the Voting Rights Act of 1965, as amended, mandates the use of bilingual voting materials in states and political subdivisions when certain conditions are met. Other federal statutory safeguards include Title VI of the 1964 Civil Rights Act and the Equal Educational Opportunities Act. In addition, state and federal policies mandate the use of languages other than English when necessary for effective delivery of public and private services to non-English speakers in judicial and law enforcement proceedings, health and managed care services, conduct of state and local administrative agencies, business and professions, elections, and other critical areas. Congressional proposals to install English as the official language of the United States reflect yet another aspect of the complicated ongoing national debate over federal immigration policy. The modern "Official English" movement in Congress is traceable to the mid-1980's, when various proposals to achieve linguistic uniformity by constitutional amendment were considered. When that approach failed, Congress renewed its efforts to codify English as the official language, proceeding on a statutory track. This effort culminated in 1996 with House passage of H.R. 123 , declaring English the official language of the United States Government and restricting other linguistic usage in the conduct of "official" governmental business. The "Language in Government Act" passed the House in the 104 th Congress but died in the Senate. Substantially amended versions of this earlier measure, however, have appeared in subsequent legislative sessions. For example, during the 109 th Congress, the Senate adopted the Inhofe Amendment as part of its comprehensive immigration reform package ( S. 2611 ), declaring English to be our "national language" and calling for a governmental role in "preserving and enhancing" the role of English. An alternative offered by Senator Salazar also passed the Senate; it would have recognized English as the "common and unifying language of the United States," while protecting existing rights of non-English speakers "to services and materials provided by the government" in languages other than English. In the 110 th Congress, both the Inhofe and Salazar proposals were once again approved as amendments to a comprehensive immigration reform bill that was under consideration in the Senate ( S. 1348 ). The Inhofe proposal was reintroduced in the 111 th Congress as a stand-alone bill ( H.R. 1229 / S. 992 ), as were several other similar bills, but no action was taken. Standing alone, a legislative declaration of English as the "official" or "national" language of the United States would be a largely symbolic act of negligible legal effect. Although an affirmation by the Congress of the central place of English in our national life and culture, such a pronouncement would not, of its own force, require or prohibit any particular action or policy by the government or private persons. Nor would it, without more, imply the repeal or modification of existing federal or state laws and regulations sanctioning the use of non-English for various purposes. As in the past, however, any official English proposals introduced in Congress would give varying force to this declaration depending on the degree to which they would propose adherence to English in various governmental activities at the federal and state level. An example of legislation introduced during the 111 th Congress illustrates this concept. The bill proposed by Senator Inhofe in the 111 th Congress ( H.R. 1229 / S. 992 ) included elements from earlier legislative proposals. Declaring English to be our "national language," the measure called on "the Government of the United States ... [to] preserve and enhance" the role of English, and except as otherwise provided by statute, would have denied any private "right, entitlement, or claim" to non-English governmental services or materials. In terms of its jurisdictional scope, the Inhofe bill appeared to be limited to actions of the federal government rather than the states and localities. Indeed, the major controversy over the bill and its predecessors appeared to center on the measure's potential effect on Executive Order 13166, a Clinton-era order directing federal departments and agencies to ensure that individuals with limited English proficiency (LEP) are provided meaningful access to programs and activities conducted by the federal government or by recipients of federal financial assistance. Although proponents of the Inhofe measure appeared concerned that E.O. 13166 currently guarantees LEP individuals the right to receive government services or materials in a language other than English and seemed to believe that the amendment would therefore invalidate E.O. 13166, it is unclear whether either premise is correct. Indeed, although E.O. 13166 directs federal agencies and recipients to provide meaningful access to LEP individuals, nothing in the order currently grants such individuals an enforceable right to receive documents in a language other than English. As a result, it is unclear whether the Inhofe proposal, which did not actually prohibit the federal government from providing services or materials in languages other than English, would have altered existing law. In addition, because the amendment would have denied any right, entitlement, or claim to documents in languages other than English "unless specifically provided by statute," it would not have precluded language claims brought pursuant to Title VI of the Civil Rights Act. (Both E.O. 13166 and Title VI are discussed in more detail in the following section.) Ultimately, given its largely symbolic declaration that English is the "national" or "common" language of the United States and its limited impact on existing laws regarding services or materials provided by the federal government in languages other than English, it appears that, had it been enacted, the Inhofe proposal would not have had a significant effect on current law. The interplay of previously proposed legislation with current federal foreign language policy is perhaps best illustrated by E.O. 13166 and departmental regulations by the federal government issued thereunder. That order, issued by President Clinton in 2000, directed each federal department and agency to "implement a system" for insuring that persons with limited English proficiency (LEP) are provided "meaningful access" to programs and activities conducted by the federal government and by recipients of federal financial assistance covered by Title VI of the 1964 Civil Rights Act. A policy guidance document, released by the Department of Justice (DOJ) on the same day, and referenced in the order, set forth "compliance standards that recipients must follow to ensure that the programs and activities that they normally provide in English are accessible to LEP persons and thus do not discriminate on the basis of national origin in violation of Title VI ... and its implementing regulations." Each federal grant-making agency was to tailor the general standards of the DOJ guidance into an approach "ensuring meaningful access by LEP persons that is practical and effective, fiscally responsible, responsive to the particular circumstances of each agency, and can be readily implemented." The DOJ guidance notes that Title VI and its regulations require recipients of federal funds to take reasonable steps to insure "meaningful" access to information and services they provide. What constitutes reasonable steps, the document advises, will be contingent on a number of factors, such as the number and proportion of LEP persons in the eligible service population, the frequency with which LEP individuals come into contact with the program, the importance of the service provided by the program, and the resources available to the recipient. In balancing factors for determining what steps are reasonable, agencies are to particularly address the appropriate mix of oral and written language assistance. Acknowledging that written translations are a "highly effective way" of communicating with LEP persons, the document states that oral communication may also be a necessary part of the exchange of information. LEP persons include those born in other countries, some children of immigrants born in the United States, and other non-English or limited English proficient persons born in the United States, including some Native Americans. In its guidance, DOJ cited Lau v. Nichols , in which the U.S. Supreme Court interpreted Title VI as requiring that a federal financial aid recipient take steps to insure that language barriers do not exclude LEP children from effective participation in public educational benefits and services. Lau involved a group of Chinese students in the San Francisco public school system who received classroom instruction solely in English. The Court ruled that the failure to provide such students with supplemental instruction in their primary language violated the Title VI ban on national origin discrimination. The DOJ document extrapolates an extension of the Lau doctrine beyond education to other contexts. Note, however, that while the Lau precedent remains intact, its value as precedent may be diminished somewhat by subsequent judicial developments, most notably the Court's decision in Alexander v. Sandoval . The Court's ruling in the Sandoval case was decided after publication of the DOJ guidance, although DOJ has taken the position that the Sandoval decision did not strike down the Title VI regulations that form the basis for Executive Order 13166. At issue in Sandoval was the State of Alabama's "English-only policy" requiring all aspects of its driver's license examination process, including the written portion, to be exclusively in English. In rejecting a Mexican immigrant's claim that the state policy violated Title VI because of its "disparate impact" on ethnic minorities, a five Justice majority ruled that Congress did not intend a private right of action to enforce Title VI except as a remedy for intentional discrimination. Federal regulations prohibiting state practices that have a discriminatory impact, regardless of intent, could not provide a basis for private lawsuits. Sandoval , however, did not directly confront federal agency authority, previously acknowledged by the Court, to enforce Title VI compliance administratively with rules condemning practices discriminatory in their effect on protected minority groups. Thus, at least for now, "disparate impact" rules—mandating language assistance for non-English proficient clients of federally financed programs—may still be enforced by the government, just not by private litigants. However, some previous congressional proposals would arguably have negated any private Title VI remedy for linguistically-based ethnic discrimination. And any requirement regarding the government's "affirmative obligation" to promote English could portend similar perils for agency rules condemning the disparate impact of English-only policies under Title VI. Judicial decisions involving the constitutional implications of government language policies have arisen in a variety of legal contexts. One series of cases has involved non-English speaking plaintiffs who have unsuccessfully sought to require the government to provide them with services in their own language. In Soberal-Perez v. Heckler , for example, the Second Circuit rejected an action on behalf of Hispanic individuals of limited English proficiency who claimed that the equal protection and due process clauses of the Constitution required the Secretary of Health and Human Services to provide them with Social Security forms and instructions in Spanish. The appeals court could find no basis for the constitutional and related statutory claims since the Secretary's action bore a rational relationship to a legitimate governmental purpose: We need only glance at the role of English in our national affairs to conclude that the Secretary's actions are not irrational. Congress conducts it affairs in English, the executive and judicial branches of government do likewise. In addition, those who wish to become naturalized citizens must learn to read English.... Given these factors, it is not irrational for the Secretary to choose English as the one language in which to conduct her official affairs. The federal courts have similarly found no constitutional duty on the part of government to provide certain other forms of official notice or services to individuals in their native tongue. These cases, however, hold only that in the circumstances involved, non-English speakers have no affirmative right to compel government to provide information in a language that they can comprehend. They do not address the converse issue of legislative power to restrict official speech in languages other than English as a matter of state or national policy. Another body of judicial authority has found that certain state law restrictions on linguistic diversity may act as a "proxy" for national origin discrimination or infringe upon First Amendment free speech rights. In Meyer v. Nebraska , for example, the Supreme Court found that a state law prohibiting modern foreign language instruction in any school, public or private, before the ninth grade violated Fourteenth Amendment due process because it infringed upon the liberty of parents to make educational choices for their children. According to the Meyer Court: [t]he protection of the Constitution extends to all, to those who speak other languages as well as to those born with English on the tongue. Perhaps it would be advantageous if all had ready understanding of our ordinary speech, but this cannot be coerced by methods which conflict with the Constitution—a desirable end cannot be promoted by prohibited means. Meyer was applied by the Court in Farrington v. Tokushiga to invalidate a Hawaii statute that singled out "foreign language schools," such as those in which Japanese was taught, for stringent government control. The state's purpose for regulating language instruction in Tokushiga was "in order that the Americanism of the students may be promoted." Similarly, the governmental interests asserted in defense of the Meyer statute were "to create an enlightened American citizenship in sympathy with the principles and ideals of this country," "to promote civic development," and to prevent inculcation in children of "ideas and sentiments foreign to the best interests of the country." Despite a judicial acknowledgment of the validity of such goals, the Court found them insufficient to warrant state interference with foreign language usage in the schools. Yu Cong Eng v. Trinidad considered the constitutionality of a Philippine law forbidding Chinese merchants from keeping their business account books in Chinese, the only language they knew. Finding that enforcement of the law "would seriously embarrass all of [the Chinese merchants] and would drive out of business a great number," the Court held that the law denied the merchants due process and equal protection under the Constitution. Although based on the substantive due process doctrine of an earlier period, reverberations of Yu Cong Eng and Meyer may be found in rulings of more recent vintage. In Hernandez v. New York , for example, the Court determined that peremptory challenges directed at Latino jurors because of their bilingualism and demeanor were not unconstitutional because the factors motivating the prosecutor's action in that case did not function as a proxy for race. Writing for the plurality, however, Justice Kennedy stated that: [w]e would face a quite different case if the prosecutor had justified his peremptory challenges with the explanation that he did not want Spanish-speaking jurors. It may well be, for certain ethnic groups and in some communities, that proficiency in a particular language, like skin color, should be treated as a surrogate for race under an equal protection analysis. The U.S. Supreme Court in Arizonans for Official English v. Arizona side-stepped constitutional controversy when it vacated for procedural irregularities a ruling by the Ninth Circuit voiding Arizona's official English law. In 1988, Arizona voters had approved by referendum a state constitutional amendment providing that English is the official language of the State of Arizona and that the state and its political subdivisions—including "all governmental officials and employees during the performance of government business"—must "act" only in English. A former insurance claims manager for the state who spoke both English and Spanish in her daily service to the public argued that the law had a silencing and chilling effect on constitutionally protected speech of bilingual, monolingual, and Spanish-speaking public employees and their clients. Despite assertions by Arizona's Attorney General that communications "to facilitate delivery of governmental services" were not "official acts" covered by the law, the Ninth Circuit held that the "plain wording" of the law defied such limitation and was an overly broad restriction on free speech rights of state employees and the public they served. The First Amendment analysis applied by the 6-5 en banc majority of the Ninth Circuit required balancing the right of public employees to speak on matters of "public import" against the government's legitimate interest as an employer "in achieving its goals as effectively and efficiently as possible." Although the government may generally regulate public employee speech concerned simply with "matters of personal or internal interest," the Arizona law "significantly interfere[d]" with "communications by or with government employees" related to "the provision of government services and information," a form of public discourse entitled to greater constitutional protection. Moreover, the efficiency and effectiveness considerations constituting fundamental governmental interests in the usual "public concern" case—and that provide the justification against which the employee's First Amendment interests must be weighed—were found totally lacking by the Ninth Circuit. Indeed, the appeals court determined that government efficiency would actually be promoted rather than hindered by permitting public employee speech in languages other than English. Nor was the state's asserted interest in forging "unity and political stability" by "encouraging a common language" sufficient to warrant restrictions on foreign language usage. The Supreme Court vacated and remanded the case, in effect leaving the Arizona law intact for the time being. Speaking for a unanimous Court, Justice Ginsburg declared the case moot since the plaintiff had resigned from state employment prior to appeal and had never sought to have the case certified a class action. In addition, the Justices had "grave doubts" whether Arizonans for Official English, original sponsors of the ballot initiative, had standing to appeal the case as a party after the Arizona Governor declined to do so. Finally, the federal district and appeals courts had erred by failing to certify unsettled state-law questions regarding the scope of the English-only amendment to the Arizona Supreme Court for "authoritative construction" before proceeding with the case. The Supreme Court thus left a constitutional ruling on the Arizona Official English law for another day. In 1998, the Arizona Supreme Court decided Ruiz v. Hull , holding that the state's English-only amendment violated the First Amendment and the Equal Protection Clause. Like the Ninth Circuit, the Arizona Court found a core First Amendment right in a citizen's ability to receive essential information from government officials and to petition the government for redress of grievances. According to the opinion, the state law "effectively cuts off governmental communication with thousands of limited-English-proficient and non-English-speaking persons in Arizona, even when the officials and employees have the ability and desire to communicate in a language understandable to them." Applying strict scrutiny analysis, Ruiz held the English-only amendment violated the First Amendment because it was overbroad and could not satisfy the compelling state interest test. The Arizona Court also found an Equal Protection violation based on earlier precedents establishing a "fundamental individual right of choice of language." Pending a definitive federal court ruling, however, the constitutionality of restrictive official English policies remains a somewhat unsettled matter. Besides voting rights, federal statutory requirements regarding foreign language interpretation and use are included in various other federal programs and activities. For example: American Indians: Congress enacted the Native American Languages Act to "preserve, protect, and promote the rights and freedom of Native Americans to use, practice, and develop Native American languages." (25 U.S.C. § 2903(1)) The law is supported by congressional findings relative to the "unique" and "special" status of Native-American language and culture, and to the need for the "United States, individual States, and territories to encourage the full academic and human potential achievements of all students and citizens and to realize these ends ... " ( Id. at § 2901) Specifically, in regard to education, the declaration of policy "encourage[s] and support[s]" the use of Native American languages "as a medium of instruction" in Indian schools, and also "encourages" all other "elementary, secondary, and higher education" institutions to "afford full academic credit" and "include Native American languages in the curriculum in the same manner as foreign languages." ( Id. at § 2903) In aid of this policy, the statute further provides that "[t]he right of Native Americans to express themselves through the use of Native American languages shall not be restricted in any public proceeding, including publicly supported education programs." ( Id. at § 2904) Federal departments and agencies are to evaluate their policies and procedures, and laws within their administrative jurisdiction, for compliance with the stated policy, but no procedure for governmental enforcement of the linguistic "right" created by the law is provided. Immigration: Interpreters must be provided during physical and mental examinations of alien immigrants seeking entry into the United States (8 U.S.C. § 1222 (b)). Judicial proceedings: The Director of the Administrative Office of the U.S. Courts is to establish a program for the use of foreign language interpreters in federal civil and criminal proceedings instituted by the United States (28 U.S.C. § 1827); courts may appoint interpreter to be paid by the government in federal criminal proceedings (Rule 28, Fed. R. Crim. Proc.); service of judicial process by the United States and state courts on a foreign state, its political subdivisions, agencies, or instrumentalities must be accompanied by a translation "into the official language of the foreign state" (28 U.S.C. § 1608); employment of interpreters in court-martial, military commission, or court of inquiry proceedings is required, if needed. (10 U.S.C. § 828). Social and health care services: Notices must be provided "in language that is easily understandable to reader" under various Social Security Act programs (42 U.S.C. §§ 405, 1383). Foreign language interpreters or translations are required in connection with federally funded migrant and community health centers (42 U.S.C. §§ 254b(b)(1)(a)(iv) and 254b(j)); in a grant program for certain health care services for the homeless (42 U.S.C. § 256); in alcohol abuse and treatment programs, which serve a substantial number of non-English speaking persons (42 U.S.C. § 4577(b)); and in the grant program for supportive services under the Older Americans Act (42 U.S.C. § 3030d(a)(3)). Agriculture: Department of Agriculture funds may be used for translation of publications into foreign languages (7 U.S.C. § 2242b). As noted, 30 states have adopted Official English laws in various forms. Some enactments make a simple declaration of English as the official state language, without more. Others arm state legislatures with power to enforce linguistic uniformity, or otherwise to preserve and enhance the official role of the English language. More specific measures expressly prohibit or restrict, in one fashion or another, foreign language usage by state agencies or employees in the conduct of official business. Specific exceptions to English-only requirements are frequently included, however, particularly where necessary to comply with federal law. Meanwhile, a plethora of other laws have also been enacted by various state legislatures to facilitate communication with persons of limited English proficiency in the provision of needed public and private services. For example, most states require the use of interpreters in courtroom and other law enforcement settings, while many states require similar services for LEP individuals appearing before administrative agencies or seeking health care. Similar requirements regarding interpretation and translation also appear in state laws pertaining to professional licensing, business and employment, state and local elections, and military justice.
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Congressional proposals to install English as the official language of the United States reflect yet another aspect of the complicated ongoing national debate over immigration policy. The modern "Official English" movement may be traced to the mid-1980s, when various proposals to achieve linguistic uniformity by constitutional amendment were considered. While these earlier federal efforts failed, some legislation promoting official English laws at the state level was more successful. At least 30 states have laws declaring English to be the official state language. In response, renewed congressional efforts to codify English as the "official" or "national" language by statute largely replaced the constitutional amendment approach of earlier years. For over a decade, legislation that would either declare English the official language of the United States government or that would oppose such declarations has been introduced in Congress. This report discusses the legal effect of some of these congressional proposals, as well as current federal policy on foreign language assistance, the constitutional law implications of official English proposals, and legal issues regarding state laws on official English.
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RS20798 -- Taiwan: Findings of a Congressional Staff Research Trip, December 2000 January 31, 2001 Background. Elected in March 2000 with 39% of the popular vote, (1) Taiwan President Chen Shui-bian hassince faced an uncooperative legislature and has endeavored to establish a firm grip on his government. Chen'sDemocratic Progressive Party (DPP) currentlyholds only 67 seats in Taiwan's 225-member legislature, the Legislative Yuan. The Nationalist Party, orKuomintang (KMT), which lost the presidential election- the first time it has not ruled the Republic of China (ROC) - holds a plurality of 109 seats. Together, threeopposition parties - the KMT, the New Party, and thePeople First Party (PFP) - which tend to be economically and politically conservative compared to the DPP andmore inclined to consider eventual unificationwith China, have blocked, thwarted, and defied many of Chen Shui-bian's policies. Because the DPP lacksadministrative experience, many leadership postswithin the government remain filled by KMT members. Chen Shui-bian has faced several contentious issues during his first several months as President. These include: an economic downturn; labor demonstrations; Chen's anti-corruption campaign aimed at KMT vote-buying and gang-related politics ("black gold"); and PremierChang Chun-hsiung's announcement that workon Taiwan's fourth nuclear power plant, a project begun by the previous KMT government, would be halted. Opposition members have threatened to introducemotions of no confidence in Premier Chang and to recall President Chen. However, they have recently backeddown, partly in response to public demands toreduce political deadlock. Research Trip Findings. Taiwan's democracy is experiencing a period of rancor and instability as it undergoesa process of political maturation. Some Taiwanese government and party officials repeated the saying that "theDPP has not yet learned how to rule while theKMT has not yet learned how not to rule." The congressional staff delegation observed severalimportant features of Taiwan's "transition politics." One, thepolitical system lacks institutions for moderating partisanship and facilitating the transfer of power. For example,few formal and informal procedures andprecedents have been established for divided government. Two, Taiwanese political parties do not have experienceforming coalitions and creating stableparliamentary majorities. Three, voter identification tends to be unstable and unpredictable. A DPP representativeexplained that political personalities, ratherthan party ideologies, drive Taiwanese politics. An American observer stated that intra-party factionalism furtherdestabilizes Taiwanese politics. Four, the massmedia, though "free," lack traditions of objective reporting. A spokesperson for the Government Information Officestated that most mass media in Taiwan,including newspapers and television, are government- or party-affiliated and politically-biased. (2) There are no firm indications about how Taiwan's political parties will fare in the December 2001 legislative elections, although no party is expected to attain amajority in the Legislative Yuan. According to an American observer at the American Chamber of Commerce(AmCham) in Taipei, while the KMT continues towield economic clout and political influence, its popularity has continued to wane for several reasons: it has notdemocratized from within, expanded its partybase, created a compelling alternative vision for the country, or produced a charismatic leader. Background. President Chen faces some troubling economic indicators. At the end of 2000, Taiwan's stockmarket had fallen by more than 50% since Chen's election and unemployment had reached a 15-year high. (3) Taiwanese investment in the People's Republic ofChina (PRC) nearly doubled in 2000, which resulted in the transfer of many skilled and high tech jobs to themainland. According to some estimates,non-performing loans have reached 12-17 percent of all Taiwan bank loans. (4) Research Trip Findings. An expert at the American Institute in Taiwan (AIT), which conducts U.S.-ROCrelations, stated that the notion of a "troubled" Taiwanese economy is more a perception than a reality. Nonetheless,AIT officials envisioned several long-termtrends that would challenge the Taiwanese economy. These include declining exports to the United States,increasing imports from abroad if Taiwan joins theWTO, (5) greater economic competition from China,the loss of global competitive advantage of some Taiwanese export items, and falling consumer demand athome. Some American and Taiwanese economic analysts viewed China as the key to Taiwan's continueddevelopment. They told the delegation that the PRC'saccession to the WTO and direct trade, transportation, and communication between the mainland and Taiwan wouldfurther open China to Taiwanese investmentand exports. Because of a common language and culture, Taiwanese investors and traders on the mainland alreadyhave an edge over their American, Japanese,and European counterparts. However, ROC government officials stated that some restrictions on investment inmainland China were necessary in order to helppreserve Taiwanese technological superiority, economic autonomy, and political leverage. DPP Policy. The platform of the DPP has long advocated independence for Taiwan. (7) However, in hisinauguration speech of May 20, 2000, Chen Shui-bian promised that, as long as the PRC did not use military forceagainst Taiwan, he would not declareindependence. (8) Analysts have posited several factorsand considerations that may explain Chen's break from past positions and pro-independence members inhis party, including Chen's pragmatic nature, pressure from the PRC, Taiwanese public opinion, and U.S.-Chinarelations. Opposition Party Efforts. While President Chen and the PRC government have made little progress in breakingthe impasse on opening formal talks, many opposition lawmakers - up to one-third of the legislature - reportedlyhave gone to Beijing to engage in informaldiscussions on cross-strait issues. They and the PRC government have appeared eager both to resume the dialoguethat broke off in 1995 and to underminePresident Chen's role in the process. (9) Chen Shui-bianhas expressed a willingness to resume cross-strait talks, but without agreeing to the PRC's "one-Chinaprinciple" as a starting point. By contrast, opposition leaders have been more accepting of the "one-China" principleas a basis of negotiations. (10) Research Trip Findings. Taiwanese and American political experts told the delegation that following the March2000 presidential election, both the DPP and the KMT have taken more conciliatory stances toward the mainland. The KMT has downplayed former PresidentLee Teng-hui's suggested "state-to-state" framework for negotiations. The DPP has conveyed greater acceptanceof the idea that some political accommodationwith the PRC is inevitable, while the independence faction within the party has been marginalized. Severalgovernment officials privately suggested that VicePresident Annette Lu, an ardent member of the independence faction, does not enjoy widespread public support. An official at the ROC Mainland Affairs Council (MAC) stated that DPP and KMT positions on cross-straitissues have converged somewhat. Both partiessupport the "status quo" - a position of neither independence nor unification - for the time being. Both put forthdemocratization on the mainland as a conditionfor substantive moves toward greater political ties or unification. A DPP authority on international affairs cautioned,however, that the maintenance of Taiwan'ssovereignty is still a central goal of the party. He suggested that sovereignty could be achieved in two ways -through independence or a cross-strait politicalarrangement that is mandated by the Taiwanese electorate. Background. Despite the uncertain and often tense political atmosphere, cross-strait economic ties have grownconsiderably since the late 1980s. Bilateral trade was worth $25.8 billion in 1999, up 14.5 percent from 1998. Inthe first half of 2000, cross-strait trade increased29%. According to PRC data, Taiwan is China's largest source of imports. Taiwanese firms have invested anestimated $40 billion in more than 40,000enterprises on the mainland. Some analysts report that business interests on both sides of the strait are pursuinggreater economic cooperation in preparation forPRC and ROC accession to the WTO. (11) Research Trip Findings. Taiwanese leaders explained that growing economic ties with the mainland havecreated a dilemma for the new government. On the one hand, the mainland economy provides ample opportunitiesfor Taiwanese businesses. Economicinterdependence may also discourage the PRC from using force against Taiwan. On the other hand, Taiwaneseofficials worried, increased investment may causeTaiwan to lose jobs and technological know-how to the mainland. Furthermore, if the Taiwanese economy wereto become too intertwined with that of themainland, it may become vulnerable to economic shocks on the mainland or Taiwan may become beholden to PRCpolitical demands. Nonetheless, the DPP hascautiously encouraged greater trade and investment. President Chen has considered easing existing restrictions onTaiwanese businesses, which apply tolarge-scale investment, construction, and high tech manufacturing on the mainland. On January 2, 2001, the Chenadministration formally opened two ROCoffshore islands to trade and travel with the mainland as a precursor to broader direct links. (12) Research trip findings. (13) Officials of the ROC government and military establishment discussed military andpolitical solutions to the cross-strait tensions. Officials at the Ministry of National Defense raised several concerns. First, they articulated Taiwan's requirementsfor more sophisticated U.S. armaments in general. (14) Second, Taiwanese military leaders discussed their inability to fully utilize some U.S. hardwarebecause ofthe need for components, military training, and joint exercises. Third, they expected the PRC-Taiwan dialogue toresume within two years and help diffusetensions. Fourth, they expressed the desire not to unnecessarily aggravate strains in U.S.-PRC relations. ROC defense officials asserted that a mainland military attack was possible but not likely in the short-term. They stated, on the one hand, that the PRC still lackedthe capability to successfully invade the island. Furthermore, one official contended, although the PRC carried outmilitary exercises on a frequent basis, not all ofthem constituted preparation for an attack. An ROC general maintained that although the PRC White Paper ofFebruary 2000 added a condition for the PRC's useof force - Taiwan's "refusal" to enter into negotiations - it did not indicate greater imminence than before of amainland attack. On the other hand, Taiwanesedefense leaders argued that currently the mainland could pressure Taiwan through conducting missile tests, shootingdown Taiwanese fighters or sinking its ships,or taking over offshore islands. An American military specialist in Taipei concurred that although the ROC'sequipment and training were still superior to themainland's, a PRC missile attack could "wreak havoc" on the island and China's capabilities were expected toimprove substantially over the next five years. However, AIT officials suggested that the mainland's military buildup was not the only factor influencing the PRC's actions toward Taiwan. First, the PRCleadership is likely split between hardline and liberal factions. Second, the PRC leadership is torn betweenconflicting goals: the PRC government's antipathytoward foreign interference in China's "domestic affairs" and frequent exploitation of Chinese nationalism may fuelmilitaristic behavior; China's emphasis oneconomic development and aspirations for international prestige may discourage a military solution. Thus,considerations of coercive actions against Taiwan maybe checked by their perceived economic and political costs. AIT officials described the critical U.S. policyobjectives as encouraging liberal forces in PRCpolitics and raising the economic and political as well as military costs to the PRC of using force against Taiwan. Two trends have helped to stabilize PRC-Taiwan relations in the short term. First, the development of real political competition in Taiwan has encouraged themajor parties to appeal to the center of the political spectrum. Democratic politics has given strong voice sinceChen's election to the current majority view thatthe status quo in cross-strait relations should be maintained. Although Beijing, the DPP, and opposition parties maydisagree about means and objectives, thestatus quo at least allows for future talks on the issue. The timing of negotiations, however, may depend upon theoutcome of the December 2001 legislativeelections. Second, cross-strait economic ties, which have been bolstered by the prospect of WTO membership forboth sides, have raised the economic andpolitical costs of a military conflict for Beijing and Taipei. Other factors may add to tensions in the future. PRC foreign policy mishaps or social unrest stemming from economic reforms may trigger renewed governmentemphasis on Chinese nationalism. China's military modernization also bears watching.
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This report summarizes findings from a congressional staff trip to Taiwan (Republicof China), December 10-17,2000, with supplemental material from other sources. The staff delegation met with Taiwan government andmilitary officials, political party representatives,leading private citizens, and United States officials and business persons in Taipei, the capital. The findings includemajor factors that have shaped relationsbetween Taiwan and the People's Republic of China (PRC) since Chen Shui-bian's election as President of Taiwanin March 2000. Taiwan's democratization andthe growth of cross-strait economic ties have, in some respects, helped to stabilize relations in the short run. Taiwan's legislative elections in December 2001 willlikely focus largely on domestic issues; its impact on cross-strait relations is uncertain. Chinese nationalism andmilitary modernization in the PRC will likelycontinue to contribute to tensions. This report will not be updated.
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The United States Army and Marine Corps have been at war—first in Afghanistan and, then Iraq—since November 2001. In a similar manner, the Marine Corps has deployed its forces and equipment in what has been described as "the harsh operating environments of Iraq and Afghanistan" where the heat, sand, and dust as well as operational rates "well in excess of peacetime rates" have taken a heavy toll on the service's equipment, which, in some cases, was more than 20 years old when the conflicts first began. Equipping Reserve and National Guard units also presents challenges to the services. Traditionally, the Army National Guard and Reserve have been characterized as under-equipped and often times equipped with older equipment than their Active component counterparts. The Army has committed to both man and equip the Army Reserves and National Guard in a similar manner to the Active component. The Army and Marine Corps are also undertaking efforts to re-equip their pre-positioned stocks which were drawn upon to provide equipment for use in Afghanistan and Iraq. The Army and Marines are also actively pursuing the acquisition of new equipment based on wartime experiences. The Army and Marines have a number of equipment-related challenges to rectify which may require significant funding and management efforts. Equipping Army and Marine units has been a long-standing concern of Congress that has taken on added importance as weapons and equipment have become exponentially more sophisticated and expensive. With few exceptions, almost all Army and Marine Corps units have historically faced equipment shortages. In these cases, units either "made do" with the equipment on hand or, if leadership directed, equipment could be transferred from one unit to another—referred to as "cross leveling"—to increase a unit's equipment holdings at the expense of another unit or organization. Reserve forces, which in the past constituted the nation's "Strategic Reserve," usually had less equipment than their active duty counterparts and much of this equipment tended to be older models. Protracted conflicts—like Afghanistan and Iraq—serve the purpose of identifying what equipment works and what equipment does not, as well as identifying requirements for new equipment. In the later case, the wars in Iraq and Afghanistan have generated requirements for new equipment such as Mine-Resistant, Ambush-Proof (MRAP) vehicles. Protracted conflicts also dramatically increase equipment operational usage rates, resulting in reduced useful life and increasing repair and replacement requirements. There are a number of dimensions to equipping Army and Marine Corps units that are examined in the following sections. Equipping units might appear to be a relatively straight forward exercise, but there are a variety of factors involved. Funding is perhaps the foremost issue, as funding is often limited, requiring the services often to make trade-offs between equipment needed to sustain operations and equipment for reorganization or modernization efforts. Another issue is that even if funds are readily available, the equipment might not be. Army officials maintain that for some systems, it can take up to three years after receiving funding before they can be fielded to units. Prior to units being deployed on operations, the Army and Marine Corps typically attempt to bring these units up to their authorized levels of both personnel and equipment. In terms of equipping forces, there are a number of options available. The first option is to requisition the needed equipment through each service's respective supply chain, but this option may not be practical if a unit's equipment needs are significant or if the unit does not have a great deal of time before it deploys. Other options for equipping units include cross-leveling and drawing equipment "in-theater" when a unit deploys. These other two options will be discussed in greater detail in following sections. Both the Army and Marines are providing their units with additional equipment over and above their peacetime authorized levels, which is placing significant equipment demands on both services. The Army maintains that its brigade combat teams (BCTs) are operating over a much wider geographical area than they were designed for and therefore require additional equipment to facilitate these dispersed operations. In addition, units such as the 10 th Mountain Division, 101 st Airborne, and 82 nd Airborne, the Army's light, largely foot-mobile infantry units, require extensive equipment augmentation—particularly vehicles—in order to operate over the large areas assigned to them. The Marines suggest that: The Marine Corps is executing a number of operational missions that are inherently ground equipment intensive. Stability and Support Operations (SASO), Counter-Insurgency (COIN), Civil Military Operations, and Foreign Military Training all require a greater quantity of equipment than our programmed levels for traditional combat operations. In order to adapt to these new mission requirements, we have revised the Equipment Density List, increasing the quantity of equipment issued to Marine Units deploying into the CENTCOM ... Our forward operating bases are not in close proximity to each other; the large distances between forward operational bases require additional vehicles, communications capabilities, and crew-served weapons over and above the standard unit Equipment Density List ... The increased ground equipment requirement, when coupled with high utilization rates, results in a Corps-wide degradation of equipment. The following table provides a selective comparison of a Marine Expeditionary Force (MEF) (Forward)—an approximately 18,000 Marine force—pre-war and revised equipment requirements. Cross-leveling is the practice of transferring equipment to a unit either from another unit or from some type of equipment pool such as pre-positioned stocks. In the case of a unit-to-unit transfer, the transferred equipment often comes from a similar-type unit, usually in a non-deployable status. Both the Army and Marines have made extensive use of cross-leveling, particularly early on in the Afghan and Iraq conflicts. The Army has kept large quantities of equipment in theater, primarily to conserve strategic transportation assets and reduce costs, but also to ensure that units are adequately equipped when deployed. This initiative—called Theater Provided Equipment (TPE)—began in late 2003 when Army units, including Active, National Guard and Reserve, were directed to leave much of their equipment in theater when they redeployed back to the United States. This equipment is then "handed-off" to units deploying to both Operations Enduring Freedom (OEF) in Afghanistan and Operation Iraqi Freedom (OIF). TPE consists of a variety of equipment items including armored vehicles, individual soldier body armor, and equipment used to counter improvised explosive devices. The Marines have also directed that equipment needed for OEF and OIF be left in theater. As previously noted, because mission requirements require additional equipment beyond a unit's peacetime equipment allowance, the Marines have developed expanded equipment packages in theater for deploying units. Both Services have also set aside pools of equipment to rapidly replace equipment damaged and destroyed during operations. The Army refers to this pool of equipment as Theater Sustainment Stocks (TSS). This includes as many as 400 different types of vehicles and equipment numbering about 174,000 pieces of equipment including, Abrams tanks, Bradley fighting vehicles, HMMWVs, and other support vehicles. The Marines also have developed a similar pool of equipment known as Forward In-Stores to replace major equipment damaged or destroyed. In late 2003, the Army directed National Guard and Reserve units to leave selected items of equipment in theater when redeploying to the United States. This equipment left behind by Guard and Reserve units is placed in both the TPE and TSS equipment pools, along with equipment left in theater by Active Army units. DOD Policy requires that the Army replace equipment transferred to it by reserve components and if that equipment is left in theater, the Army must provide "plans to replace equipment for units returning home to ensure training readiness." National Guard leadership has reportedly stated that the Army National Guard, on aggregate, has only 56% of its authorized equipment. It is not known if the Army has developed plans to replace National Guard and Reserve equipment left in Iraq and if efforts are underway to meet this DOD policy. The National Defense Authorization Act for FY2008, H.R. 4986 , authorizes $6.68 billion for National Guard and Reserve Equipment, $980 million over the President's FY2008 Budget Request. Another source for equipping Army and Marine Corps units is equipment from prepositioned stocks either ashore or afloat. Reports maintain that both the Army and Marines have drawn extensively on prepositioned stocks to support operations in Iraq and Afghanistan. While drawing on these stocks has facilitated operations in Iraq and Afghanistan, by depleting these stocks, DOD has assumed near-term operational risks if another large scale conflict breaks out. While the remnants of these prepositioned stocks provide a degree of residual capability, there are supposedly some significant inventory and maintenance shortfalls. To support operations, the Army reportedly used almost all of its prepositioned ship stocks and its stocks ashore in Kuwait and Qatar as well as some stocks in Europe. This included more than 10,000 pieces of rolling stock, 670,000 repair parts, 3,000 containers and thousands of other items of equipment. According to Marine Corps leadership, the Marines drew equipment and supplies from the Marine Corp's two prepositioning programs—the Maritime Prepositioning Force and the Marine Corps Prepositioning Program (Norway)—to support operations in Iraq and Afghanistan. Rec onstituting Prepositioned Stocks . The Army and Marines are attempting to reconstitute their prepositioned stocks. The Army is reportedly focusing on building two brigade-sized equipment sets in Kuwait and battalion sized sets in Qatar and Afghanistan. Equipment that is being used to form these sets is coming from a combination of equipment left in theater, equipment being transferred from U.S. depots, and from units around the world. Much of this equipment is described as needing "substantial repair." Reports suggest that prepositioned stocks that were being rebuilt were drawn on heavily primarily to support the Iraq "surge" resulting in the lowest level of prepositioned stocks in five years. Under normal circumstances, the Army has five full brigades' worth of prepositioned equipment available: two brigades' worth in Kuwait; one brigade in Korea, and two brigades' worth aboard ships in Guam and at the U.S. naval base at Diego Garcia. In order to provide equipment to surging forces, the Army used the afloat stocks and are also using the Kuwaiti stocks to equip units. Only the South Korean stocks are largely intact. According to former Chief of Staff of the Army General (GEN) Peter Schoomaker, it will take two years to rebuild the prepositioned stocks, a fact that worries both military officials and Congress, as these equipment shortages severely limit the Army's ability to respond to other military contingencies. The Army estimates that it will require an additional $2.2 billion to replace prepositioned equipment that was issued to support the "surge." The wars in Afghanistan and Iraq have generated a variety of equipment requirements. These requirements range from developing new equipment, providing commercially-available equipment to service members and units, and modifying existing equipment. The early years of the Afghan and Iraq wars revealed deficiencies both in quantity and quality of protective equipment such as body armor for individual troops and armor protection for wheeled vehicles. Congressional involvement has played a significant role in focusing DOD's attention and resources in addressing these force protection deficiencies, which have seen significant improvement over the past few years. Body armor remains an ongoing issue; some are concerned that the Army's M-16 series of weapons are not reliable; and one relatively current force protection initiative, the Mine-Resistant, Ambush-Proof (MRAP) vehicle, is receiving considerable attention. MRAP refers to a family of vehicles produced by a variety of U.S. and international companies that generally incorporate a "V" shaped hull and armor plating designed to provide protection against mines and improvised explosive devices (IEDs) which have been responsible for about 70% of U.S. casualties in Iraq. There are three categories of MRAPs that DOD is procuring: Category I vehicles weighing about seven tons and capable of carrying six passengers. Category II vehicles weighing about 19 tons, are capable of carrying 10 passengers and can perform a variety of missions including ambulance transport and convoy escort. Category III vehicles intended to be used primarily to clear mines and IEDs, weighing about 22.5 tons and capable of carrying up to 12 passengers. The Army and Marines have employed two versions of MRAPs (the Buffalo and Cougar, respectively) in limited numbers in Iraq and Afghanistan since 2003, primarily for route clearance and explosive ordnance disposal (EOD) operations. MRAPs have been described as providing "twice as much protection against IEDs" as uparmored HMMWVs. The Secretary of Defense, Robert Gates, has made MRAP procurement one of DOD's top priorities, and Service requirements have varied greatly. On June 28, 2007, the Joint Requirements Oversight Council (JROC) reportedly endorsed a requirement to replace every HMMWV in with a MRAP, potentially pushing the MRAP requirement to more than 23,000 vehicles. The JROC capped overall MRAP procurement at 15,374 vehicles in September 2007 but suggested that these numbers could change, based on the assessment of commanders. In June 2007, the Government Accountability Office (GAO) reported that "the Army and Marines are currently meeting theater ballistic requirements and the required amount of body armor needed for personnel in theater, including amounts needed for the surge of troops to Iraq." Both the Army and Marines are involved in efforts to improve the current Interceptor body armor systems used in Iraq and Afghanistan. On March 17, 2006, the Army issued a Safety of Use Message discontinuing the use of Dragon Skin body armor—a commercially developed product by Pinnacle Armor—that some soldiers had acquired privately for use in Iraq and Afghanistan. Army officials at the time, who had been examining Dragon Skin for potential use by the Army, stated that Dragon Skin was "not certified against small arms threats." Since the ban on Dragon Skin by the Army, Pinnacle Armor Inc., as well as others have alleged that Dragon Skin performed better on the Army's tests and subsequent private tests than the Army has suggested. On May 21, 2007, to counter these charges, the Army held a press conference where Army officials allege that Dragon Skin had "catastrophically failed" the Army's tests. On May 21, Senators Levin and McCain wrote Secretary of Defense Gates asking him to have the Directors of Defense Research Engineering and Operational Test and Evaluation "conduct a comprehensive technical assessment of the individual body armor systems currently available." During a House Armed Services Committee hearing on body armor on June 6, 2007, committee members called for additional testing for Dragon Skin body armor and the Army reportedly agreed to re-test Dragon Skin if its maker responded to the Army's current request for proposal (RFP) for new body armor. The Air Force Material Command has reportedly recommended that the Air Force prohibit Pinnacle Armor, Inc., from signing new contracts with the U.S. government due the allegation that Pinnacle Armor had made false claims about Dragon Skin meeting government testing standards. In the mid-1990s, the Army began fielding the M-4 carbine, a lighter, more compact version of the Vietnam-era M-16 rifle which had a history of malfunctioning in combat. Both M-16 and M-4 carbines are manufactured by Colt and are currently used by U.S. forces fighting in Iraq and Afghanistan. While many maintain that the M-4 is a much more reliable rifle than the M-16, it is alleged that soldiers have expressed significant concerns over the M-16's and M-4's lethality and reliability during combat in Iraq and Afghanistan. In 2004, the Army's Special Forces Operational Detachment—Delta (commonly referred to as "Delta Force") replaced their M-4 carbines with Heckler & Koch 416 carbines. The Army's program to replace the M-16 family of weapons—the Objective Individual Combat Weapon (OICW) program—began in 1994 and one component of that program, Heckler & Koch's XM-8 assault rifle, was considered by some as the M-16's/M-4's replacement. As late as 2005, the XM-8 was reportedly close to being officially approved as the Army's new assault rifle, but alleged acquisition and bureaucratic conflicts within the Army and between the Army and DOD supposedly compelled the Army to cancel the XM-8 program in October 2005. The Army reportedly plans to continue its procurement of M-16s and M-4s for "years to come," and some in Congress have called for a "open competition" to choose a successor to the M-16 and M-4 assault rifles. Replacing damaged, destroyed, and worn-out equipment arguably constitutes the most significant equipment issue - both in terms of cost and magnitude - facing the Army and Marine Corps. The process of replacing this equipment is generally referred to as "reset" by the Army and the Marines and is further defined as follows: Reset is defined as "a series of actions taken to restore unit equipment to a desired level of combat capability after returning from contingency operations." Reset includes the functions of repairing equipment and replacing equipment that has either been lost in combat or worn to the point of being uneconomically repairable. Reset also includes the function of recapitalization which is the rebuilding or systemic upgrading of currently fielded systems to a "zero time/zero miles" status which is intended to extend service life, reduce operations and support costs, and improve reliability and enhance capability—often based on lessons learned in Iraq and Afghanistan. Army leadership has credited funding and "around-the-clock work" for an increase in FY2007's reset rate. By the end of FY2007, the Army predicted that it should have reset approximately 117,000 major items of equipment, including 557 Aircraft; 1,700 Tracked Vehicles; 8,115 HMMWVs; 1,800 Trucks; 1,200 Trailers; 39,000 Small Arms; and 7,400 Generators. In FY2008, the Army hopes to reset 24 brigade combat teams (BCT), consisting of about 4,000 soldiers and about 40,000 pieces of equipment each, returning from operations in Iraq and Afghanistan. In October 2007, after a year-long study, the Army decided to combine its reset and modernization efforts into a single, two-year $50 billion program. The $50 billion price tag for this effort includes $17 billion spent on rest in FY2007, the Army's $18.4 billion supplemental funding request for FY2008, and $14.5 billion in procurement funds spent in FY2007 and appropriated for FY2008. The Army, which plans to complete this program by the end of FY2009, is said to be taking advantage of resources that they have today that they might not have in the future. Under this effort, the Army plans to go from five Abrams tank variants to two variants by 2011; go from five Bradley fighting vehicles to two by 2011; all Patriot PAC-2 missiles to PAC-3 missiles; 9,000 M-35 two and a half ton trucks to be replaced by the Family of Medium Tactical Vehicles; unmanned systems—3,000 on order for Iraq and Afghanistan; and upgraded ballistic armor protection for HMMWVs and MRAPs. Some analysts believe that this "hurry up" approach of combining reset and modernization could save the Army money, but there are concerns that by combining these efforts, separating and tracking costs and expenditures—already a significant problem—could become more difficult. The National Defense Authorization Act for FY2008, H.R. 4986 , authorizes $18.4 billion for Army reset, $4.8 billion over the Administration's FY2008 budget request. The Marines estimated that the cost to rest the Marine Corps at the end of FY2006 was $13.7 billion, a "rolling estimate that included two years worth of depot at the conclusion of the current hostilities and is thus somewhat variable." The National Defense Authorization Act for FY2008, H.R. 4986 , authorizes $8.6 billion for Marine Corps reset, $ 6.9 billion over the Administration's FY2008 budget request. There are continued concerns about the availability of equipment for reserve forces—particularly the Army National Guard—in terms of readiness to address domestic responsibilities as well as when these units are deployed to Iraq and Afghanistan. In January 2007, Government Accountability Office (GAO) noted that: The high use of the National Guard for federal overseas missions has reduced equipment available for its state-led domestic missions, at the same time it faces an expanded array of threats at home. On March 27, 2007, Lieutenant General H. Steven Blum, Chief of the National Guard Bureau, told the House Subcommittee on Readiness that the Army National Guard had only 40% of its required equipment on-hand, with an additional 11% of that equipment either deployed with units or left in theater for other units to use. Lieutenant General Blum further maintained that this situation hindered the ability to train units and could slow the National Guard's domestic response to disasters or terrorist incidents. Recent reports suggest that National Guard soldiers training for deployment to Iraq and Afghanistan are not able to train with the same rifles, HMMWVs, night vision, and other types of equipment that these soldiers will be issued when they arrive in theater which has raised questions as to how well these units will be able to function in combat when they are provided equipment that they are not familiar with? The Army has reportedly pledged to spend $21 billion over the next four years to re-equip the National Guard, but some are concerned that this equipment will instead be deployed to Iraq to support the "Surge" instead of being used to re-equip depleted National Guard units at home as they prepare to support domestic missions and train for overseas deployments. Given these concerns, Congress might decide to examine DOD's and the Army's plans to re-equip National Guard units. Such an examination could focus on how units will be re-equipped to deal with domestic responsibilities and also how these units will be provided with the same equipment that they will receive upon deployment for home-station training in the United States. This examination might also examine how DOD and the Army plan to bring the Reserve's aggregate equipment level from about the current 40% level to at least the 80% level that Guard and Reserve leadership have called an "acceptable level" to meet both domestic and overseas requirements. Some in Congress have expressed alarm in both the extended duration of time that DOD has allocated to reconstitute prepositioned stocks as well as a lack of a comprehensive plan to reconstitute these strategic assets. In its version of the FY2008 National Defense Authorization Act ( H.R. 1585 ), the House Armed Services Committee requires DOD to submit an annual report on the status of U.S. prepositioned stocks, including funding requirements, intended future strategic use of these stocks, and strategic risk mitigation plan if these stocks are used before fully replenished. There are other potential considerations related to preposition stocks that Congress might decide to review. Will the Army and Marines reconstitute preposition stocks with equipment such as Armored Security Vehicles (ASVs), MRAPs, and other specialized equipment developed in response to wartime needs or will the Services instead replenish prepositioned stocks to pre-war authorization standards? Another consideration is the readiness status of equipment being used for replenishment. Some reports have asserted that much of the equipment being used in DOD's current restocking efforts is in poor condition and requires extensive maintenance. On November 30, 2007, the Marines reduced their MRAP requirement from 3,700 to approximately 2,300 vehicles. The Marines cited six factors in their decision: IED attacks were dramatically down over the preceding six months. The relatively heavy MRAP cannot operate or pursue the enemy off-road, in confined areas, or across most bridges. Reduced need to put Marines on high-threat roads through the use of persistent surveillance and airlift of supplies. Counterinsurgency focus requires Marines dismount and interact closely with the local populace. MRAPs associated with surge forces were no longer needed. MRAP sustainment numbers were lower due to fewer than expected combat losses. The Marine's reduction in its MRAP requirement from 3,700 to 2,300 was anticipated to result in a potential cost savings of approximately $1.7 billion in FY2008 and FY2009. The Army is also expected to cut a number of MRAPs from its current 10,000-vehicle requirement but has not yet publically committed to a specific requirement. The Army also cited decreasing casualties and IED attacks over the previous six months, as well as the need to dismount and interact with the populace, as factors in reducing its original MRAP requirement. While decreasing MRAP requirements based on the improving tactical situation in Iraq and in anticipation of a reduction in troop levels can be considered prudent management by DOD, at some point DOD will need to establish a firm requirement for the total number of MRAPs to be procured. Allegations that the successor of the Army's M-16/M-4 carbine, the Heckler & Koch's XM-8 assault rifle, was cancelled due to bureaucratic conflicts among Army and DOD acquisition officials might be an issue for congressional examination. Some may question why the Army remains committed to upgrading an almost 50-year-old weapon when other DOD organizations, such as special operations units, have adopted other weapons that are considered more reliable and effective in combat than the M-4 carbine. It can be argued that the Army has exhibited a tendency to pursue incremental improvements to legacy systems, such as repeated add-on armor upgrades to HMMWVs, instead of fully examining and rapidly procuring commercially-available systems that prove to be more effective than current systems.
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The United States Army and Marine Corps have been at war—first in Afghanistan and then Iraq—since November 2001. The Army's and Marine Corps' equipment has been employed in what has been described as "the harsh operating environments of Iraq and Afghanistan" where the heat, sand, and dust as well as operational rates "well in excess of peacetime rates" have taken a heavy toll on the Army's and Marines' equipment. Re-equipping Reserve and National Guard units that, in many cases, were under-equipped to start with and then required to leave their equipment in theater also presents challenges to the Services. The Army and Marine Corps are also undertaking efforts to re-equip their pre-positioned stocks which were drawn upon to provide equipment for use in Afghanistan and Iraq. There are also concerns that the Army and Marines have not always aggressively pursued the best force protection equipment available and the Army has been questioned on its efforts to improve the standard soldier assault rifle. Congress, in its appropriation, authorization, and oversight roles may be faced with some of the following issues: What are the Department of Defense's (DOD's) and the Service's plans to re-equip reserve forces so that they are sufficiently resourced for domestic missions and to properly train for deployments to Iraq and Afghanistan? What is the current state of pre-positioned stocks that have been drawn down again to support the Iraq "surge"? What type of equipment is being used to restock pre-positioned stocks and is this equipment fully operational or in a lesser state of readiness? How Many MRAPs does DOD intend to procure? Have bureaucratic difficulties attributed to the Army and DOD had an adverse impact on efforts to find a suitable replacement for the Army's M-16/M-4 series of assault rifles? This report will be updated on a periodic basis.
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The National Weather Service (NWS), at the discretion of the Secretary of Commerce, has statutory authority for weather forecasting and for issuing storm warnings (15 U.S.C. §313). The NWS provides weather, water, and climate forecasts and warnings for the United States, its territories, adjacent waters, and ocean areas. The 114 th Congress has expressed its interest in improving forecasts and warnings to protect life and property in the United States from severe weather events through its role in oversight, appropriations, and the authorization of language regarding NWS. NWS is one of several line offices within the National Oceanic and Atmospheric Administration (NOAA). In 2014, NWS restructured its organization structure, which is reflected in its annual congressional budget justifications since then. This report includes tables that summarize appropriated funding for NWS, and the programs within NWS that generate forecasts and warnings, and the funding for NWS in its restructured accounts since FY2014. The report also includes a table with a brief summary and analysis of various bills introduced in the 114 th Congress that would have some bearing, directly or indirectly, on NWS operations. To date, none of the bills has been enacted. NWS's core mission is to provide weather forecasts and warnings for protection of life and property. Apart from the budget for procuring weather satellites, NWS received the most funding of any agency or program within the FY2016 budget for NOAA. Prior to FY2015, NWS's Local Warnings and Forecasts (LW&F) program received approximately 70% of NWS funding each year (from FY2009 through FY2014, see Table 1 ), suggesting that short-term weather prediction and warning is a high priority for NWS and for NOAA, in accord with NOAA's statutory authority. The 122 NWS weather forecast offices distributed throughout the United States provide the forecasts and warnings familiar to most people (see box below). Starting in FY2015, NWS restructured its programs, spreading out the LW&F activities among five separate subprograms. The restructuring makes it difficult to compare funding for LW&F activities prior to FY2015 with funding for forecast and warning activities after FY2014. According to NOAA, the restructuring was "part of a broader effort to align the NWS budget to function and link to performance." Also, NOAA cited two reports that included recommendations for realigning and restructuring its operations. NOAA stated that its commitment to forecasts and warnings continues: "NWS is dedicated to serving the American public by providing a broad spectrum of weather, climate, and hydrological forecast guidance and decision support services. NWS strives to meet society's need for weather and hydrological forecast information." Table 2 displays NWS funding in the restructured accounts for FY2014 through the FY2017 proposed budget. It also shows the percentage of total NOAA funding represented by each account within NWS. As stated above, the restructuring makes it difficult to compare LW&F funding prior to FY2015 with the restructured accounting; however, total NWS funding as a percentage of total NOAA funding appears to have dropped by a percentage point or two in the last few years. The proposed budget for NWS in FY2017 is nearly $5 million less than the enacted budget in FY2016, whereas total proposed spending for NOAA in FY2017 represents an increase of slightly more than 1% over the FY2016 enacted figure. Both the House and the Senate appropriations committees have reported FY2017 appropriations bills that would fund NOAA, including NWS, for FY2017. Reports accompanying each appropriation bill contain language that may influence NWS operations in FY2017 and beyond. In addition, several bills were introduced in the 114 th Congress that, if enacted, could affect NWS. Some of the bills focus on single topics, such as increasing the number of Doppler radar stations across the country. Other bills would address a broader array of programs within NOAA and NWS. Several bills may affect NWS only indirectly, such as those that would authorize strategies to improve resilience to extreme weather events. Table 3 lists legislation introduced in the 114 th Congress that may affect NWS and briefly summarizes relevant provisions. Many different components and programs within NOAA contribute to NWS's mission of providing weather forecasts and warnings. Several of the bills listed in Table 3 indicate congressional interest in some of those components and programs, such as the research programs within the office of Oceans and Atmospheric Research at NOAA, and in the challenge of improving the integration of research results into operational weather forecasting (e.g., H.R. 1561 , S. 1331 ). Several of the bills are more narrowly focused, such as those that would require additional Doppler radars to provide coverage for large population centers or state capitals (e.g., H.R. 3538 , H.R. 5089 , S. 2058 ) or those that would require additional personnel at NWS forecast offices (e.g., S. 1573 ). NOAA weather satellites are also critical components of the NWS's core mission, and Congress has been concerned about possible gaps in coverage and about the future of the weather satellite programs. Congress has expressed concern about the future of the weather satellite program in annual appropriations bills and accompanying reports and will likely continue to do so for the foreseeable future, as the budget for satellite acquisitions continues to be a major component of overall NOAA annual spending. Furthermore, Congress likely will continue to introduce legislation that would shape NWS operations, directly or indirectly, in an overall effort to improve NWS's ability to provide forecasts and warnings for protection of life and property in the United States.
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The mission of the National Weather Service (NWS) is to provide weather forecasts and warnings for the protection of life and property. Apart from the budget for procuring weather satellites, NWS received the most funding (about $1.1 billion) of any office or program within the FY2016 budget for the National Oceanic and Atmospheric Administration (NOAA). The largest fraction of the NWS budget has been devoted to local forecasts and warnings, suggesting that short-term weather prediction and warning is a high priority for NWS and for NOAA, in accord with NOAA's statutory authority. Starting in FY2015, NWS restructured its programs, spreading out the local warning and forecast activities among five separate subprograms. The restructuring makes it difficult to compare funding for local warning and forecast activities prior to FY2015 with funding for forecast and warning activities after FY2014. According to NOAA, the restructuring was "part of a broader effort to align the NWS budget to function and link to performance." Several bills introduced in the 114th Congress would directly or indirectly affect NWS if enacted. Some of the bills focus on single topics, such as increasing the number of NWS-operated Doppler radar stations across the country (e.g., H.R. 3538, H.R. 5089, S. 2058). Other bills would address a broader array of programs within NOAA and NWS (e.g., H.R. 1561, S. 1331, S. 1573). Several bills may affect NWS only indirectly, such as those that would authorize strategies to improve resilience to extreme weather events (e.g., H.R., 2227, H.R. 2804, H.R. 3190). Other bills relate to NOAA weather satellites, which are critical components of NWS's mission to provide weather forecasts and warnings (e.g., S. 1331). Congress has been concerned about possible gaps in coverage and the future of the weather satellite programs. The 114th Congress has expressed its interest in improving forecasts and warnings to protect life and property in the United States from severe weather events through its role in oversight, appropriations, and the authorization of language regarding NWS. To date, none of the bills introduced in the 114th Congress has been enacted. However, Congress likely will continue to introduce legislation in the future that would shape NWS operations, directly or indirectly, in an effort to improve forecasts and warnings.
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In December 2001, Argentina suffered a severe financial crisis, leading to the largest sovereign debt default in history, except for Greece. In 2005, Argentina abandoned negotiations to restructure the debt and made a unilateral offer on terms highly unfavorable to creditors. Still, $62.3 billion of the $81.8 billion in principal was exchanged. A diverse group of "holdouts" representing $18.6 billion did not tender their bonds. Argentina completed a second bond exchange in 2010, capturing another $12.4 billion of defaulted bonds (for a total of 91.3% of the original defaulted debt). At the close of 2010, Argentina reported that it owed private investors $11.2 billion ($6.5 billion in principal, $4.7 billion in past due interest). With additional interest, holdout creditors argue that they may now be owed as much as $15 billion. Argentina does not recognize the private holdout debt in its budget, and legislation bars the government from making further offers to the holdouts. U.S. responses have been varied. Some of the "holdout creditors" have brought claims against Argentina in the U.S. federal courts totaling $1.3 billion, resulting in judgments and attachment orders. Recent court decisions have left Argentine central bank assets in the United States immune from attachment, but require Argentina to treat both holdout and exchange bondholders equally. In this case, the district court ordered Argentina to pay litigant holdouts the full $1.3 billion of their claim. The appeals court stayed the order pending conclusion of the appeals process. A final payments offer was rejected by the holdouts, who urged the appeals court to enforce the lower court ruling against Argentina. Should this occur, it could prohibit banks from allowing Argentina to make payments to exchange bondholders unless it also paid the holdouts, creating a conundrum for Argentina: either pay all parties per the court order, or for lack of an ability to pay only the exchange bondholders, find itself in technical default. Argentina may try to continue the appeals process, but could eventually have to decide whether to find a way to settle with the holdouts, or find itself in technical default of the exchanged bonds. The U.S. government has also taken action, and punitive legislation against Argentina has been introduced in the last three Congresses. This report reviews Argentina's financial crisis, the bond exchanges of 2005 and 2010, ongoing litigation, prospects for a final solution, related U.S. legislation, and broader policy issues. Argentina's 2001 debt crisis resulted from many factors. For the most part, Argentina over borrowed and fell victim to its own economic policies, but this was compounded by questionable lending and policy advice by the International Monetary Fund (IMF), a global recession, and international credit markets determined to chase high-yielding debt with inadequate regard to risk. Together, these factors propelled Argentina toward a position of unsustainable debt that ended in financial crisis, unprecedented default, and a controversial restructuring scheme. Argentina's 2001 financial crisis had its roots in a history of periodic macroeconomic policy problems, the Achilles' heel of Argentine economic strategy for much of the 20 th century. Argentina has long relied on fiscal largesse as a basic policy tool, often covering its shortfalls by expanding the money supply. These policies led to recurring bouts of high inflation and indebtedness, typically followed by temporary efforts to stabilize prices. Toward the end of the 20 th century, Argentina experienced hyperinflation that eventually toppled the Alfonsín government in 1989, bringing Carlos Menem to the presidency, along with his well-known Minister of Economy, Domingo Cavallo. The Menem-Cavallo cure for chronic inflation was the now infamous "convertibility plan." Enacted on April 1, 1991, it set the stage for the crisis that would emerge a decade later. The plan legally guaranteed the convertibility of pesos to dollars at a one-to-one fixed rate and limited the printing of additional currency only to amounts supported by its reserve position (which could fluctuate with the amount of dollars entering or leaving the country). Upholding this promise, however, required that monetary and fiscal policies also be constrained—the money supply could not be expanded to cover deficits (as it is now). Therefore, to preserve this system, deficits either had to be eliminated or financed through debt. At first convertibility worked well; it forced fiscal and monetary discipline on the government, which combined with strong economic growth, reduced inflation and debt service. Cracks in Argentina's economic policy, however, soon began to appear. The main problem was fiscal deficits, which were not restrained at either the provincial or national levels to thresholds required to support the convertibility plan. By 1993, debt began to grow, compounded by the practice of rolling it over. From 1995 to the end of 2001, the debt service ratio grew from 30% to 66%. The Argentine peso soon became significantly overvalued, reducing Argentina's competitiveness and ability to export, with predictable declines in public revenue needed to service debt. Fiscal balances further deteriorated with a strengthening dollar (to which the peso was linked), competitive devaluations by its major regional trading partners (most importantly Brazil), and falling commodity prices. Argentina was already entering a four-year recession when the global downturn arrived in 1999, causing public revenue to fall further. The weaknesses of the convertibility plan's strict policy constraints were now exposed. It has been likened to a straitjacket precisely because the Argentine government had no policy room to address the recession. The convertibility plan, by definition, prohibited devaluing the peso to increase exports, and excessive debt eliminated the option for a fiscal stimulus to counter the economic downturn. The third option, reducing government spending, only guaranteed a deeper recession. By this point, there was already little chance of Argentina avoiding financial disaster. In retrospect, it is also clear that in addition to Argentina's policy choices and an increasingly hostile global economy, actions by the international community were complicit in deepening the severity of Argentina's financial crisis. Global credit markets lent generously to Argentina, compounding the problem by chasing high yield even after risk factors began to rise to worrisome levels. Investment bank and credit agency reports overstated Argentina's strengths. Also, the IMF agreed to numerous lending arrangements made between 1991 and 2001 based on promised changes in Argentine policies, and economic assumptions and projections that ranged from being overly optimistic to wildly unrealistic. U.S. policies for much of the time could not be divorced from those of the IMF. Without the IMF, the convertibility plan would have collapsed much sooner. By its own admission, the IMF made repeated mistakes in surveillance, conditionality, and economic analysis that resulted in lending too much for too long into an untenable situation. Many economists would later argue that Argentina would have been better off had the IMF ended its support and pushed for debt restructuring much earlier. Faced with the unsustainable situation described above, and falling international credibility, Argentina was unable to roll over its debt. Financial panic and political unrest ensued. On December 20, 2001, President de la Rua resigned, and six days later, an interim government defaulted on Argentina's sovereign debt. Soon thereafter the government abandoned the convertibility plan and devalued the peso. Total public debt mushroomed from 45.7% of GDP in 2000 to 166.3% in 2002 (see Appendix A for data) and the default left the Argentine government in arrears with a number of international creditors. At the time, Argentina owed private investors bonds with a face value of $81.8 billion, the Paris Club countries $6.3 billion, and the IMF $9.5 billion, among other domestic and multilateral obligations. Addressing the large private-sector debt was Argentina's most pressing problem, which was undertaken in a highly unusual manner. A sovereign debt restructuring is a complicated matter and in Argentina's case the government faced three interrelated issues. It needed to formulate a strategy to (1) negotiate a solution with private creditors, (2) repay or reschedule Paris Club debt, and (3) reengage the IMF. In 2002, it was widely believed that a successful conclusion for Argentina was unlikely without meeting all three goals to some degree, in part because they are interrelated. For example, the Paris Club generally does not entertain a sovereign debt restructuring proposal without the debtor country undergoing an Article IV review of its economy (standard practice for all IMF country members), and having an IMF lending program in place. Among other goals, the Article IV review provides one presumably unbiased assessment of Argentina's economic health and ability to repay its debt, although Argentina has been particularly distrustful of the institution since the 2001 crisis. In addition, the IMF usually does not consider a formal program until the creditors have been offered a proposal. There was, however, little hope for a clean IMF review for Argentina at that time, and prospects for that changing have worsened considerably. These concerns raised two important questions: was Argentina willing to accede in whole or in part to these requirements, and if so, what was the sequence that would make the most sense to ensure that all three conditions were met? As it turned out, Argentina skirted the issue entirely, and moved ahead with the bond exchange without an IMF review, promising to deal with the Paris Club at some future date. As the value of Argentina's bonds plummeted, hedge funds specializing in distressed debt began to purchase the highly discounted debt and prepare for litigation. In so doing, these so-called "vulture funds" became, in effect, the closest thing to a coordinating group for private bondholders, but "average creditors" who sold their bonds took an enormous loss. The financial crisis hit Argentina hard. Between capital flight and the large peso devaluation, much of the country's wealth evaporated nearly overnight. Poverty and unemployment skyrocketed, leading to street protests and political unrest. As Argentina turned to address its debt problem, it argued that bondholders would have to share in the misery that affected the whole country, and that the government had a moral duty to ensure this outcome. It was, as many argued, a matter of equity that the write-down on bonds be historically high, particularly given that continued lending from the IMF, investment banks, and foreign governments at a time when it was clear that Argentina faced an impending crisis had only compounded the financial problems. Also, it was apparent that under these circumstances, Argentina was simply in no position to repay such massive debt. A sovereign default means the government is no longer willing or able to pay the debt it has legally incurred in the international markets. Sovereign defaults occur periodically and are typically worked out in what amounts to a consensual understanding between creditors and debtors. This arrangement usually takes the form of a debt restructuring, which involves a formal and legal change in the contractual arrangements of the debt, such as reducing the face value of the obligations, issuing new bonds with lower interest rates and longer maturities, and capitalizing overdue interest, usually at a sizable loss to bondholders. Historically, a "successful restructuring" that results in a resolution that avoids prolonged litigation has typically captured a 90% or greater participation rate (there are always some holdouts) by offering no less than 50% on the net present value of the debt. Usually, this process unfolds with the assistance of the IMF in setting macroeconomic targets that form the basis for a mutual understanding between debtor and creditor of a country's ability to repay its debt. Argentina began the debt restructuring process in 2002, negotiating with the IMF and investors for three years in search of a solution that it felt was commensurate with its deeply diminished economic and social reality. Facing a huge debt burden, Argentina adopted a hard line toward all parties, insisting on a large write-down of principal for private creditors and postponing action on Paris Club and IMF debt. After years of negotiations, which were criticized by both sides, Argentina eventually determined that it had reached an impasse with creditors and decided to act on its own. It suspended its agreement with the IMF and filed for a one-time unilateral offer with the Securities and Exchange Commission (SEC) to settle with private creditors. The Argentine legislature codified this commitment with the so-called "Lock Law" ( Ley Cerrojo ), which prohibited the government from reopening the exchange or making any kind of future offer on better terms, and suspended any future payments on the untendered debt. This action served the dual purpose of ensuring participating bondholders that they would not lose out on any better deal in the future and prodding, if not forcing, a relatively higher participation rate than might otherwise have been the case. On January 14, 2005, Argentina opened the bond exchange hoping to reach a final settlement on the $81.8 billion face value of debt plus $20.8 billion of past due interest (PDI). The default was unprecedented for its size ($102.6 billion), lengthy resolution (over three years), low recovery rate (27%-30% on a net present value basis), and large residual holdout (24% of creditors). Bondholders and the IMF criticized Argentina for engaging in a process that stretched (creditors would argue flaunted) the then-accepted guidelines of sovereign debt negotiations. Nonetheless, of the $81.8 billion face value of debt, $62.3 billion was exchanged for $35.2 billion of new bonds. Past due interest was not addressed. The Argentine government, however, was unable to settle the matter fully because $18.6 billion of bonds were not tendered and remained in dispute along with accrued interest, $6.3 billion of Paris Club arrears, and $9.5 billion of IMF debt. Argentina addressed this remaining debt in multiple ways. First, in 2006 it decided to repay in full the $9.5 billion owed to the IMF, relieving the government of any pressure to follow IMF policy constraints. Second, in 2008 and again in 2010, Argentina promised, but then postponed, plans to repay debt owed to the Paris Club countries. Third, it has resisted the litigation efforts of holdout creditors. Argentina remains steadfast in its determination to follow a policy of "financial independence." It has been able to do so with the help of strong economic growth and use of rather unorthodox self-financing measures to meet fiscal needs. Prior to the 2010 debt exchange, Argentina owed approximately $29 billion of bond principal and interest arrears to private investors and $6.3 billion of loans to Paris Club countries, including nearly $550 million in arrears to the United States. In 2009, the portion of "holdout" debt plus that owed to the Paris Club represented 21% of Argentina's total public sector debt (this fell to 10% in 2010 and 7% in 2011). There were three major incentives for Argentina to resolve its outstanding debt issues. First, as with most countries, Argentina had relied on international capital markets to finance sovereign debt. Despite public statements eschewing foreign debt, by initiating a restructuring process in 2010, when the fiscal balance was positive, Argentina left open the option for reengaging the international credit markets. Second, opportunities for ad hoc financing were becoming increasingly difficult to find. In the absence of access to international capital markets, Argentina has met its financial needs by monetizing its debt, placing bonds with domestic government agencies, restructuring domestically held debt, selling bonds directly to the government of Venezuela, and nationalizing private pension funds. In a politically contentious decision that resulted in dismissal of the president of the Central Bank, the Fernández government by executive order began to borrow against Central Bank reserves to repay debt owed to multilateral development banks and other international creditors. In addition to undermining the independence of the Central Bank, this strategy effectively diminishes Argentina's international reserve position and allows the government to defer difficult decisions on fiscal adjustment. Third, market conditions initially favored placing debt, encouraging Argentina to move ahead with the bond restructuring. Interest rates were low by historical standards and liquidity high. These conditions changed when the debt problems emerged in the Eurozone, causing yields to rise, making the exchange more difficult, and precluding Argentina from selling any new debt as it had planned. The bond exchange, however, was already well underway. By some measures, Argentina was also in better financial shape to address repudiated debt than it was during the 2001 crisis or the 2005 exchange. Argentina had a positive current account balance and had increased its international reserves from a low of $10.4 billion in 2002 to $52.2 billion in 2010. During the 2003-2008 economic recovery, Argentina had an average annual growth rate of 8.5%, and the increased revenues had, until 2009, allowed it to maintain a primary surplus of 2.8% or higher (for data, see Appendix A ). The primary surplus reflects the fiscal surplus after non-debt expenditures have been paid, and so is a measure of resources available for debt service. Because of the global financial crisis, however, the primary surplus has been cut in half since 2009, levels inadequate to reduce Argentina's total public debt. In 2009, Argentina began the initial process of setting up a new bond exchange, taking three important steps: (1) President Cristina Fernández de Kirchner lent full support for the deal; (2) on November 18, 2009, the Argentine legislature temporarily suspended that portion of the 2005 "Lock Law" that prohibited reopening a debt restructuring offer; and (3) in December 2009, the Argentine government filed a preliminary prospectus with the SEC, which approved Argentina's request to issue new bonds. On April 15, 2010, the minister of economy announced the key features of the proposed bond deal. A formal offer was made on April 30, 2010. The bond exchange closed on June 22, 2010, with a second stage concluded on December 31, 2010. Some $12.4 billion of the eligible $18.4 billion in bonds were exchanged (67.7%), leaving by one estimate $6.0 billion untendered, although the Argentine government puts the value at 6.5 billion. An IMF breakdown appears in Table 1 , and details of the bond exchange terms are found in Appendix B . Argentina advertised that a "successful" exchange would be one that exceeded a 60% participation rate because it would allow for a total participation rate, including the 2005 exchange, of over 90% of defaulted debt. When done through mutually agreed negotiations, this threshold has been sufficient in the past to resolve defaults, eventually allowing the sovereign to borrow in international credit markets, but this has not been the case for Argentina. In Argentina's case, the 67.7% participation rate for the 2010 exchange allowed for a total participation rate of 91.3% of total defaulted debt, including the 2005 exchange participants. The remaining untendered bonds, however, continued to present a problem for Argentina given the ongoing litigation and attachment orders in place that would allow confiscation of proceeds from any new international bond offer. According to official Argentine sources, as of December 31, 2010, Argentina was in arrears with holdouts and some members of the Paris Club in the following amounts: $11.2 billion to the holdouts worldwide (including $6.5 billion in principal past and coming due, and $4.7 billion in past due interest through December 2010). Holdout creditors argue that this number could be $15 billion by 2013, of which $1.3 billion is being litigated by hedge funds in U.S. courts, and $6.3 billion to the Paris Club, including PDI through December 31, 2010, plus the possible addition of interest and penalties. Argentina has had at least three options to address this debt: (1) ignore holdouts and test its prospects in the courts; (2) attempt a third swap to capture remaining holdouts; and (3) settle with holdouts. To date, Argentina has opted for the first strategy, but court rulings in 2012 and 2013 could force Argentina in another direction. In the eyes of holdout creditors, and apparently increasingly the U.S. courts, the 2005 and 2010 bond exchanges have set a precedent that cannot be condoned, even though 91.3% of total bondholders have accepted the terms. Although Argentina continues to argue that the restructurings took place after extensive negotiations, they were not mutually agreed solutions. Bondholders had to accept or reject the offers with the alternative being the promise of no restitution at all. Holdout bondholders remain unpaid while Argentina is current on its obligations to the bondholders who exchanged their debt, an outcome that is currently being challenged in court as illegal under the equal treatment ( pari passu ) provision of the bond contracts. Because many bonds in the hands of holdouts were and may still be traded, ownership has been difficult to track. They were originally marketed in local national currencies: 58% in Euros, 38% in U.S. dollars, 2% in Argentine pesos, and the remaining 2% in other currencies. Currently, the market value of all untendered bonds left over from the 2001 default is estimated to be approximately $12 billion. The value of bonds held by U.S. hedge funds is estimated to be approximately $3.0 billion, of which $1.3 billion is under litigation. Many of these funds are legally organized in countries outside the United States and known for their discrete treatment of investor information. Therefore, it is difficult to identify the nationality of fund investors, and by extension, the underlying ownership of the Argentine bonds in question. Litigation and settlement strategies differ among bondholder groups. Institutional funds representing corporations and investment banks tend to negotiate for the best terms available in an exchange, most of which end up settling given the high opportunity cost of litigation. Retail (individual) investors often part with their bonds in the secondary markets early in the process. Hedge funds specializing in distressed debt typically purchase defaulted debt at highly discounted prices, eschew offers with large haircuts, and sue for full recovery. Their "holdout" strategy can be highly profitable for investors with patience. It rests on realizing capital gains on discounted bonds and settling with the debtor country for a much higher price than paid in the secondary market. Historically, this strategy has worked well when holdouts dwindle to a small portion of total creditors, making it financially feasible for sovereigns to settle. In the United States, 151 individual cases have been filed against Argentina in U.S. District Court for the Southern District of New York (district court). Judgments have been entered in 108 cases for $5.9 billion in principal and interest. Many cases have since been settled by the two bond exchanges. Of those bondholders that remain, a few have chosen to litigate with the others watching closely on the sidelines. Although claims remain unresolved, U.S. federal courts have put increasing pressure on Argentina. There are now two major groups of U.S. bondholders. Exchange bondholders are those who have accepted one of the two debt restructuring deals offered in 2005 and 2010. Argentina remains current on all payments on the new bonds issued in exchange for the old bonds. The second group is the holdouts, who have not tendered the bonds in default and have received no payment. These two groups now find themselves effectively on opposing sides of the current legal battle with Argentina. There have been multiple legal motions and rulings in federal (district court) and the Court of Appeals for the Second District (appeals court). Two developments in 2011-2013 deserve attention. The first issue involved the status of central bank (Banco Central de la República Argentina—BCRA) assets held in the Federal Reserve Bank of New York (FRBNY). District court found in favor of investors who argued that the BCRA was effectively a representative of the Argentine government and therefore those assets should be subject to attachment. In an interesting twist on appeal, the United States government was invited to submit a friend of the court brief (amicus curiae), which provided much of the rationale for overturning the lower court's decision. The United States noted that it in no way condoned or excused a foreign state's failure to comply with judgments of U.S. courts with respect to meeting its legal obligations to pay bondholders. It did argue, however, that there were broader issues to consider. In short, on July 5, 2011, the appeals court overturned the lower court ruling, finding compelling the arguments set out by the United States that BCRA assets in the FRBNY were immune from attachment because (1) there is long-standing assurance by U.S. law that central bank assets held in this country are immune from attachment except for very narrow exceptions; (2) attachment could lead to large withdrawals of reserves from the United States, which could have a major impact on the U.S. economy and global financial system; (3) the United States has interest in promoting reciprocal treatment and principles of central bank immunity to safeguard U.S. reserves held abroad, and; (4) for other reasons. On June 25, 2012, the U.S. Supreme Court declined to hear the case. A second issue involves interpretation of the equal treatment (pari passu) provision of the bond contracts. The district court found in favor of holdout creditors who argued that paying the exchange bondholders while repudiating the holdout debtors has been a breach of this provision. In January 2012, the court ordered Argentina to treat the two groups equally. The appeals court upheld the ruling on October 26, 2012, but remanded it to district court for technical clarifications, which the appellate court will again review when submitted. In a second ruling along the same lines, district court again decided in favor of holdout litigants. On November 21, 2012, the court ordered that with respect to a payment coming due to exchange bondholders on December 15, 2012, they and the holdouts would have to be treated equally. The decision required that upon making its regular payment to exchange bondholders, Argentina would also have to pay holdouts their full $1.3 billion claim. This decision put Argentina in a difficult situation. It would either have to follow the court injunction, creating a much larger and immediate financial obligation, or end up paying neither group since the attachment orders and injunction would forbid the intermediary banks from transferring payments to the exchange bondholders. Such an action could result in what amounts to a technical default and a costly precedent for Argentina. The appeals court stayed the lower court's ruling pending its own ruling based on oral arguments presented on February 27, 2013. Plaintiffs basically argued that the lower court ruling should be upheld because it held the Argentine government accountable for obligations incurred under New York contract law. Defendants and related parties countered that the equal treatment clause was not being properly interpreted in that innocent parties, such as the exchange bondholders, would not be treated equally if holdouts were paid in full, and further, that the ruling violated Argentina's sovereignty and would jeopardize the operation of the financial transfer system, among other points. Argentina has indicated that it could not agree to pay in full the $1.3 billion owed to hedge funds. Two days after the hearings, the appeals court directed Argentina to submit a payment formula for dealing with the plaintiff bondholders. On March 26, 2013, the appeals court ruled that it would not reconsider the lower court's ruling requiring Argentina to treat both groups of bondholders equally. On March 29, Argentina filed its payment plan for holdout bondholders, effectively making the same offer as the 2010 exchange (see Appendix B for terms of the 2010 bond exchange), which has been rejected on numerous occasions by the holdouts. The holdout bondholders formally rejected the offer and urged the appeals court to enforce the lower court ruling requiring Argentina to pay them in full. These various court actions have left BCRA assets immune from attachment, but Argentina increasingly vulnerable to the prospect that it may be compelled by court order to pay holdout litigants $1.3 billion at some point in the future. Argentina could still have options to appeal at the Appeals and Supreme Court levels, but many analysts view these options as unlikely to change the final outcome, even if permitted to play out. Argentina has said it will continue to make payments due to exchange bondholders as long as the stay issued by the appeals court is in effect. At such a time as it is removed and a final decision is rendered on Argentina's payment offer, which could occur within weeks, Argentina will likely face a conundrum: either pay all parties per the court order, or for lack of an ability to pay only the exchange bondholders, find itself in technical default with them as well as the holdouts. In 2010, Argentina completed the second of two debt restructurings, mostly on its own terms, for one of the largest and most controversial defaults in sovereign debt history. There is little disagreement that in 2002 Argentina faced a desperate financial situation that required a radical restructuring of debt, including a large write-off by bondholders. Despite the historical precedent for sovereign debt restructurings, the Argentine case involved methods, processes, and deep discounts that were notably unprecedented, if not illegal. Argentina appears to be increasingly under pressure from U.S. court rulings to address the holdouts, although a final resolution could be delayed for weeks or months. As data in Appendix A indicate, Argentina has been able to reduce its debt, if measured as a portion of GDP. It has benefitted from strong economic growth, driven by a lengthy resurgence in commodity prices. Economic conditions in both Argentina and the world, however, are in flux. Currently, Argentina is experiencing high inflation and much slower growth. It is relying on a questionable policy of using central bank reserves and other internal financing mechanisms to finance the government, and continues to follow an expansionary monetary policy. Fiscal and current account balances have also deteriorated, and there is growing concern over capital and exchange rate controls among a long list of tightening financial and other market regulations. These trends do not bode well for chances that Argentina would be inclined to repay remaining disputed debt, irrespective of future court decisions. As to the initial default, there appear to be few if any winners, with the possible exception of the hedge funds that have purchased Argentine bonds at a deep discount, should they prevail in court. Argentina's debt restructuring was costly for all parties, raising at least three broad policy questions. First, is there an effective strategy for policymakers to consider, particularly the U.S. Congress, in pressing Argentina to resolve the debt impasse? Second, are there alternatives to the Argentine solution, which in the absence of collective action, has led to unequal outcomes for creditors? Third, given the ongoing concern over sovereign indebtedness, currently related to Greece and the Eurozone more broadly, does Argentina present a plausible model for default? With Argentina's default on debt owed to Paris Club countries, including approximately $550 million owed to the United States government, a number of actions have been taken under U.S. law. U.S. agencies, including the Export-Import Bank, Overseas Private Investment Corporation, U.S. Agency for International Development, and the U.S. Trade and Development Agency, are prohibited from lending to a country that is in arrears on its debt to the U.S. government. The U.S. military is prohibited from offering Foreign Military Financing, exercising the Excess Defense Articles through 505 Drawdown authority, or fully using the Global Peacekeeping Operations Initiative funding. All foreign assistance is prohibited, except for International Military Education and Training funding and certain programs related to countering terrorism and trafficking in narcotics or persons. Finally, as a matter of policy, the United States has begun to vote against any new loans to Argentina at the World Bank and Inter-American Development Bank, with the exception of those benefitting the very poor. Policymakers have been frustrated by Argentina's reluctance to settle with U.S. bondholders and members of the Paris Club. Some Members of Congress have introduced punitive legislation in the last three Congresses to pressure the Argentine government to reconsider its position. The Judgment Evading Foreign States Accountability Act was introduced in part at the behest of the American Task Force Argentina (ATFA), a private lobby group representing some 40 constituent groups, including hedge funds. It would attempt to pressure Argentina in a number of ways. Various versions of the legislation have cited Argentina for ignoring multiple judgments against it stemming from the 2001 default. The major provisions would have denied states deemed to be "judgment evaders" from issuing debt in the United States (as is the case of private bond defaulters) and required that any future debt offerings carry a warning label that notifies would-be purchasers that the state had previously failed to satisfy outstanding judgments against it. This legislation has not had much traction, failing to receive a hearing. It was, nonetheless, marked up in the 112 th Congress by the House Committee on Foreign Affairs Subcommittee on the Western Hemisphere on November 29, 2012. Despite support for U.S. interests in this matter, some Members have been reluctant to support the bill. In this case, it was argued that (1) this committee lacked jurisdiction; (2) it might be considered imprudent to take action on the bill while the issue is before U.S. federal courts; and (3) it should be considered in light of larger foreign policy issues. Opinions differ in Congress as to supporting the holdouts with legislation. First, because it is unclear if the remaining "holdouts" represent many if any U.S. retail investors, and in fact comprise, as best that can be determined, largely hedge funds incorporated offshore, it is difficult to discern the degree to which U.S. stakeholders are involved. Second, there may be concern over legislating against what amounts to be the actions of a single country. In fact, Argentina has, on occasion, expressed a strong reaction against this legislation, in part because it is viewed as being directed solely at Argentina and might be interpreted as tantamount to a threat of imposing economic sanctions. Third, there may be some recognition of a fundamental agreement in the United States given the executive branch, under both Democratic and Republican Presidents, has taken available action. Fourth, the U.S. courts seem to be the logical venue for adjudicating claims in this case. Still, some continue to argue that Argentina is a "rogue debtor" that does not deserve the deep debt forgiveness it forced on bondholders, that it should comport to international norms of economic behavior, and that failure to enforce this outcome only invites other countries to default in similar fashion. For the United States, neither sanctions nor legislative proposals have had any noticeable influence on Argentina, and actually may have reinvigorated Argentina's resolve to stay the course of default as long as possible. In the end, it appears that a combination of fiscal necessity, litigation, and international markets may yet have the greatest leverage on Argentine decision making. As one expert perhaps wryly notes, "Sovereign debt is unenforceable." Argentina epitomizes this statement, and years of costly litigation have not compelled Argentina to pay holdouts. Foreign holders of Argentine bonds faced a difficult choice, and the limited availability of a collective response mechanism diminished their negotiating position. The initial owners of the bonds clearly suffered, as did members of the Paris Club. Those who purchased highly discounted bonds in the secondary market, however, are betting that their patience and risk taking will be rewarded, should Argentina ever be forced to settle with them. Historically, rather than rely on legal recourse, creditors as a whole have been better served by a quick and mutually-agreed sovereign debt workout, which has led to better and more equitable terms than those resulting in the Argentine case. The lack of collective action was a serious problem in this case, resulting in unequal outcomes. The financial markets have since responded in ways that seek to avoid a second occurrence of a prolonged, costly, unilateral workout. The most important development along these lines has been the fuller and more creative adoption in the United States of collective action clauses (CACs) in sovereign debt contracts, the norm in British law. They can compel minority holdouts to capitulate to a negotiated solution agreed to by a supermajority, reducing, but not eliminating, the opportunity for holdouts to act separately, and often contrary to the interests of the majority. CACs are not full-proof answers to collective action, but they have proven useful at the margin and have become the "market standard" for sovereign bonds. Still, critics argue that CACs with low creditor acceptance levels (e.g., less than 90%) undermine market discipline and invite lower settlements from defaulting countries. CACs, however, are evolving and becoming more "aggressive," and so may still offer the best opportunity to resolved sovereign defaults in the absence of a supranational resolution system. In light of the sovereign debt restructuring negotiations with Greece and concern with debt of other Eurozone countries, questions have been raised as to the applicability of Argentine model for other countries. The situation in Greece, however, is significantly different, in no small part because it is a member of a European monetary union. On the face of the Argentine experience alone, however, it does not seem to offer a reasonable alternative. In fact, a number of important lessons emerge from the Argentine case. First, a prolonged disregard for fiscal responsibility can have long-term economic, social, and political consequences. Second, a disorderly or non-negotiated debt workout has been extremely costly for Argentina. As a result, Argentina has had to resort to creative, but unorthodox financing mechanisms that cannot adequately replace conventional financing arrangements indefinitely. These have strained both Argentina's domestic and external account balances, increased a general distrust of the government, and may be setting the stage for another major financial setback. Such a strategy seems a highly undesirable model for other countries contemplating a sovereign default, and Greece has already opted for variations on more conventional approaches. Appendix A. Argentina: Selected Economic Data, 2000-2012 Appendix B. Summary of the 2010 Bond Exchange Terms The 2010 exchange was structured to provide two different offers (see Table 2 ), one for retail or small investors, defined as those holding less than $50,000 of defaulted bonds, and a second for institutional investors, or those holding amounts greater than $50,000, a feature also present in the 2005 exchange. The retail investors were made a more generous offer to entice their support in order to ensure a minimally acceptable overall participation rate. The bond exchange addressed two aspects of outstanding debt. First, it covered the face (or par) value of the bond. This term refers to the principal or stated value on the bond when it was issued. Second, it covered past due interest (PDI), or a portion of unpaid interest. In each case, both retail and institutional investors received a bond in exchange for the defaulted debt, cash or a separate "Global" bond for PDI, and a separate GDP-linked security called a warrant that provides for additional payments under certain economic growth scenarios (see below). The total value of securities eligible for exchange was $18.4 billion, $17.6 billion to cover principal and $0.8 billion to cover unpaid interest accrued as of December 21, 2001, the point of default. The total amount covers the face value of defaulted debt, including the heavily discounted (reduced) value of the bonds owed to institutional investors, plus the PDI on bonds owed institutional investors (retail investors received cash for PDI, see below). There was a limit of $2.0 billion of par bonds, but no limit on the issuance of discount bonds beyond the total $18.4 billion of total securities as defined in the prospectus. Face Value Retail investors received a par bond to compensate them for the full face value of the defaulted bonds they hold. Institutional investors, by comparison, received a discount bond reflecting a 66.3% reduction in the face value of the defaulted bonds they hold. In each case, new bonds were issued in exchange for the old ones, with the discount bond for institutional investors maturing in 2033 and carrying an annual interest rate of 8.28%. Par bonds for retail investors will mature in 2038, and carry a sliding annual interest rate beginning with 2.5% for the first 9½ years, 3.75% for the next 10 years, and 5.25% for the final 9½ years. Interest is paid semi-annually. Past Due Interest At settlement, retail investors were paid PDI in cash, covering interest from December 31, 2003, up to September 30, 2009. PDI for institutional investors was covered by a par "Global" bond maturing in 2017 with interest paid in semi-annual payments, carrying an interest rate of 8.75%. It covered interest from December 31, 2003, through December 30, 2009. GDP-Linked Warrants In the 2005 exchange, both retail and institutional investors received GDP warrants, which are securities that may be traded separately from the bonds to which they are attached. A warrant is a promise to make a particular offer under certain circumstances, often issued in connection to bonds to make them more attractive to investors. In this case, Argentina promises to make additional payments on the new bonds in the event that the Argentine economy grows faster than 3.26%. The warrant is meant to compensate for bonds outstanding in December 2001 and interest accrued to December 30, 2001, but payment in any given year is based on better than expected economic performance in the previous year. From a budgeting perspective, higher than anticipated economic growth tends to generate higher than expected public revenue. Argentina has effectively promised to use some of this revenue to make higher payments to bondholders, should economic conditions allow. This feature turned out to be particularly attractive for the 2005 exchange because Argentina emerged from its crisis with six years of very high economic growth, well above anticipated rates. Since 2005, Argentina has experienced strong economic growth, with the exception of 2009, and has remained current on its payments to Exchange bondholders. Investors had hoped that the new deal would include the equivalent of past payments on warrants issued in the 2005 exchange, arguing that like past due interest, they were entitled to compensation from Argentina's better-than-expected fiscal position arising from very strong past economic growth as were the investors who exchanged their bonds in 2005. Argentina decided not to include such payments, reasoning that in rejecting the 2005 deal, the holdouts had declined to participate in that growth. Although market speculation had suggested that the absence of this provision might reduce the participation rate, Argentina was able to exceed its stated goal of a 60% participation rate. Valuation In the arcane world of bond valuation, analysts estimated the value of the exchange for discount bonds at between 48 cents and 51 cents per dollar value of the bond. These numbers compare unfavorably with the 60 cents on the dollar valuation of the 2005 exchange, which included a better than expected performance because of GDP-linked warrants. Analysts estimated that inclusion of past payments of GDP warrants would have added 7 cents on the dollar to the offer. The defaulted bonds had traded recently in the market in a range of 48-50 cents on the dollar, nearly four times their lowest trade level of 11 cents recorded in September 2008.
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In December 2001, Argentina suffered a severe financial crisis, leading to the largest sovereign debt default in history, until Greece. In 2005, after prolonged, contentious, and unsuccessful attempts to restructure the debt, Argentina abandoned the negotiation process and made a unilateral offer. The terms were highly unfavorable to creditors, but $62.3 billion of the $81.8 billion in principal owed was exchanged. A diverse group of "holdouts" representing $18.6 billion did not exchange their bonds, and some have opted to litigate instead. These actions resulted in attachment orders against Argentine assets, leaving the country unable to access the international credit markets. Holdout creditors also lobbied against Argentina's debt policy, which has triggered actions by the U.S. government and legislation in previous Congresses. The lingering effects of the debt default became a legacy problem for Argentina. The government decided to open another bond exchange in 2010 to deal with remaining holdouts, on slightly less favorable terms than before. Argentina reduced its outstanding defaulted debt by another $12.4 billion. As of December 31, 2010, Argentina reported that it owed private investors $11.2 billion ($6.5 billion in principal and $4.7 billion in past due interest). Holdout creditors estimate that with additional interest, this number could be as high as $15 billion by 2013, with $1.3 billion under litigation in federal court. Argentina also owes the Paris Club countries $6.3 billion in principal and past due interest. The U.S. portion is estimated at $550 million. Argentina does not recognize the remaining private holdout debt in its official budget and is legislatively barred from making another offer to bondholders. Nonetheless, in the eyes of holdout creditors, the bond exchanges have set a precedent that cannot be condoned, even though 91.3% of total bondholders have accepted terms. Although Argentina continues to argue that the restructurings were negotiated solutions, they were not mutually agreed ones. Bondholders had to accept or reject the offers with the alternative being the promise of no restitution at all. Holdout bondholders remain unpaid while Argentina is current on its obligations to bondholders who participated in the two bond exchanges, an outcome that is currently being challenged in court under the equal treatment provision of the bonds. Recent district court decisions require Argentina to treat both holdout and exchange bondholders equally. In this case, the court ordered Argentina to pay litigant holdouts the full $1.3 billion of their claim. The appeals court stayed the order and required Argentina to offer a payment plan to the holdouts that would satisfy the equal treatment clause. On April 19, 2013, the holdouts formally rejected an offer that was effectively the same as the 2010 exchange, and urged the appeals court to enforce the lower court ruling. Argentina has said it will continue to pay the restructured bonds, but is no position to pay the holdouts in full. A final ruling against Argentina could prohibit banks from allowing Argentina to make those payments unless it also paid the holdouts, creating a conundrum for Argentina: either pay all parties per the court order, or for lack of an ability to pay only the exchange bondholders, find itself in technical default. This report reviews Argentina's financial crisis, the bond exchanges of 2005 and 2010, ongoing litigation, prospects for a final solution, related U.S. legislation, and broader policy issues. These include lessons on the effectiveness and cost of Argentina's default strategy, the ability to force sovereigns to meet their debt obligations, and ways to avoid future defaults like Argentina's.
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On December 23, 2008, a military junta calling itself the National Council for Democracy and Development (CNDD) seized power in Guinea following the death of longtime President Lansana Conté. A previously little-known army officer, Captain Moussa Dadis Camara, was named president. The CNDD dissolved the constitution and legislature, appointed a civilian prime minister, and promised to hold presidential and legislative elections. However, elections were repeatedly postponed, while Dadis Camara's erratic leadership sparked increasing civilian unrest and concerns that military fragmentation could lead to violence. On September 28, 2009, Guinean security forces opened fire on civilian demonstrators in Conakry who were protesting the CNDD and Dadis Camara's implied intention to run for president, killing over 150 and injuring many more. The crackdown, which was accompanied by reports of widespread military abuses against civilians, sparked fierce international condemnation, including from the United States. On December 3, 2009, Dadis Camara was shot and wounded in the head by a member of his presidential guard. He was evacuated to Morocco for medical treatment. On January 12, 2010, he was unexpectedly flown to Ouagadougou, the capital of Burkina Faso, whose president, Blaise Compaoré, had earlier been appointed the regional mediator in Guinea's political crisis by the Economic Community of West African States (ECOWAS). In Dadis Camara's absence, the CNDD defense minister, Brig. Gen. Sekouba Konaté, informally assumed the position of acting head of state. However, uncertainty remained over Konaté's authorities, the extent of Dadis Camara's injuries, and the future leadership of the country. The power vacuum coincided with reports of rising ethnic tensions, the reported recruitment of militia groups by various factions, and instability within the CNDD and wider armed forces. Fears of imminent conflict caused some Guineans, human rights groups, and diplomats to call for a regional intervention force. On January 15, 2010, Dadis Camara, Konaté, and Compaoré announced a new political agreement, known as the Joint Declaration of Ouagadougou , after meeting in Burkina Faso. The declaration stated that Konaté would assume executive powers as "Interim President" and form a government of national unity. The declaration also promised the following: The appointment of a prime minister from the Forces Vives , a coalition of opposition political parties, trade unions, and civil society groups formed after the 2008 coup d'état. The inauguration of a quasi-legislative body, the National Transitional Council (CNT). The organization of presidential elections within six months, with Konaté, the prime minister, and members of the government, the CNDD, the CNT, and the defense and security forces barred from running as candidates. Reform of the defense and security forces. The statement was widely welcomed as an end to the protracted political vacuum that had followed Dadis Camara's exit from Guinea. While its main points largely reaffirmed previous statements by Konaté, the declaration appeared to quell attempts by hard-line CNDD members to wrest power from Konaté and push for Dadis Camara's return. Following the declaration, Dadis Camara publicly read a prepared statement expressing full support for Konaté's leadership. Although he remains the nominal head of state, Dadis Camara has since declined to return to Guinea from Burkina Faso, where he continues to pursue medical treatment for his wounds. The constitution remains suspended, but restrictions on political and union activity have been lifted. The 111 th Congress has closely monitored events in Guinea since the 2008 coup. Recent activities have focused on human rights abuses under the CNDD, progress toward elections, oversight of U.S. assistance, and the potential for regional destabilization. Recent legislation includes H.Res. 1013 (Ros-Lehtinen), a bill condemning the violent suppression of legitimate political dissent and gross human rights abuses in the Republic of Guinea, introduced January 13, 2010, and passed by the House on January 20, 2010; and S.Res. 345 (Boxer), a resolution deploring the rape and assault of women in Guinea and the killing of political protesters on September 28, 2009, introduced on November 9, 2009, and agreed to in the Senate on February 22, 2010. The key public figures in the government of national unity are Konaté, Jean-Marie Doré, and Rabiatou Serah Diallo. Doré, the former spokesman for the Forces Vives coalition, was named prime minister on January 19. Serah Diallo, a prominent trade union leader, was appointed in early March to head the quasi-legislative National Transition Council (CNT), which was inaugurated with 155 members representing political parties, trade unions, civil society groups, and other socioeconomic demographics. The CNT is expected to revise Guinea's electoral laws and the constitution, though its precise mandate and authorities have not been publicly detailed. Doré appointed a 34-person cabinet, composed of 24 civilians and 10 military officers selected by the CNDD, in mid-February. The civilians include representatives of political parties and civil society groups. The Defense Ministry, Security Ministry, and Justice Ministry, however, remain under CNDD leadership. Konaté separately appointed a 23-member "presidential cabinet" of advisors, including several hard-line CNDD figures previously seen as loyal to Dadis Camara. The trio of key leaders represents three prominent ethno-regional groups and Guinea's two largest religious identities, Christian and Muslim. Doré and Serah Diallo both have roots in the opposition movement against former President Lansana Conté, though they were not previously seen as allies. They also have little experience in government, which is seen by some as both a potential challenge and an asset, as many are critical of Guinea's poor governance record. Serah Diallo leads a trade union coalition that was instrumental in organizing watershed anti-Conté demonstrations in early 2007. Prior to his appointment, Doré led a small opposition political party, the Union for Guinean Progress (UPG, after its French acronym). He ran for president in 1998 but garnered less than 2% of the vote, far less than the two leading opposition candidates at the time. Doré was later elected to the National Assembly, but he declined to take up his seat after the 2002 legislative elections in a protest against electoral fraud. U.S. officials have expressed strong support for the Ouagadougou declaration and Konaté's leadership. Officials have also publicly stated that the United States would prefer Dadis Camara to remain outside of Guinea and suggested that his return could destabilize the fragile political situation. In his February 2010 testimony to Congress, Director of National Intelligence Dennis C. Blair highlighted Guinea's continuing instability but contended that Dadis Camara's departure "has opened a narrow window of opportunity for defusing a volatile situation." Prior to Dadis Camara's exit, the State Department had expressed support for a transitional government led jointly by military and civilian officials. Assistant Secretary of State for African Affairs Johnnie Carson met with Konaté in Morocco on January 5, 2010, reportedly emphasizing U.S. support for "a civilian-led transition government leading to free, fair, and transparent democratic elections." Officials have since suggested that the unity government fulfills these criteria. Deputy Assistant Secretary of State William Fitzgerald has said that Konaté appears to be "an ideal transition leader." U.S. Ambassador Patricia N. Moller, who arrived in Guinea in late 2009, officially presented her credentials to the government in March; she had previously declined to do so, as the United States did not recognize the CNDD. Addressing Konaté, Moller stated that "you and your government hold the key to a brighter future for Guinea." Major donors, the U.N. Secretary-General, and regional organizations—notably the African Union (AU) and ECOWAS—have likewise welcomed the transitional government. Neighboring countries, with which Guinea shares economic and ethno-regional ties, have also expressed support on a bilateral basis, with several hosting state visits by Konaté. The International Contact Group on Guinea, a policy coordination group chaired by the AU and ECOWAS, and of which the United States is a member, has called on the new government to hold elections within the agreed-upon timeframe of six months. France, a major donor, resumed bilateral cooperation programs, including military assistance, in February after suspending them in response to the abuses of September 2009. While the European Union has largely maintained targeted sanctions and an arms embargo instituted in October 2009, in March 2010 it removed four individuals, including Konaté and Security Minister Mamadouba Toto Camara, from the sanctions list. While the United States has expressed support for the transitional government, restrictions on some forms of U.S. assistance to Guinea remain in place, as do targeted travel restrictions against certain CNDD members, other Guinean officials, and key associates. As electoral preparations advance, a number of issues will confront U.S. policy-makers. These include the status of bilateral relations; the monitoring of progress toward elections; U.S. policy toward a potential International Criminal Court investigation of alleged CNDD human rights abuses; and potential U.S. support for security sector reform. U.S. relations with the unity government, underpinned by support for the Ouagadougou declaration and Konaté's transitional leadership, represent a significant shift from U.S. policy toward the government led by Dadis Camara. The United States did not recognize the CNDD and placed restrictions on bilateral aid, meetings between senior U.S. officials and CNDD leaders, and travel to the United States by CNDD members, government officials, and associates. State Department officials have justified U.S. support for the unity government on the basis that it represents an improvement from the junta that took power in 2008, and that Konaté's stated commitments to implement the electoral calendar and refrain from running as a candidate will be upheld. Indeed, most Guineans and international observers have welcomed the transitional government and the plan to hold elections. At the same time, some argue that the new government has yet to demonstrate its political will to hold elections, and there are already signs that the timeline may be delayed (see " Progress Toward Elections " below). Critics have also pointed to continuity between the CNDD and the unity government—the CNDD retains control of key ministries and the security forces—and have raised questions as to Konaté's role in CNDD abuses. As former commander of the elite airborne battalion known as the BATA, Konaté was seen as a powerful figure in the 2008 coup and a close advisor to Dadis Camara. While he was not in Conakry during the September 2009 military crackdown, a United Nations commission of inquiry concluded that his role deserved further investigation. Some observers have seen similarities to the first six months of CNDD rule, when Dadis Camara also repeatedly promised to uphold the electoral calendar and refrain from running as a candidate. The U.S. approach to the transitional government to date appears to highlight tension between the goal of seeking accountability for abuses and the goal of preserving peace in a still-fragile state. Like other transitional regimes, the unity government includes individuals implicated in human rights violations, and there has been little public attempt by the Guinean government to spur prosecutions or broader truth and reconciliation mechanisms. Two CNDD military officers accused of serious abuses have retained their ministerial rank and hold positions in Konaté's "presidential cabinet." Human Rights Watch has called for their immediate removal. Others, however, contend that attempts to remove or prosecute such officials prior to elections would be deeply destabilizing, and could lead to a counter-coup or further violence. According to the State Department, the CNDD takeover in 2008 did not trigger legal restrictions, enacted by Congress for over 25 years through annual appropriations legislation, on certain forms of bilateral assistance to countries in which the "duly elected head of government is deposed by military coup or decree," as the deposed government was not "duly elected." Most recently, such restrictions were included in the Consolidated Appropriations Act, 2010 ( P.L. 111-117 , Section 7008, Title VII, Division F, signed into law on December 16, 2009). Restrictions on aid, aside from humanitarian aid and democracy and governance programs, were nonetheless imposed as a matter of U.S. policy. Separately, the Consolidated Appropriations Act, 2010 (Section 7070) restricts International Military Education and Training (IMET) programs in Guinea to Expanded IMET (E-IMET), which emphasizes human rights and civilian control of the military. In practice, security assistance was suspended after the 2008 coup, while most non-military aid to Guinea fit into permitted categories. Notably, the policy restrictions halted security assistance programs aimed at enhancing Guinea's military professionalism and maritime security capacity, which responded in part to growing U.S. concerns over transnational narcotics trafficking through Guinea. Permitted aid includes Projet Faisons Ensemble , a $23 million USAID-funded umbrella project initiated in 2007 that aims to integrate local governance programs with health, education, agriculture, and other development assistance. It also includes over $5.5 million in electoral assistance, expected to fund activities including voter education projects; the provision of electoral materials; and training and assistance for the National Independent Electoral Commission (CENI), poll workers, civil society groups, media, and political parties. State Department officials have recently suggested that limited exceptions may be made to restrictions on security assistance in light of recent positive developments. In March 2010, the State Department notified Congress of its intention to obligate up to $200,000 in FY2005 "no year" IMET funds to conduct courses for military officials and civilians on topics including civil-military relations, military justice, human rights, and the rule of law. At least one course is expected to be held prior to elections. Some argue that aid restrictions should be further rolled back in order to assist the government in maintaining security and preparing for elections. Others contend that they should be maintained until free and fair elections are ascertained to have taken place. Critics have also pointed to the difficulties of vetting beneficiaries of assistance programs for potential involvement in human rights abuses. In October 2009, following the military abuses of September 2009, the U.S. government imposed targeted travel restrictions on "certain members of the military junta and the government, as well as other individuals who support policies or actions that undermine the restoration of democracy and the rule of law in Guinea." These restrictions are still in effect, though a full list of those targeted has not been made public. Some argue that if the restrictions target certain CNDD leaders participating in the unity government—such as Konaté himself—they should be repealed in light of the evolving political situation. Others contend that the restrictions should be maintained if they are based on perceived complicity in abuses. Presidential elections are scheduled for June 27, 2010. The date for legislative elections has not been set. Many Guineans appear to support the six-month timeline stipulated in the Ouagadougou declaration, as does the International Contact Group on Guinea. Donors have expressed confidence that funding for the elections—projected to cost roughly $27 million—will not be a challenge. However, several factors could contribute to a delay in the election timetable. Some observers believe such a delay could undermine public support for the unity government or cause popular unrest, as in 2009. The United States has not publicly identified benchmarks for the continuance or suspension of electoral assistance programs. Factors that could potentially lead to a postponement of elections include the political will of the transitional government; the capacity, efficiency, and mandate of the CNT, which is expected to reform the constitution and electoral legislation prior to the vote; ongoing disputes over the reliability of voter lists compiled in 2009 ; the actions of potential political or military "spoilers"; the attempt to register Guinean voters in neighboring countries and overseas, which could prolong the process by months ; and logistics associated with the onset of the rainy season in Guinea. International Criminal Court (ICC) prosecutors announced a "preliminary examination" of the situation in Guinea in October, in connection with the violence of September 28, 2009. A U.N. commission of inquiry later concluded that elements of the crackdown may have constituted crimes against humanity for which the Guinean state carries legal responsibility, in addition to the potential individual criminal liability of Dadis Camara and other security commanders, and recommended referral of certain cases to the ICC. Guinea is a state party to the Court. Obama Administration officials have indicated, amid a wider review of U.S. policy toward the Court, that the Administration is "considering ways in which we may be able to assist the ICC, consistent with our law, in investigations involving atrocities." A determination on what types of assistance, and in which cases, remains under review. Advocates of international justice believe the United States should assist the ICC in its Guinea investigation, and that prosecution of military commanders could serve to deter future abuses. Others counter that ICC involvement could be destabilizing, or that U.S. cooperation with ICC prosecutions is generally undesirable. U.S. officials have recently indicated that the United States may provide assistance for security sector reform (SSR) in Guinea. In March 2010, a U.S. delegation representing the State Department, the U.S. Agency for International Development (USAID), and the Defense Department met with Guinean officials in Conakry to discuss potential U.S. support for "justice and security sector reform" (JSSR) efforts. These could potentially include training of Guinean police and military forces, assistance in military "right-sizing," and assistance for electoral security preparations. The United States is also funding two contracted experts' participation in an assessment of Guinea's security sector led by ECOWAS and the United Nations. Significant U.S. involvement in SSR is unlikely to occur prior to elections, however. U.S. security assistance in Guinea has previously largely focused on providing training and—at times—equipment, not on altering security services' authorities, overall structure, or oversight. Prior to the 2008 coup, Guinea benefitted from IMET, Foreign Military Financing (FMF), "Section 1206" programs , and other U.S. military assistance aimed at enhancing security forces' capabilities and professionalism. In 2002, the United States trained and equipped an 800-person "Ranger" battalion in response to cross-border attacks from Liberia and Sierra Leone. In contrast, in neighboring Liberia, the United States has led efforts to rebuild, restructure, and train the military after it was dissolved following the end of civil conflict in 2003. Nearly all observers point to Guinea's bloated and undisciplined military as a central cause of political instability. Upon former President Conté's death, one analyst noted that "the army that General Conté has bequeathed his country knows little of the role and methods that it would need to employ in a democratic state respectful of its citizens' most basic rights." The military has been implicated in multiple coup attempts, mutinies, and human rights abuses, including the abuses of September 2009 and the shooting of over 100 unarmed anti-government demonstrators in early 2007. Military officers implicated in abuses are perceived as benefiting from near-complete impunity. The armed forces are also divided along ethnic, generational, and factional lines; military factionalization reportedly grew further entrenched under the CNDD. In the eyes of some, the armed forces serve largely as a vehicle for corruption and patronage rather than national defense. The military is thought to exert substantial control over key imports such as rice (a dietary staple) and gasoline. Many mid-ranking and senior members of the officer corps fought in regional conflicts and in Guinea's border war with Liberia (2000-2001); some are understood to have participated in looting, resource trafficking, and other abuses during these operations. Senior military figures were also reportedly involved or complicit in transnational narcotics trafficking during the final years of Conté's rule. At the same time, military salaries and other benefits are seen by many as a vital safety net for a deeply impoverished population. Following the CNDD takeover and throughout 2009, abuses by security forces escalated, including looting, extrajudicial arrests, detentions, torture, extortion, the targeting of political opponents, and other abuses of power. Concurrently, military hierarchy and the chain of command were seen as deteriorating. While many credit Konaté with improving military discipline since early January, the potential for abuses remains high. Some also contend that a broad-based truth and reconciliation process is needed to address public perceptions of the armed forces and allegations of abuses stretching back to the post-colonial period. Repeated attempts by civil society groups in recent years to push for official investigations have not succeeded. In addition to perceived impunity and lack of discipline, various other elements are seen as challenges to a well-functioning security sector, as the following sections will address. Guinea's military has not been submitted to effective civilian control in decades. The defense sector's structure, size, and budget are opaque. Under Dadis Camara, the Defense Ministry was staffed and led by uniformed military officers (notably Konaté), as it continues to be under the current unity government. Former President Conté came to power in a military coup in 1984, and while he later transformed the regime into one nominally governed by civilian institutions, it retained many aspects of military rule. Attempts to institute budgetary or structural changes during the Conté era were met with mutinies or other violence. Most recently, in May 2008, mutinous troops seized a major army base in Conakry, took senior officials hostage, pillaged shops and homes, and exchanged fire with loyalist soldiers, until the government eventually agreed to pay each soldier over $1,000, sack the defense minister, and grant mass promotions. Guinea's military personnel are thought to number in the tens of thousands, making its standing military one of the region's largest despite a population of roughly 10 million. The size of the military presents a challenge on multiple levels. Personnel reportedly include numerous "ghost" soldiers, as well as individuals brought into the military through irregular processes, outside formal channels of military recruitment and training. Furthermore, military salaries and a government-financed rice subsidy for soldiers represent a significant financial burden on the Guinean state. Both are politically sensitive, not least because military benefits represent scarce safety nets for many families. The ratio of military to civilian security forces is also thought to require redress, as insufficient police capacity is thought by some to have contributed to an overreliance on military force to conduct law enforcement and crowd control operations. The respective roles and mandates of the various security services in Guinea's national security policy are also largely undefined. It is unclear, for example, which security agencies have the lead role in ensuring crowd-control, election security, border security, or counter-insurgency. The role of the so-called "Red Berets," who report directly to the presidency and have repeatedly been accused of human rights abuses, is particularly contentious. The Red Berets have, at various times, comprised the Presidential Guard, the BATA, the U.S.-trained Rangers, and other elite corps, in addition to soldiers who purchased red berets for personal use. Under the CNDD, Red Beret units were regrouped under the Ministry for Presidential Security, outside the purview of the Ministry of Defense. Their current mandate and chain of command remain undefined. Individuals within the CNDD reportedly oversaw the recruitment and training of militias in 2009. Militia fighters, including ex-combatants of neighboring conflicts, are reported to have received training from foreign mercenaries, and to have participated in the September 2009 violence. In January, Konaté ordered the militia training camps closed and dispersed the recruits. However, militia fighters' whereabouts and level of cohesion are unclear, and they are thought to represent a potential security risk. According to some reports, some militia trainees may be inducted into the military, further swelling its numbers. The militias trained by the CNDD represent only one example, among many, of irregular recruitment by Guinean authorities in response to perceived security threats; reportedly, previous recruits have not benefited from formal disarmament or reintegration processes. Some observers contend that security sector reform should include a judicial component. Judicial and law enforcement capacity is reportedly very low and further compromised by widespread corruption and politicization. According to the State Department's 2009 Human Rights Report , Guinea's "judicial system was endemically corrupt.... Budget shortfalls, a shortage of qualified lawyers and magistrates, and an outdated and restrictive penal code limited the judiciary's effectiveness." Political interference in the judiciary is commonly reported, and does not appear to have decreased since the advent of the unity government. A regional human rights organization recently concluded that "the lack of judicial independence has created, among Guineans, a sense of vacuum that can only be filled by violence: the law of the jungle is perceived in Guinea as the only way to protect oneself against injustice." Under the CNDD, military leaders further sidelined the role of the judiciary and civilian law enforcement agencies in upholding the rule of law, and encouraged vigilante justice. Successful SSR may require deep structural, policy, and budgetary reforms. These could involve downsizing the total number of security personnel and tailoring the balance between military and civilian services (such as the police) to Guinea's national security strategy and needs. Some further contend that reforms should include prosecuting those implicated in human rights abuses and bolstering military justice mechanisms. Such actions could be perceived as deeply political in the Guinean context, potentially creating clear "winners" (those who retain their positions and/or experience an expansion in their mandate and roles) and "losers" (those who forfeit coveted salaries and privileges). Guinea shares this characteristic with post-conflict states, many of which have benefited from internationally funded disarmament, demobilization, and reintegration (DDR) programs to stem potential violence by ex-combatants. Whether a similar level of donor commitment and coordination could be ensured for Guinea remains to be seen. Additionally, in order to be effective, SSR may require efforts to bolster Guinea's justice sector and civilian oversight of the defense sector, which could be resource- and time-intensive. Overall, SSR in Guinea is likely to be a long-term process, potentially requiring multi-year funding commitments by donors, as well as coordination and oversight. A related issue for U.S. policy, should the United States choose to provide support, will be whether to contribute to a multilateral program, such as one coordinated by ECOWAS, or provide assistance on a bilateral basis. Guinea's current outlook has improved significantly from early January 2010, when the country was beset by deep political uncertainty and fears of imminent civil conflict. However, the formation of a transitional government has not altered the underlying causes of Guinea's recent instability, and the months leading up to planned elections could prove decisive to Guinea's future trajectory and that of the sub-region. Inter-ethnic relations—historically perceived as relatively harmonious in Guinea though subject to political manipulation and occasional violent confrontation—are perceived as having deteriorated under the CNDD, particularly in Conakry and the southeastern Forest Region. Any number of factors, including election delays, regional developments, continued economic hardship, military divisions, and ethnic tensions, could spark renewed insecurity and corresponding challenges to U.S. policy goals in West Africa.
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A "government of national unity" was formed in Guinea on January 15, 2010, a year after a military junta, the National Council for Democracy and Development (CNDD), took power in a coup d'état. While the CNDD has not been dissolved, it has agreed to share power with civilian opposition groups in the lead-up to presidential elections, scheduled for June 27, 2010. Defense Minister Sekouba Konate has assumed executive power as interim president, while opposition spokesman Jean-Marie Dore was named prime minister. The formation of a unity government followed six weeks of political uncertainty after CNDD President Capt. Moussa Dadis Camara was shot in December 2009 by a member of his personal guard and evacuated for medical treatment. The appointment of the unity government has temporarily stemmed international concerns over political instability in Guinea and its potential spillover into fragile neighboring countries, such as Liberia and Côte d'Ivoire. However, concerns remain over the political will to hold elections, impunity and disorder among the security forces, and the potential for "spoilers" to disrupt Guinea's long-awaited transition to civilian rule. The United States, which had been highly critical of Dadis Camara's erratic leadership, has expressed support for Guinea's transitional government. At the same time, certain restrictions on U.S. bilateral assistance and targeted travel restrictions against CNDD members and others remain in place. As electoral preparations advance, a number of issues will confront U.S. policy. These include U.S. relations with the Guinean government; the status of U.S. assistance and travel restrictions on CNDD members; the monitoring of progress toward elections; U.S. policy toward a potential International Criminal Court (ICC) investigation of alleged CNDD human rights abuses; and potential U.S. support for security sector reform in Guinea. The 111th Congress continues to monitor events in Guinea and the potential for regional destabilization. Recent legislation includes H.Res. 1013 (Ros-Lehtinen), a bill condemning the violent suppression of legitimate political dissent and gross human rights abuses in the Republic of Guinea, introduced on January 13, 2010, and passed by the House on January 20, 2010; and S.Res. 345 (Boxer), a resolution deploring the rape and assault of women in Guinea and the killing of political protesters on September 28, 2009, introduced on November 9, 2009, and passed by the Senate on February 22, 2010. For further background on Guinea and issues for U.S. policy, see CRS Report R40703, Guinea: Background and Relations with the United States, by [author name scrubbed] and [author name scrubbed].
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Initially, this report was written in anticipation of a possible strike by National Football League (NFL) players, or a possible lockout by the NFL, in 2011. At that time, developments in professional football's labor-management relations had prompted questions regarding how, when, and in what manner a new collective bargaining agreement (CBA) might be drafted. Interest in this matter included, on the part of some observers, questions about how Congress responded to previous work stoppages in professional sports. This report examines congressional activity related to the three most recent National Football League (NFL) work stoppages, which occurred in 1982, 1987, and 2011, and the 1994 Major League Baseball (MLB) strike. Although the latter strike involved another professional sports league, it is potentially instructive given the extent of congressional activity surrounding the 1994 strike. Work stoppages involving professional sports, whether caused by the players going on strike or the owners imposing a lockout, are by their very nature contentious and not always resolved quickly or easily. Through mid-2012, the four major professional sports leagues in the United States—Major League Baseball (MLB), National Basketball Association (NBA), National Football League, and National Hockey League (NHL)—had experienced a total of 21 work stoppages. Table 1 , Table 2 , Table 3 , and Table 4 list the work stoppages for each sport. Major League Baseball has experienced the greatest number of work stoppages (eight), followed by the NFL (five), NHL (four), and NBA (two). While both NBA work stoppages were lockouts, the other three leagues have experienced a combination of strikes and lockouts. Major League Baseball has had five strikes and three lockouts, and the NHL one strike and three lockouts. The NFL is somewhat unusual in that two of its five work stoppages began as lockouts and concluded as strikes (1968 and 1970). The average length of work stoppages for each league is as follows: MLB, 46 days (excluding the 232-day strike, the average is 20 days); NBA, 139 days; NFL, 31 days; and NHL, 138 days (excluding the 10-day strike, the average is 203 days). The medians for the four leagues are as follows: MLB, 17 days; NBA, 149 days; NFL, 24 days; and NHL, 103 days. In the following three sections, this report describes congressional responses to the 1982 and 1987 NFL strikes and the 1994 MLB strike, respectively. The latter section also includes a discussion of the Clinton Administration's attempts to facilitate the resolution of the baseball strike. A summary of the circumstances of each strike is followed by a table that identifies relevant legislative measures, and an overview of Members' comments and report language regarding the strike, which were drawn from congressional hearings and reports, and remarks made on the House or Senate floor. This information shows the extent of actual, or intended, congressional involvement and how some Members viewed congressional involvement in the strike. A summary of NFL labor-management history may be found in Appendix A . Appendix B provides an overview of key aspects of labor-management relations and sports, and Appendix C includes a discussion of antitrust exemptions applicable to professional sports. On September 20, 1982, NFL players voted to strike after negotiations for a new collective bargaining agreement broke down. The previous CBA had expired on July 15, 1982. Initially, the NFL Players Association (NFLPA) sought 55% of the owners' gross revenues. The NFL rejected the players association's demands and offered to share $1.6 billion with the NFLPA over five years. The dispute was resolved when the players association accepted the owners' offer to share $1.28 billion over five years and to provide $60 million to the union to compensate players for salaries not paid during the strike. The season resumed on November 21, 1982. On December 5, 1982, the players association and the owners signed a new five-year CBA. After the strike was resolved, the season resumed with a seven-game regular season schedule and an expanded playoff bracket, which culminated in Super Bowl XVI on January 30, 1983. Table 5 shows the legislative measures that were introduced in response to the strike. Either resolution, if passed, would have urged the parties to take steps to promptly settle the strike and resume the season. Although no hearings were held, the bill's sponsor, Senator Ted Stevens, offered a rationale for congressional involvement when he introduced S. 3003 . Noting that "Congress has clearly established a history of promoting the public interest in professional sports," he then mentioned several instances when legislation involving professional sports was enacted: For example, in 1973, we adopted legislation calling for the telecasting of sold-out home games of professional sports teams. We also enacted legislation encouraging the stability of professional sports leagues by confirming, in 1961, the right of professional sport leagues to jointly sell their television rights to the national networks. In 1966, we authorized the consolidation of the American Football League and the National Football League so that football franchises could continue to operate on a stable basis in their resident communities. Thus we have long recognized the public interest in encouraging professional sports, and have affirmatively acted to encourage the financial stability of the leagues. Senator Stevens also noted the adverse economic consequences of the football strike, mentioning that the "strike produced major economic disruptions and losses in all of the communities which host NFL teams." The 1982 CBA expired on August 31, 1987, and shortly thereafter negotiations broke down between the NFLPA and the NFL over the issue of free agency and other matters. The union voted to strike on September 22, 1987. The owners cancelled the games scheduled for September 26 and September 27, 1987, while announcing their intention to resume the season on October 4, 1987, with replacement players. NFL players who did not share the union's concerns regarding free agency, or who needed the money, played alongside the replacement players. The striking players voted to return to work on October 15, 1987, even though there was no CBA. Team owners, however, banned players who had not agreed to return to work by the owner-imposed deadline of October 14, 1987, from participating in that week's scheduled games. Thus, striking players who did not return to their teams until after the NFLPA vote lost an additional week of pay. Replacement players were released as the regular players returned to their jobs. The 1987-1988 season concluded on January 31, 1988, when the Super Bowl was held at Jack Murphy Stadium in San Diego. Table 6 shows the legislative measure that was introduced in response to the strike. S.Res. 294 , which was agreed to without amendment by a voice vote, called on both parties—the players association and the NFL Management Council—to resume negotiations. Although S.Res. 291 (100 th Congress), which addressed the telecasting practices of the NFL, was not a response to the NFL players' strike, the subject was broached during a hearing on the resolution. Following his introduction of Pete Rozelle, then-commissioner of the NFL, the subcommittee's chairman initiated the following exchange with Rozelle regarding the ongoing strike: Senator METZENBAUM. Mr. Rozelle, as I indicated to you before the hearing, I think for us to have you before this hearing and not inquire of you as to why you as the Commissioner have not been heard from in connection with some effort to settle the strike between the players and the NFL, would be surprising to the many people in this country that are asking that question. I wonder if you would be good enough to tell us why you as the Commissioner have not seen fit to move in and at least attempt to mediate the issue. Mr. ROZELLE. I have had meetings with the President of the Players' Association, Gene Upshaw, and phone conversations. I have attempted to stay close to the situation, of course, on the owners' Management Council side. There has been a very, very strong disagreement on several issues that have inhibited the negotiating process. I am pleased now that I think that perhaps certain pressures are involved on both sides, and I understand they are going to be meeting promptly to get back into negotiating. I think it is unfortunate they could not have accomplished more back in May, June and July, but it was all the thrust at once when the season came on us. Senate METZENBAUM. Well, I might say I think that all of us are pleased to know that management and players are going back to the negotiating table. I never heard of a strike that was settled without direct negotiations, oftentimes through some mediator—whether it is from the U.S. Mediation and Conciliation Service or someone else.... The American people have a strong interest in this issue. They do not have an ownership right, but they feel they have some type of right in professional football. And I think the sooner the matter gets resolved and the parties themselves meet together and resolve it, I think the happier the American people will be. I think it will be one less issue to be on the top of the news in the nightly news every night. In an exchange that occurred later in the hearing, Senator Arlen Specter similarly encouraged the NFL commissioner to assist in settling the strike. The relevant excerpt is as follows: Senator SPECTER. Okay. I would like to disagree with Senator Hatch, even though he is gone, on one small point. That is about the adequacy of the substitute games on this past Sunday. I would join my colleague, Senator Metzenbaum, Commissioner Rozelle, in urging you to do everything you could personally to lend your good offices to settle the strike. You have been a very powerful force in the National Football League for many, many years. I believe you became Commissioner in the 1950s. Mr. ROZELLE. 1960, Senator. Senator SPECTER. 1960. Okay. But you have been the Commissioner for 27 years, one of the toughest jobs around, pulled together the National Football League in an era of extraordinary growth and extraordinary complexity, and you have appeared before this Judiciary Committee on many occasions in my short tenure in the United States Senate. I think you have always done a very able job, and I think you have done a very able job here this morning. I would very much like to see your talents used this afternoon to settle the football strike. Mr. ROZELLE. I would love to, believe me. It is so terribly frustrating, Senator. Mr. MODELL. I would like to add a thought in that regard. Yes, I echo your sentiments on what he has done for 26, 27 years. But if the players were to accept him as a neutral Commissioner, which he really is, this strike never would have gotten off the ground. They view him as an owners' appointee, and that gives us great difficulty. Senator SPECTER. Well, the strike has gotten off the ground, but I think it is a little different ball game today than it was a week ago. We have had a week of substitute players. I think the American public is totally dissatisfied with that. There have been incidents around the league which are not a credit for anybody. And I think it is time it came to a close. If there is one man who could probably do it better than anyone else, if anybody could do it, it is Commissioner Rozelle. So we are going to let you go early, Commissioner. Unable to reach an agreement with the owners on a new CBA in summer 1994, major league players voted, on August 12, 1994, to strike. Approximately one month later, on September 14, 1994, Major League Baseball cancelled the remainder of the season. The decisions to strike and to cancel the season followed several months of negotiations over a number of issues, including baseball's revenue sharing plan. Beginning in fall 1994, the Clinton Administration attempted to facilitate negotiations between the parties. The work stoppage ended in early 1995 following then-U.S. District Court Judge Sonia Sotomayor's issuance of an injunction that had been "requested by the National Labor Relations Board ordering baseball owners to restore bidding on free agents, a resumption and salary arbitration and the anti-collusion rules which were a part" of the CBA that had expired the previous year. Shortly after Judge Sotomayor issued the injunction, which occurred on March 31, 1995, major league baseball owners "accepted the players' offer to return to work." Although the commencement of the 1995 season was delayed, beginning on April 26 instead of April 3, which was the original opening day, the season was played without interruption and the postseason concluded with the World Series. Table 7 shows the legislative measures that were introduced in response to the strike. Senator Howard Metzenbaum introduced S. 2380 and offered S.Amdt. 2601 . H.R. 4649 was a companion bill to S. 2380 . Senator Metzenbaum believed that "revoking the owners' antitrust immunity is the best long-term solution to the mess the players and the owners have made of major league baseball," but he decided to offer instead what he characterized as a "compromise bill." He went on to explain his reasoning as follows: It [ S. 2380 ] does not eliminate the players right to strike, or the owners right to lock them out. Instead, the bill allows the antitrust laws to be invoked if the owners impose a salary cap or any other terms and conditions on the players. This should take away the owners' incentive to play hard ball and impose unilateral conditions. It should also relieve players' fear that they need to strike in order to prevent a salary cap from being shoved down their throats when the season ends. Once the owners and players resolve their differences and sign a new agreement, the bill expires.... Right now, the big league players cannot use the antitrust laws. If they could, the owners would have to deal with them fairly or face the consequences in a court of law. In other words, what this bill does is give the players another tool they can use to avoid striking, or to bring a strike to a quick end. The last seven times the baseball players and owners have met at the bargaining table there has been a work stoppage: A strike or lockout. This has not happened in other professional sports because those players could use the antitrust laws to settle labor disputes.... If the antitrust laws applied to baseball, the owners could not force the players to accept unreasonable terms and conditions if their labor negotiations hit impasse. The players could challenge the owners unreasonable demands by launching an antitrust suit instead of shutting down the season. Senator Orrin Hatch, who co-sponsored S. 2380 , encouraged both sides to resolve their differences, and, unlike Senator Metzenbaum, did not support the blanket repeal of major league baseball's antitrust immunity. Couching the barriers to resolution as the result of a "legal anomaly," Senator Hatch offered the following explanation of his position: On the one hand, professional baseball enjoys a unique and longstanding immunity from the antitrust laws. I have opposed repeal of this immunity, and I continue to do so. On the other hand, the owners retain the right under our current labor laws to impose unilaterally new terms and conditions of employment once an impasse in the bargaining has been reached. I am concerned that the unique combination of these two legal roles, which occurs in no other industry, has the effect of inviting delay and of discouraging prompt resolution of the pending labor dispute. The Baseball Fans Protection Act that Senator Metzenbaum and I are introducing would correct this legal anomaly. The sponsor of H.R. 4965 , Representative Major R. Owens, did not provide any remarks when he introduced his bill. Introduced by Senator Dennis DeConcini, S. 2401 , if enacted, would have established a commission on professional baseball. Major League Baseball did not have a commissioner at the time of the strike, and Senator DeConcini envisioned the panel serving as an "impartial commissioner" that would "give the fans a much needed voice in the debate." Among the many responsibilities he set forth for the proposed commission, he noted that "[m]ost importantly ... is the Commission's power to conduct binding arbitration of a labor impasse. Given that we are currently in the eighth work stoppage in the past 22 seasons, it is unfortunate, but obvious, that baseball can not put its own house in order." Continuing with the theme that intervention was necessary to resolve the dispute, Senator DeConcini, in the following excerpt, also defended government involving itself in the matter: Many people might wonder why, or if, Government should involve itself in this matter. But the Government is already involved and has, in effect, created a baseball monopoly.... This exemption allows baseball to operate as one large entity which operates free of the threat of competition, despite the fact that competition is the hallmark of American free enterprise. In other instances where we create a monopoly, such as utilities, no one questions the Government's authority to regulate the industry. In essence we grant the monopoly, but we do so with the understanding that this rare exception has conditions, one of which is the Government's right to regulate. While Senator DeConcini acknowledged that some thought Congress ought to repeal baseball's antitrust exemption, he "[thought] the larger issue [was] ... whether or not the game [could] ... police itself—I have not seen much recently to suggest that it can." Upon introducing H.R. 4994 , Representative Mike Synar noted that it was "designed to spur the now stagnant negotiations between the players and owners of major league baseball. This bill is specifically designed to allow the players to get back to the field while all parties to the strike have their rights and bargaining positions protected through the application of the antitrust laws.... [G]iving the players antitrust remedies will preserve their bargaining [position] during the upcoming negotiations without having to resort to a strike." The committee report that accompanied the bill set forth the same reasoning, as shown by the following excerpt from the report: H.R. 4994 would subject Major League Baseball owners and players to the Nation's antitrust laws in the event one of those parties unilaterally imposes an anticompetitive term or condition on the other. While the case for a far broader repeal of the antitrust exemption is compelling, at this late juncture in the 103d Congress, the Committee opted to respond legislatively to the most urgent competitive problem facing Major League Baseball[:] its failure to be subject to the same antitrust rules as the other sports in the event of a breakdown of the collective bargaining process and the unilateral imposition of terms by one of the parties. As such, the legislation was specifically drafted so that it would not implicate issues relating to other activities, such as the operation of the minor leagues or franchise relocation. The Committee's formal action of partially repealing the nonstatutory antitrust exemption which Congress never initiated or endorsed but by which it has been saddled for over 70 years is really the first step in ending a legal fiction about the game created and perpetuated by the Supreme Court, as perhaps one of its greatest indulgences. That indulgence, fueled first by sentimentality and then by risk-aversion, has now vested such complete power over the sport by its financial owners as to enable them to end the game at will. The Committee now acts to end the illusion which has spawned very real economic consequences. It does so by partially repealing the nonstatutory exemption created by the 1922 decision in Federal Baseball Club of Baltimore v. National League of Professional Baseball Clubs. In so doing, the Committee responds to the current phase of a recurring crisis in baseball in a very limited, yet crucial, way: by subjecting the traditional parties to Major League Baseball's collective bargaining agreement the players union and owners to the Nation's antitrust laws in the event one party unilaterally imposes an anticompetitive term or condition of employment on the other. Other members of the Judiciary Committee disagreed, objecting to, among other things, congressional involvement in the matter. They wrote: We continue to be concerned about both the propriety and timing of this legislation and oppose its enactment. Simply put, Congress should not intervene in an ongoing collective bargaining dispute unless a national security interest is involved. Clearly, as important as baseball is to our national psyche, a baseball strike is not a national security matter. The decision to legislatively move ahead on this matter at this point is also highly questionable. It would make more sense for Congress to revisit the basic issue of baseball's antitrust exemption next year, when the emotion and acrimony surrounding the current strike hopefully will have subsided. The dissenting members of the committee also tackled the claim that the antitrust exemption served as a barrier to resolving the ongoing dispute between baseball players and owners. They noted that the other three professional sports leagues (basketball, football, and hockey) did not have the same antitrust exemption that baseball has, yet "all three … have seen considerable labor strife, not dissimilar to that which we are witnessing with respect to baseball. It would appear that labor strife in professional sports has more to do with economics, than it has to do with the applicability of the federal antitrust laws." A September 1994 hearing on H.R. 5095 offers some insight into how several members of the House Committee on Education and Labor, Subcommittee on Labor-Management Relations viewed the role of Congress in the strike. The following passages show that the chairman of the subcommittee, Representative Pat Williams, acknowledged, and concurred with, the committee's long-standing opposition to binding arbitration, but then explained why he chose to support congressional intervention in this instance: I want to tell our witnesses that you are appearing before a committee which has historically opposed binding arbitration. The Labor Committee is the committee that believes that collective bargaining works in America and should be allowed to continue unhampered by Federal intervention. That is my own belief, but this is baseball. However, for this committee to be encouraging binding arbitration is historic and virtually unprecedented. Representative Williams's comments at the hearing echoed the statement he made upon introducing the bill. An excerpt of the statement is as follows: This bill addresses the inability of the owners and players to collectively bargain effectively given the antitrust exemption for baseball.... Collective bargaining in this country works very well. Government should intervene in that process only at times of crises, and then only when it is clear that continued voluntary negotiations will not succeed. My legislation is introduced in that spirit. Several other subcommittee members followed suit in supporting the use of binding arbitration to settle the strike. Similar to the chairman's approach, each of these other subcommittee members implied or suggested that collective bargaining is preferable, but that binding arbitration, or congressional intervention, is acceptable when parties are unable to reach an agreement. Excerpts from Representative Donald M. Payne's, Representative Matthew G. Martinez's, and Representative Eliot L. Engel's statements, respectively, are as follows: I support the Chairman's initiative because I believe that collective bargaining is a positive tool in this country. The government should step in the picture when it is evident that continued voluntary negotiations are futile. If this bill [H.R. 5095] can alleviate some of the problems that resulted from the baseball strike this summer, then this legislation has my full support. [Payne] Binding arbitration, I think, is one way to settle these things when there are disputes like that, and while I am a strong labor supporter, I have never really felt that even with labor that there are times when a third party shouldn't step in and see things in a reasonable, objective way when the negotiating parties can't. [Martinez] I urge the parties to resolve their differences so that congressional intervention is not necessary, but I assure you that we will get involved in order to protect the interests of fans, local business owners, and, as they say, the best interests of baseball. [Engel] Another subcommittee member who supported this bill, Representative Major R. Owens, believed that the preferable, long-term solution was to repeal baseball's antitrust exemption. In the following excerpt, he provides his reasoning: While I fully support this bill, of course, it only provides a temporary solution to a long-term problem. The Congress really must take stronger action. Baseball's antitrust exemption has provided the owners with a monopoly through which players have been denied the rights enjoyed by employees in every other industry. Continuing Congress' past inaction on this issue would be tragic.... Since Justice Blackmun rendered that court's opinion [in 1922], baseball's antitrust exemption has paved the way for seven work stoppages to occur, and presented with a chance to act, Congress has balked each time. The season may be over, but the opportunity for Congress to act is not. I urge all Members, of course, to fully support this effort by Congressman Williams, but I think we should go further and I urge all Members of Congress to support the efforts going forward in the Judiciary Committee to finally cure this problem once and for all by taking away the antitrust exemption from baseball. Taking a different tack, other subcommittee members suggested that the baseball strike did not warrant congressional involvement, and that it should be resolved through collective bargaining. Excerpts from the statements of Representatives Peter Hoekstra, Steve Gunderson, and Harris W. Fawell, respectively, are as follows: I would encourage Congress at this point in time to stay out of this situation. I would encourage the witnesses to go back to the bargaining table to solve their problems. If we are going to get involved, we should wait until after this strike is solved, and we should not do anything in a short period of time. We have much more pressing problems to deal with. [Hoekstra] As a Republican and a State legislator, I joined with the labor movement in Wisconsin to support binding arbitration, mandatory binding arbitration to eliminate the possibility of a work stoppage among the public schoolteachers in our State. I believe there was clearly a national interest or at least a State interest that required us to do that, and in that context we then had to look at an alternative to resolving the labor disputes. My question, very frankly, is to what degree and how do we determine whether there is a similar national interest with America's pastime, and if so, then what ought to be the conditions for an alternative remedy?.... As I indicated earlier, I am not one who is philosophically opposed to the concept of binding public arbitration when there is an overriding public interest. My question to the players or to your representative is, because you seem to be the supporters of this legislation, what is the overriding public interest which would compel the United States Congress to order final and binding arbitration in this situation? [Gunderson] I generally agree with the Chairman in not believing that we should mandate settlements. I think that probably as rough as this may be, it should be allowed to play out, and who knows what the next chapter of baseball may be. " "I speak as somebody who has played ball all my life, I love the game, it is fascinating, but I don't believe in the final analysis it is an economic tragedy in this Nation.... I basically take the view that we ought not to break into this collective bargaining process as long as it is there. Antitrust laws are not involved anyway.... The strike has got to be settled, I believe, by the players, by the owners getting together and recognizing that each has some trust and some basis to their stands. [Fawell] At least two of the subcommittee members who supported the imposition of binding arbitration raised yet another issue: the possible financial impact of the strike on stadium or team employees. Representative Martinez stated that the work stoppage was "an economic disaster to the people who make a living from baseball.... [T]he people that sell the peanuts in the stands, the beer, and the people that work in the concessions." Echoing Representative Martinez's concern, Representative Engel noted that "[t]housands of people, many of them my constituents, rely on Major League Baseball for their livelihood. They are the ticket takers, hot dog vendors, and small business owners in the community." In September 1994, the House Committee on the Judiciary, Subcommittee on Economic and Commercial Law held a hearing on Major League Baseball's antitrust exemption and its relationship to the ongoing strike. As shown by the following passages, Representative Jack Brooks, chairman of the subcommittee, linked the two issues—baseball's antitrust exemption and the strike—and concluded that legislation was necessary. Now, Congress doesn't serve the function of mediator who shuttles between private parties to resolve individual disputes. But we are, however, policymakers, policymakers with a long memory.... They [the owners] may have shut it [baseball and the World Series, in particular] down for the first time since 1904, but you might be underestimating Congress' ability to respond to the debacle we have witnessed since August 12. They would be wise to remember there is a different rhythm to congressional deliberations and actions. The 406 games that have been lost, the 12.6 million people who have not enjoyed paying and going to a game have moved the issue of baseball's antitrust exemption to this committee's radar screen as never before. As a result of the spectacle this Nation was forced to endure in the last few months and my very grave concerns for the future of the institution [baseball], I have come to the conclusion that legislation is needed to restore the principles of competition and fair play to the business of baseball. I am well aware that there may be insufficient time to pass a stand alone bill in the House before Congress adjourns, but I would remind the parties that the 104 th Congress is schedule to convene well before spring training begins and well before the scheduled season opening on April 2. In addition, if before adjournment the Senate acts to attach a limited repeal of the exemption on other legislation and sends it to the House, I would be very open to allowing it to proceed directly to the President. Expressing similar sentiments, Representative John Conyers Jr. said: "We are not negotiators. We are not bargainers, but we do make the law. We are responsible for our antitrust law. And it seems to me that unless something happens before the end—the beginning of the season next year, I think Congress is going to have a very heavy obligation to move in one of these directions." Representative Patricia Schroeder, in the following excerpt, characterized Congress's lack of action regarding baseball's antitrust exemption as implicitly creating a link between Congress and major league baseball. I have seen the polls that the owners are circulating that tell us the public does not favor Congressional involvement in the current dispute between the players and the owners. I would suggest that each year that Congress allows the [antitrust] exemption to stand is another year of Congressional involvement. By doing nothing, we are allowing the owners a special entitlement. Offering another, yet related, perspective, Representative Sherwood Boehlert talked of Congress's responsibility for professional baseball. He said: "We believe that because of the unique station that baseball holds in American society, and because of the legal privileges it has been granted by Congress, we have a special responsibility to ensure that the game endures." Although Representative Brooks concluded the hearing by citing the need for legislation, he and at least two other subcommittee members (Representatives Conyers and Hamilton Fish Jr.) encouraged the heads of the players union and Major League Baseball—both of whom testified at the hearing—to resolve their differences through collective bargaining. Their comments (Brooks, Fish, and Conyers, respectively) were as follows: You know, we deal with problems all the time up here where I may have this position, somebody else has another position, and we are hard set in them and we are going to go with them. Yet very often in Congress people get together and realize that there are third and fourth positions and what you thought was such a wonderful idea really is not that significant, that important, and that you could have been wrong. I could have been wrong. We could have done something else, and we reach those alternatives often here. That is what compromise is, that is what politics is all about. That is what negotiations are all about, and I would hope that you all would experience that opportunity. You have that opportunity any time. [Brooks] I don't think anybody has missed the fact that the chairman and I would very much like the parties here to resolve this dispute themselves and get on with the game. [Fish] Gentlemen, this has been an important hearing so far because it sounds like we might be able to get negotiations going again. I don't want to be overoptimistic, but I would certainly want to urge that if anything could come out of this hearing, the first thing that I think we would all rejoice about would be the fact that you were able to get back to the bargaining table, and I hope that could occur. [Conyers] In introducing H.R. 45 , Representative Conyers identified baseball's antitrust exemption as being "at the root of the current strike," and suggested that Congress was in a position to intervene. Specifically, he said that "[w]e have the opportunity and ability to rescue the national pastime from its current dispiriting condition. Let's not allow this opportunity to pass by or be deferred. I urge all colleagues to join in the effort." In the absence of introductory statements or hearings, it is not known whether these bills were efforts to address the baseball strike, or reflect the Members' general interest in professional baseball. The bills and their titles and sponsors are as follows: H.R. 105 , Baseball Antitrust Restoration Amendment of 1995, Representative Michael Bilirakis; H.R. 106 , Representative Michael Bilirakis; H.R. 365 , Baseball Fans and Communities Protection Act of 1995, Representative Charles Schumer; and, H.R. 1612 , Major League Baseball Antitrust Reform Act of 1995, Representative Jim Bunning. Although he did not mention his bill specifically, Representative Bunning stated that "[m]ajor league baseball has to have this exemption removed for the good of the fans, the game, and anybody else that wants a season in 1995." Similar to other Members who believed that the antitrust exemption was at the root of the strike, Representative James A. Traficant Jr. believed that "[r]emoving this [antitrust] exemption may be the only way to end the strike and save the 1995 season. That's why today I am introducing the Professional Baseball Antitrust Reform Act of 1995." While proposing a partial, or complete, repeal of baseball's antitrust exemption was a relatively common response to the strike, Representative Pat Williams, in the following excerpt, recommended binding arbitration: "I have today introduced legislation to provide mandatory and binding arbitration if the parties fail to reach agreement. Collective bargaining in this country works very well. The public, through their government, should intervene only in a crisis. We now have reached a crisis in the well-being of our national pastime." Representative John J. LaFalce, in discussing the rationale for his bill, noted that someone (that is, Congress) needed to protect the fans' interests, and proposed that regulating baseball was one way to do this. Excerpts from Representative LaFalce's statement are as follows: It is clear that baseball owners and players will continue to look out only for their own needs. But there is a crying need for someone to look out for the interests of fans, of taxpayers and of the communities in which both major league and minor league baseball is played. It is time for Congress to take steps to return baseball to the American people. The legislation I am introducing today seeks to accomplish this by creating an independent National Commission on Professional Baseball. The Commission would serve as a temporary regulatory body and impartial arbitrator to oversee the conduct of professional baseball until the legal status of major league baseball can be redefined either by negotiation or by congressional legislation. My legislation does take the position that baseball's antitrust exemption is, in effect, a government-granted monopoly in much the same manner as a local public utility or transportation authority. And like any other publicly-sanctioned monopoly, my bill would require public oversight to assure that self-interest is not put above the interests of the public and consumers. In this regard, the proposed commission would be similar to the Federal Communications Commission, or any other public body with oversight over a restricted industry or market. An important difference, however is the fact that the authority of the proposed Commission is intended to be temporary during a period of deregulation of baseball from the current market restrictions imposed by baseball's current antitrust exemption. Since Federal law has permitted a restricted national market for major league baseball, the Federal Government has both the right and the responsibility to regulate this market, just as we regulate other monopolies, to assure that the public's interests are protected. Advocating an approach also favored by several of his colleagues, Representative Estaban Edward Torres introduced legislation to repeal baseball's antitrust exemption. He provided the following reasons for doing so: "For the short term, I believe repealing the antitrust exemption will accelerate the end of the baseball shutdown, which threatens the livelihoods of thousands of Americans and the economies of cities and towns across the country. For the long term, I believe repealing the antitrust exemption will restore fairness to the fragile relationship of labor and management in professional baseball." As discussed below, President Clinton forwarded proposed legislation to Congress in 1995. His proposal became H.R. 870 , which was introduced by Representative Pat Williams, and S. 376 , which was introduced by Senator Edward M. Kennedy. After noting that Congress generally prefers to let parties involved in labor disputes reach a settlement on their own, Senator Kennedy offered several reasons why it was desirable for Congress to intervene in the baseball strike. In the following excerpts from his remarks, he touched on Congress's authority to regulate interstate commerce and the special status of baseball in America. Generally, Congress is reluctant to inject itself in labor disputes. All of us hope that the parties will find a way to end the impasse and settle their differences voluntarily. But there are rare instances in which Congress has a role to play in settling such disputes, and this may well be one of those times. There is no doubt that Congress' constitutional authority to regulate interstate commerce gives us the power to enact legislation to settle this dispute. Many aspects of major league baseball affect commerce between the States.... Obviously, Congress does not intervene in every labor dispute that burdens interstate commerce, but baseball is different and unique. It is more than a nationwide industry. It is our national sport. Baseball is part of American life. We in Congress as representatives of fans throughout the country should not remain silent while baseball is damaged by a strike that the owners and players seem unable to resolve themselves. Clearly, Congress has the power to act. The question is who speaks for Red Sox and millions of other fans across America. At this stage in the deadlock, if Congress does not speak for them, it may well be that no one will. For all these reasons, Congress can act and should be prepared to act. Legislation to end the strike would not set a precedent for injecting Congress into other labor disputes. There is still time for the owners and players to resolve this dispute on their own or to act voluntarily to establish a safety mechanism for doing so. S. 15 was yet another bill that, if enacted, would have repealed baseball's antitrust exemption. Its sponsor, Senator Daniel Patrick Moynihan, made the following remarks when he introduced the bill: As a result of this anomaly [baseball's antitrust exemption] in American law, Mr. President, the World Series was cancelled in 1994 for the first time since 1904. With none of the legal restraints that prevent other businesses from engaging in anticompetitive behavior, the baseball team owners are free to act as a cartel. To end this monopoly, Congress must remove baseball's antitrust exemption and subject the game to the same rules of law that apply to all other major league sports.... Many Members of Congress have begun to examine this issue more closely in view of the strike. My Friend Senator Orrin Hatch, the new chairman of the Judiciary Committee, has indicated that he supports repealing the exemption and is prepared to move a bill quickly through his committee. In February 1995, the Senate Committee on the Judiciary, Subcommittee on Antitrust, Business Rights, and Competition held a hearing on baseball's antitrust exemption and two bills, S. 415 and S. 416 , that would apply antitrust laws to professional baseball. At the hearing, several Members offered diverse views regarding whether the proposed repeal of baseball's antitrust exemption ought to be linked to the strike and the desirability of congressional intervention in the strike. Senator Strom Thurmond, who introduced S. 416 , did not link the partial, or complete, repeal of baseball's antitrust exemption to the ongoing strike. The following are excerpts from his remarks: The Thurmond-Leahy legislation addresses baseball's antitrust exemption, but is not specially drafted in an attempt to solve the current baseball strike.... Some Members of Congress believe that we should not get involved during the current strike, while other Members have asserted that in the absence of a strike there is no need for the Congress to take action on this issue. Whether there is a strike or not, it is my belief that it is proper for the Congress to consider this antitrust issue as a matter of public policy. Regarding the purpose of the February 1995 hearing, Senator Thurmond said that it was "intended to focus on the policy implications of baseball's antitrust exemption, rather than the details of the current baseball strike and the course of the unsuccessful negotiations. Although the ongoing strike raises questions about the antitrust exemption, the problems in major league baseball go deeper than this one strike." Senator Thurmond added that he "intend[ed] to continue working on this issue, even if the strike were to end today." Senator Thurmond also shared his thoughts on the circumstances under which it might be acceptable for government to intervene in a matter such as the baseball strike, indicating it depended upon whether the public interest would be served. In the following passage, the Senator also commented on Congress's implicit involvement in baseball's antitrust exemption. Despite our interest in seeing the players return to the field, we must be ever mindful of the need to limit Federal Government intervention into matters best left to private remedies. The Congress should determine how much Federal involvement, if any, serves the public interest in this area. But as long as the special antitrust exemption remains in place for baseball, the Congress is involved. The Congress has an impact on the sport by simply permitting the special exemption to remain long after the factual basis for it has disappeared. Senator Orrin G. Hatch, who introduced S. 415 , was one of several subcommittee members that linked the ongoing baseball strike to professional baseball's antitrust exemption, and, accordingly, supported eliminating the exemption. Senator Hatch's comments were as follows: Unlike other legislation that has been proposed, my bill would not impose a big-government solution. On the contrary, it would get government out of the way by eliminating a serious Government-made obstacle [baseball's antitrust exemption] to settlement.... A limited repeal of this antitrust immunity is now in order. Labor negotiations between owners and players are impeded by the fact that baseball players, unlike all other workers, have no resort under the law if the baseball owners act in a manner that would, in the absence of the immunity, violate the antitrust laws. This aberration in the antitrust laws has handed the owners a huge club that gives them unique leverage in bargaining and discourages them from accepting reasonable terms. This is an aberration that Government has created, and it is an aberration that Government should fix.... This legislation would not impose any terms of settlement on the disputing parties, nor would it require that they reach a settlement. Rather, it would simply remove a serious impediment to settlement—an impediment that is the product of an aberration in our antitrust laws. In short, far from involving any governmental intrusion into the pending baseball dispute, the legislation would get Government out of the way. Although Senator Patrick Leahy was Senator Thurmond's cosponsor, he is one of the Members who asserted that the antitrust exemption played a role in the strike. However, he also identified, in the following comments, two other factors that he asserted contributed to the ongoing dispute. There is a public interest in the resumption of true, major league baseball. The current situation derives at least in part from circumstances in which the Federal antitrust laws have not applied, Congress has provided no regulatory framework to protect the public, and the major leagues have chosen to operate without a strong, independent commissioner who could look out for the best interest of baseball. Thus, competing financial interests continue to clash, with no resolution in sight. Senator Daniel Patrick Moynihan, although an original cosponsor of S. 415 , favored resolution of the labor-management dispute through collective agreement. Excerpts from his remarks are as follows: Clearly baseball is a business engaged in interstate commerce, and should be subject to the antitrust laws to the same extent that all other businesses are. But the greater point is that the strike must be settled through good-faith bargaining between the parties. I will support this and any other effort that will move the parties forward toward a collective bargaining agreement—and the resumption of baseball in America as soon as possible. As a former Assistant Secretary of Labor under Presidents Kennedy and Johnson, I agree with Senator Hatch, Senator Kassebaum, and others who have said Congress ought not interfere in the collective bargaining process—in baseball or any other industry. Absent some compelling national interest, Congress has always been reluctant to intervene in labor disputes, and properly so. Yet by our inaction with regard to the antitrust exemption, we have been interfering with baseball for half a century. Other members of the subcommittee offered reasons why Congress should refrain from intervening in the strike. Senator Arlen Specter simply stated that he did not "think that the Congress ought to intervene when a dispute is in process, and certainly not to order binding arbitration." Senator Howell Heflin, who said he had "great reservations about Congress intervening in any labor dispute," described two of them in the following passage: Reservations, No. 1, as to whether or not we are equipped to be the decisionmaker and whether we ought to take action which might be favorable or unfavorable to one side or the other. I have also questions as to whether or not in any labor dispute anything other than the economic pressures that come to bear should have a substantial interest or controlling interest in the determination of the settlement of the dispute or the terms that come up. On the other hand, I want to see baseball played. I want to see the fans' interest in it gratified. Raising questions regarding, for example, Congress's priorities and the expected effectiveness of the proposed legislation, Senator Nancy Landon Kassebaum said the following: At the outset, let me say that I believe it would be a mistake for Congress to intervene in the current dispute between the Major League Baseball owners and players. It is not the role of Congress—absent a national emergency—to force a settlement or take sides in a private labor dispute. To make an exception in this case would establish a very dangerous precedent.... Let me outline briefly my three principal objections to the Hatch-Moynihan bill. First, the Hatch-Moynihan bill [S. 415]—by its own terms—would be a direct intervention by Congress in the current baseball labor dispute.... Again, I believe it is a mistake for us to intervene by changing the rules in the middle of the game. Second, not only would Hatch-Moynihan intervene in the current dispute, it would, worse still, take sides.... Hatch-Moynihan would treat the baseball owners less favorably than any other industry by excluding baseball's collective bargaining process from federal antitrust laws. This would allow the players to take the dispute to court, a right nonlabor organization now enjoys.... Finally, it is my view that consideration of this or any legislation, at this time, will only impede further negotiations and decrease the likelihood of a settlement. As long as one side or the other believes there is a possibility that Congress will step in, meaningful negotiations will not occur. Having introduced S. 415 previously, Senator Hatch, along with four colleagues, including Senator Thurmond, introduced a new bill, S. 627 , in March 1995. Senator Hatch's and Senator Thurmond's positions remained unchanged regarding whether the purpose of the legislation was to facilitate the resolution of the strike (Hatch's position), or to terminate Congress's connection to baseball's antitrust exemption (Thurmond's position). During a hearing on S. 627 , several members of the Senate Committee on the Judiciary provided a variety of reasons why Congress ought not to intervene in the strike. Questions about congressional priorities, the potential for legislation to disrupt collective bargaining efforts, and concern that congressional action would be viewed as favoring one party to the dispute over the other were put forth as reasons for Congress not to act. Senator Specter's, Senator Paul Simon's, and Senators Hank Brown and Dianne Feinstein's comments were as follows, respectively: Whatever the merits of eliminating major league baseball's broad, judicially created exemption from the antitrust laws, Congress should not act while the labor situation remains uncertain. Any action we take is certain to be viewed as favoring one side to the dispute or the other. In such instances, Congress acts best when it does not act at all. The complex labor problems that have characterized baseball for the past years ought to be resolved by the parties without congressional interference.... Whether or not that [baseball's] exemption ought to be retained, I believe strongly that given the current state of play, it would be a mistake for Congress to enact this bill. This bill would only upset the current situation, making it less likely that the parties to baseball's labor strife will be able to resolve their dispute between themselves. We should not lose sight of the fact that voluntary collective bargaining is the basis of labor relations in this country. The parties should be left to settle their current impasse themselves without interference from Congress. [Specter] In approving a repeal of major league baseball's longstanding antitrust exemption, this Committee has decided to alter the balance of power in an ongoing labor dispute between millionaires while the truly pressing problems facing our nation remain unresolved. Congress should be devoting its time and resources to other matters rather than inserting itself into a controversy for which both sides deserve blame. Indeed, of the many labor disputes ongoing in America today, I can think of few, if any, that are less deserving of our attention than this one.... The variety of problems facing our professional sports leagues demonstrates that even if professional baseball is a deserving subject of Congress's attention, such consideration should not take place on an ad hoc basis, in response to one 'crisis' or another, but should be part of an overall and careful reexamination of professional sports under the law. Only by studying the issue raised by S. 627 in this broader context can Congress avoid the justifiable criticism that it is simply playing favorites in a rancorous dispute that, but for the parties' stubbornness and lack of reason, should have been resolved long ago. [Simon] The current bill intervenes in a continuing labor dispute. The majority report justifies this legislation on the basis that it 'would help resolve baseball's labor problems.' This conclusion is dubious at best. The middle of an ongoing labor dispute is not the right time to change the rules of the game. Both President Clinton and his chosen mediator, William Usery, repeatedly stated that the problems of baseball should be decided at the negotiating table. But, every time this issue comes before Congress, the parties drop what they are doing, leave the negotiating table, and focus their efforts on legislation. Proponents of the legislation suggest that all of the labor discord in Baseball can somehow be attributed to the existence of the exemption and that its elimination would be a labor panacea. Nothing could be further from the truth. In fact, all that its elimination would cause is unbridled litigation. [Brown and Feinstein] On October 14, 1994, the Secretary of Labor, Robert Reich, announced that former Labor Secretary William Usery had "agreed to mediate the labor dispute between Major League Baseball players and owners. And the players and owners have agreed to resume negotiations with Bill Usery as special mediator." On January 26, 1995, President Clinton issued a statement, saying that he had asked Mr. Usery "to bring the owners and the players back to the table, and to step up the pace and intensity of his mediation efforts. I have asked him to report back to me by February 6 with the progress they have made." While the President said that "[i]t has always been my belief—and continues to be—that the baseball strike, like any labor dispute, should be settled through good-faith bargaining between the parties," he added "[b]ut we cannot wait indefinitely." On February 7, 1995, President Clinton "summoned the two sides to the White House … for a last-ditch negotiating session," which, ultimately, was unsuccessful. Speaking in the briefing room at the White House shortly before 11:00 p.m. on February 7, President Clinton provided the following update: Clearly they are not capable of settling this strike without an umpire. So I have now concluded, since I have no legal authority in this situation, as all of you know and have known for some time, that I should send to the Congress legislation seeking binding arbitration of the baseball dispute. This is not a request for a congressionally imposed solution. It is a request for the only process we have left to us to find a solution through neutral parties. After acknowledging that Congress has "other pressing business," the President added, "[a]t least when the bill [I propose] goes to the Congress, the American people can make themselves heard one way or the other on the legislation and Congress can consider it." The next day, President Clinton transmitted proposed legislation, "Major League Baseball Restoration Act," to Congress. As discussed above, Representative Williams and Senator Kennedy introduced the bill in the House of Representatives ( H.R. 870 ) and the Senate ( S. 376 ), respectively. The President's rationale for proposing legislation included the following reasons: "If the dispute is permitted to continue, there is likely to be substantial economic damage to the cities and communities in which major league franchises are located and to the communities that host spring training. The ongoing dispute also threatens further serious harm to an important national institution." The National Football League's previous collective bargaining agreement took effect on March 8, 2006, and was to expire on the "last day of the 2012 League Year." As described in the following excerpt from the CBA, however, either party to the agreement could opt to terminate it prior to the established expiration date: Section 3. Termination Prior to Expiration Date: (a) Either the NFLPA [NFL Players Association] or the Management Council may terminate both of the final two Capped Years (2010 and 2011) by giving written notice to the other on or before November 8, 2008. In that event, the 2010 League Year would be the Final League Year, and the Agreement would continue in full force and effect until the last day of that League Year, except for the provisions related to the Draft, which would expire as prescribed in Article XVI, Section 1 [of the CBA]. In May 2008, NFL team owners voted unanimously to opt out of the CBA and negotiate a new agreement for the 2011 season and subsequent seasons. Following unsuccessful efforts by the league and the union to negotiate a new agreement, both parties accepted, in February 2011, an invitation from the director of the Federal Mediation and Conciliation Service (FMCS) to mediate their dispute. Seventeen days of mediation took place, between February 17 and March 11, under the auspices of the FMCS. On March 11, the FMCS issued a press release stating that the agency's director and deputy director had determined that "no useful purpose would be served by requesting the parties to continue the mediation process at this time." On March 11, the NFLPA notified the NFL that it had "decertified," and the following day the NFL announced that it was imposing a lockout. Following additional negotiations, the NFL and NFLPA announced, at a joint press conference on July 25, 2011, that the two parties had reached an agreement. During that same week, team facilities were opened to players and training camp began. The first preseason games are scheduled for August 11-15. Table 8 shows the legislative measure that was introduced in response to the lockout. Upon introducing this bill, Representative John Conyers, Jr., stated that its purpose was to ensure that "a congressionally granted antitrust immunity is never again misused to build up an improper 'war chest' to gain leverage in a football lockout...." According to Representative Conyers, when the NFL had negotiated its television contracts in 2008, the league had "insisted on provisions that would shield it from the economic impact of a lockout." As measured by the number of legislative measures introduced and hearings held, and as shown in Table 9 , Congress was most active during the 1994 strike. The 232-day baseball strike lasted much longer than the two NFL strikes and included the loss of the 1994 World Series. The 1982 and 1987 strikes were relatively short by comparison, lasting 57 days and 24 days, respectively. Although the 1987 strike involved the use of replacement players for several games during the regular season, the season was capped by the Super Bowl. The 1982 Super Bowl also was held. Table 10 organizes the legislative measures according to the method proposed for resolving the dispute. S. 3003 (97 th Congress) is included in two columns (impose binding arbitration and require league and players to resume activities) because it included two noteworthy provisions. Three methods were proposed for ending the 1982 or 1987 NFL strikes—impose binding arbitration, encourage the parties to reconcile their differences, or require the league and players to resume normal activities (that is, resume playing games). Neither of the latter two options was proposed for baseball. Major league baseball enjoys a unique status as the only professional sport in the United States that has a broad antitrust exemption, and 15 legislative measures targeted the exemption, attempting to eliminate or modify it. Four measures were introduced that would have imposed binding arbitration on baseball; two measures would have established a commission to oversee baseball; and one measure would have amended the Sports Broadcasting Act regarding professional baseball. The following table shows the disposition of the legislative measures introduced or offered in response to the 1982 NFL strike, the 1987 NFL strike, the 1994 MLB strike, and the 2011 NFL lockout. Among the 26 legislative measures introduced, the only one that was approved was S.Res. 294 (100 th Congress), which encouraged NFL players and management to return to the bargaining table. Four bills, all related to the 1994 baseball strike, were placed on a Senate or House calendar. The one amendment ( S.Amdt. 2601 to H.R. 4649 (103 rd Congress)) that was offered was withdrawn. Most of the measures (20) were not reported by committee. Appendix A. Summary of NFL Labor History Appendix B. Sports and Labor-Management Relations The National Labor Relations Act (NLRA) governs labor-management relations in the private sector and applies generally to professional sports employers. Under the NLRA, employers and unions are required to bargain in good faith with respect to wages, hours, and other terms and conditions of employment. Employers and unions are required to bargain over these mandatory subjects of bargaining to the point of impasse. The NLRA does not obligate either party, however, to agree to a proposal or to make a concession. In fact, collective bargaining presupposes the availability of certain economic weapons as part of the negotiating process. For example, employees are permitted to strike if collective bargaining fails to achieve higher wages or improved working conditions. Similarly, during certain work stoppages, an employer may use replacement workers to continue the operation of its business. Although the NLRA contemplates possible strikes by employees, it does provide for mediation and conciliation services to settle certain disputes. The NLRA authorizes the Federal Mediation and Conciliation Service (FMCS) to provide mediation and conciliation services upon its own motion or upon the request of one or more of the parties to a dispute whenever "in its judgment such dispute threatens to cause a substantial interruption of commerce." The FMCS is directed, however, to avoid mediating disputes that would have only a minor effect on interstate commerce, if state or other conciliation services are available to the parties. Where the FMCS is involved in a dispute, it is limited to providing only mediation and conciliation services, and may not issue a binding arbitration decision. As noted earlier in this report, numerous measures were introduced in Congress in 1982 and 1994 to prescribe binding arbitration to resolve the NFL and MLB strikes. In general, these measures would have established a board or panel to take testimony, conduct hearings, and review relevant books and records. The board or panel would then consider various factors in conjunction with the information it received before rendering a final decision or agreement that would bind the parties and replace the expired collective bargaining agreement. Some of the factors that would have been considered include the history of collective bargaining agreements between the parties, the changes in circumstances of the parties, and an owner's ability to pay. Unlike recent legislation, such as the Employee Free Choice Act, that would have amended the NLRA to prescribe binding arbitration if certain conditions are not met in any private labor negotiation, many of the NFL and MLB measures would have established a panel or board to resolve a specific strike. It appears that the panel or board would have ceased to operate once a decision was reached. Arbitration is often favored by disputing parties because it allows generally for the selection of arbitrators who have expertise in the industry in which the dispute arises. Unlike judges who may or may not be familiar with certain industry concepts, arbitrators may be people who have worked as officials or regulators in the relevant community. Indeed, at least one of the MLB measures would have established an arbitration board consisting of one representative of the owners of major league baseball selected by the owners, one representative of the major league baseball player's association selected by the association, and a third individual selected in accordance with the procedures of the American Arbitration Association or procedures otherwise agreed to by the parties. Supporters of arbitration have also maintained that it provides for faster dispute resolution because it is not subject generally to the rules and procedures that exist with litigation. Increasingly, however, the use of lawyers is becoming more common in arbitration. Consequently, whether arbitration is really a cost-effective alternative to litigation has been questioned. It has also been noted that arbitration fees may be costly. Appendix C. Antitrust Exemptions Applicable to Professional Sports There is one statutory exemption from the antitrust laws applicable generally to professional sports, the Sports Broadcasting Act, and two non-statutory exemptions: the so-called "baseball antitrust exemption" describes the fact that major league baseball, alone among professional sports, is not covered by the antitrust laws; the judicially created labor-antitrust exemption is utilized by all professional sports leagues inasmuch as it is applicable to the collective bargaining agreements between players and their teams. Each will be briefly summarized in the following paragraphs, after which an element in many, if not most, professional team-sports contracts—the "reserve" clause —will be noted and briefly discussed. Finally, there will be a short section on the 1998 congressional attempt to limit the "baseball antitrust exemption." Further, or more specific, information may be obtained directly from the author(s). Sports Broadcasting Act (SBA) The SBA's five sections include the following: The first section of the act (15 U.S.C. §1291) authorizes professional sports teams (including football teams) to pool, by "joint agreement," their broadcasting ("sponsored telecasting") rights in their games in order that their leagues may sell or transfer those rights; and specifically makes the federal antitrust laws inapplicable to such joint agreements and sales or transfers. (In 1988, the U.S. Court of Appeals for the Second Circuit ruled that the provision does not limit the antitrust exemption to a single, pooled-rights contract with a single television network. ) 15 U.S.C. Section 1292 clarifies that the antitrust exemption granted in Section 1291 does not apply to contracts for the sale of telecasting rights that seek to limit the buyer's right to telecast games into any territory, except that a league may prohibit the telecasting of games into the home territory of any team when that team is playing a home game. The other three sections of the SBA (1) carve out Friday evenings (after 6 o'clock) and all day Saturdays between the second Friday in September and the second Saturday in December for high school and college games by specifically noting that the antitrust exemption provided in Section 1291 does not apply to contracts that permit the telecasts of professional games during those times if the high school or college games were announced prior to August 1 of the applicable year as "regularly scheduled for such day and place" (§1293); (2) clarify that with the exception of the exemption granted in Section 1291, the applicability of the antitrust laws to "organized professional team sports" remains unchanged (§1294); and (3) define "persons" as meaning individuals, partnerships, corporations, or "unincorporated association[s] or any combination" of them (§1295). "Baseball Antitrust Exemption" The so-called "baseball antitrust exemption"—a convenient and much-used shorthand phrase—is, technically, not accurate because it implies positive action by Congress to grant an exemption. In fact, the "exemption" is the result of an historical accident: the first case to come before the Supreme Court alleging a violation of the antitrust laws occurred prior to the Supreme Court's expansive interpretation of the Commerce Clause. In that case, the Court held that the business of putting on "exhibitions of baseball" could not be considered commerce for purposes of federal antitrust jurisdiction; and although the Court has had several opportunities to reverse its position that the antitrust laws are not applicable to professional baseball, it has never done so, preferring that the change be made specifically by Congress. While the fact of an antitrust exemption for professional baseball has been recognized since 1922, the extent and scope of that exemption, however, has been the subject of some lower court discussion. At least one court has interpreted the Supreme Court's holdings and language as limiting the exemption to baseball's "reserve system," noted, infra, pursuant to which player movement from team to team may be restrained. Labor-Antitrust Exemption The judicially created labor-antitrust exemption holds that Congress's desire to foster collective bargaining is best furthered by permitting employees who wish to jointly negotiate the terms of their employment contracts to do so without fear of violating the antitrust laws. The exemption is not completely open-ended, however, specifying that the practices negotiated must (1) inherently constitute mandatory subjects of collective bargaining (i.e., be bona fide terms or conditions of employment); (2) be no more restrictive than necessary to realize the goal(s) it/they purport(s) to achieve; and (3) be embodied in a valid, genuinely negotiated (i.e., arm's-length) collective bargaining agreement. In addition, some courts have indicated that another factor to be evaluated is whether the restraint embodied in the agreement affects only or primarily the parties to the agreement (as opposed to competitors of either). If the labor-antitrust doctrine is applicable, it covers the management as well as labor parties to a collective bargaining agreement. As the Supreme Court explained in Connell Construction Co. v. Plumbers & Steamfitters Local Union No. 100, The nonstatutory exemption has its source in the strong labor policy favoring the association of employees to eliminate competition over wages and working conditions. Union success in organizing workers and standardizing wages ultimately will affect price competition among employers, but the goals of federal labor law could never be achieved if this effect on business competition were held a violation of the antitrust laws. The Court therefore has acknowledged that labor policy requires tolerance for the lessening of business competition based on differences in wages and working conditions. The "Reserve" Clause in Professional Sports; Congress's Attempt to Address the Issue in the Context of the "Baseball Antitrust Exemption" Under most circumstances, the value of an offered service (e.g., the services of a professional athlete) would be determined by the market. Prospective buyers of that service would bid on it and bargain with the seller, who, if he has an especially unique or valuable commodity to sell, would profit from his ability to exploit the competition among potential buyers. Once a professional athlete is under contract to a sports team, however, the "reserve" clause in professional sports prohibits that interplay among market participants by, in essence, binding the athlete to the team that has him under contract—at least in the year following the contract's expiration. The argument that "the restriction of competition for players' services is not a type of restraint proscribed by the Sherman Act" has been made and rejected. But that same court would not dismiss the utility of the NFL's "Rozelle" rule, noting that the "'ostensible purposes' of the rule are to maintain competitive balance among … teams and protect the clubs' investment in scouting, selecting and developing players." Even the district court hearing the relatively recent challenge to baseball's "reserve" clause observed: Clearly the preponderance of credible proof does not favor elimination of the reserve clause. With the sole exception of plaintiff [Curt Flood] himself, it shows that even plaintiff's witnesses do not contend that it is wholly undesirable; in fact they regard substantial portions meritorious. Thus, the various "reserve" clauses have not been struck down completely; they have, however, been modified to conform to judicial criticism of their enforcement and/or lack of bona fide bargaining—most "reserve" clauses are simply imported from the leagues' constitutions and bylaws and inserted in their standard player contracts. In the years after the Supreme Court's Flood decision refusing to alter or remove baseball's antitrust exemption, Congress had made several attempts to act on the Court's invitation in that case to correct the historical accident of baseball's antitrust exemption, but none was successful until the passage of the Curt Flood Act by the 105 th Congress. The Curt Flood Act is applicable to major league baseball players, clarifying that they are covered by the antitrust laws in transactions concerning their employment to the same extent as are other professional athletes. Among the issues specifically not covered or affected (in addition to employment relations with minor league players) is "the agreement [known as the 'Professional Baseball Agreement'] between organized professional major league baseball teams and the National Association of Professional Baseball Leagues." We are not aware of any litigation brought pursuant to the Curt Flood Act: although the act does get major league professional baseball players past the courthouse door by denying their employers the "we're-not-covered-by-the-antitrust-laws-so-this-case-must-be-dismissed" argument, as the foregoing material has indicated. Once in court many professional athletes have been frustrated in their attempts to challenge practices they consider onerous if those practices are embodied in valid collective bargaining agreements. The Curt Flood Act neither prevents the courts from recognizing the nonstatutory labor-antitrust exemption, nor provides guidance on the interpretation of that exemption.
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Prior to the 2011 National Football League (NFL) lockout, developments in professional football's labor-management relations had prompted questions regarding how, when, and in what manner a new collective bargaining agreement (CBA) might be drafted. Interest in this matter included, on the part of some observers, questions about how Congress responded to previous work stoppages in professional sports. In attempting to address this particular question, this report examines congressional responses to the 1982 and 1987 work stoppages in the NFL. With the conclusion of the 2011 NFL lockout in July, this work stoppage is also included. Additionally, this report examines the 1994 Major League Baseball strike, which is useful considering the extent of congressional activity surrounding this strike. Compared to the 1994 baseball strike, the 1982 and 1987 football strikes and the 2011 lockout did not garner much attention from Congress in terms of legislative measures and hearings. Three legislative measures were introduced in response to the 1982 strike; one each was introduced in response to the 1987 strike and the 2011 lockout. Members introduced or offered 22 legislative measures and held five hearings that were related to the baseball strike. With one exception (S.Res. 294, 100th Congress), none of these measures was approved by either house. Members who introduced, or otherwise supported, legislative measures offered reasons for promoting congressional intervention. Their arguments touched on, for example, the economic impact of work stoppages, the role of baseball's antitrust exemption in establishing a climate conducive to players' strikes, previous congressional involvement in professional sports, and a responsibility to ensure the continuity of football (or baseball). Disagreeing that congressional intervention was warranted, other Members offered several reasons why Congress ought not to intervene. For example, one Member suggested that repealing baseball's antitrust exemption would alter the balance of power in professional baseball. Other Members believed that more pressing matters deserved Congress's attention. At least one Member suggested that a particular bill, if enacted, would have the effect of favoring the players over the owners. A summary of NFL labor-management history may be found in Appendix A. Appendix B provides an overview of key aspects of labor-management relations and sports, and Appendix C includes a discussion of antitrust exemptions applicable to professional sports.
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Sources of arsenic in water include natural sources, particularly rocks and soils, and also releases from its use as a wood preservative, in semi-conductors and paints, and from mining and agricultural operations. Elevated levels of arsenic are found more frequently in ground water than in surface water. Because small communities typically rely on wells for drinking water, while larger cities often use surface-water sources, arsenic tends to occur in higher concentrations more frequently in water used by small communities. In the United States, the average arsenic level measured in ground-water samples is less than or equal to 1 part per billion (ppb, or micrograms per liter [μg/L]); however, higher levels are not uncommon. Compared with the rest of the United States, Western states have more water systems with levels exceeding 10 ppb; levels in some locations in the West exceed 50 ppb. Parts of the Midwest and New England also have some water systems with arsenic levels exceeding 10 ppb, but most systems meet the new standard. When issuing the rule, EPA estimated that roughly 4,000 (5.5%) of regulated water systems, serving a total of 13 million people, were likely to exceed the 10 ppb standard. The previous drinking water standard for arsenic, 50 ppb, was set by the U.S. Public Health Service in 1942. EPA adopted that level and issued an interim drinking water regulation for arsenic in 1975. This standard was based on estimated total dietary intake and non-cancer health effects. In 1986, Congress amended the Safe Drinking Water Act (SDWA), converted all interim standards to National Primary Drinking Water Regulations, and included arsenic on a list of 83 contaminants for which EPA was required to issue new standards by 1989. EPA's extensive review of arsenic risk assessment issues caused the agency to miss the 1989 deadline. As a result of a citizen suit, EPA entered into a consent decree with a new deadline for the rule of November 1995. EPA continued work on risk assessment, water treatment, analytical methods, implementation, and occurrence issues, but in 1995 decided to delay the rule in order to better characterize health effects and assess cost-effective removal technologies for small utilities. In the 1996 SDWA Amendments ( P.L. 104-182 ), Congress directed EPA to propose a new drinking water standard for arsenic by January 1, 2000, and to promulgate a final standard by January 1, 2001. Congress also directed EPA to develop a research plan for arsenic to support the rulemaking effort and to reduce the uncertainty in assessing health risks associated with low-level exposures to arsenic. EPA was required to conduct the study in consultation with the National Academy of Sciences. In 1996, EPA requested the National Research Council (NRC) to review the available arsenic toxicity data base and to evaluate the scientific validity of EPA's risk assessments for arsenic. The NRC issued its report in 1999 and recommended that the standard be reduced, but it did not recommend a particular level. The NRC affirmed that the available data provided ample evidence for EPA's classification of inorganic arsenic as a human carcinogen, but that EPA's dose-response assessment, which was based on a Taiwan study, deserved greater scrutiny. The NRC explained that the data in the study lacked the level of detail needed for use in dose-response assessment. The Council also reported that research suggested that arsenic intake in food is higher in Taiwan than in the United States, further complicating efforts to use the data for arsenic risk assessment. Based on findings from three countries where individuals were exposed to very high levels of arsenic (several hundreds of parts per billion or more), the NRC concluded that the data were sufficient to add lung and bladder cancers to the types of cancers caused by ingestion of inorganic arsenic; however, the NRC noted that few data addressed the risk of ingested arsenic at lower concentrations, which would be more representative of levels found in the United States. The NRC concluded that key studies for improving the scientific validity of risk assessment were needed, and recommended specific studies to EPA. In June 2000, EPA published its proposal to revise the arsenic standard from 50 ppb to 5 ppb and requested comment on options of 3 ppb, 10 ppb, and 20 ppb. EPA stated that the proposal relied primarily on the NRC analysis and some recently published research, and that it would further assess arsenic's cancer risks before issuing the final rule. As proposed, the standard would have applied only to community water systems. Non-transient, non-community water systems (e.g., schools with their own wells) would have been required only to monitor and then report if arsenic levels exceeded the standard. In the final rule, published on January 22, 2001 (66 FR 6976), EPA set the standard at 10 ppb and applied it to non-transient, non-community water systems, as well as community water systems. The agency gave the water utilities five years to comply (the maximum amount of time allowed under SDWA). EPA estimated that 3,000 (5.5%) of the 54,000 community water systems, and 1,100 (5.5%) of the 20,000 non-transient, non-community water systems, would need to take measures to meet the standard. In developing standards under the Safe Drinking Water Act, EPA is required to set a 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. (EPA sets the MCLG at zero for carcinogens [as it did for arsenic], unless a level exists below which no adverse health effects occur.) EPA must then set an enforceable standard, the MCL, as close to the MCLG as is "feasible" using the best technology, treatment, or other means available (taking costs into consideration). EPA's determination of whether a standard is feasible typically has been based on costs to large water systems (serving more than 50,000 people). Less than 2% of community water systems (roughly 750 of 54,000 systems) are this large, but they serve roughly 56% of all people served by community systems. Congress has long recognized that the technical and cost considerations associated with technologies selected for large cities often are not applicable to small systems. In the 1996 amendments, Congress expanded SDWA variance and exemption provisions to address small system compliance concerns. The small system variance provisions require that for each rule establishing an MCL, EPA must list technologies that comply with the MCL and are affordable for three size categories of small systems. If EPA does not list affordable compliance technologies for small systems, then it must list variance technologies. A variance technology need not meet the MCL, but must be protective of public health. If EPA lists a variance technology, a state then may grant a variance to a small system, allowing the system to use a variance technology to comply with a regulation. EPA has not identified variance technologies for arsenic or any other standards because, based on its current affordability criteria, EPA has determined that affordable compliance technologies are available for all standards. Thus, small system variances are not available. Congress took issue with EPA's assessment that small system variance technologies were not merited for the arsenic standard, and in 2002, directed EPA to review the criteria it uses to determine whether a compliance treatment technology is affordable for small systems. In March 2006, EPA proposed three options for revising its affordability criteria (71 FR 10671). Under the current affordability criteria, EPA considers a treatment technology affordable unless the average compliance cost exceeds 2.5% of the area's median household income. Based on this measure, EPA determined that affordable technologies are available for all SDWA standards. The proposed options under consideration are well below the current level: 0.25%, 0.50%, and 0.75% of an area's median household income. EPA also stated that it expects to address in the revised criteria the issue of how to ensure that a variance technology would be protective of public health. According to EPA, the final criteria would apply only to the new Stage 2 Disinfectants/Disinfection Byproducts Rule and future rules, and not to the arsenic rule. Exemptions potentially offer a source of compliance flexibility for small systems. States may grant temporary exemptions from a standard if, for certain reasons (including cost), a system cannot comply on time. The arsenic rule gives systems five years to comply with the new standard; an exemption allows another three years for qualified systems. Systems serving 3,300 or fewer persons may receive up to three additional two-year extensions, for a total exemption duration of nine years (a total of 14 years to achieve compliance). In the final rule, EPA noted that exemptions will be an important tool to help states address the number of systems needing financial assistance to comply with this rule and other SDWA rules (66 FR 6988). However, to grant an exemption, the law requires a state to hold a public hearing and make a finding that the extension will not result in an "unreasonable risk to health." Because the exemption process is complex, states have seldom granted them. State officials have noted that "unreasonable risk to health" has never been defined, and that states must make a separate finding for each system. Many states have granted few or no exemptions for the arsenic rule. When proposing a rule under SDWA, EPA must publish a determination as to whether or not the benefits of the standard justify the costs. If EPA determines that costs are not justified, then it may set the standard at the level that maximizes health risk reduction benefits at a cost that is justified by the benefits. EPA determined that the "feasible" arsenic level (for large systems) was 3 ppb, but that the benefits of that level did not justify the costs. Thus, EPA proposed a standard of 5 ppb. Also, EPA proposed to require non-transient, non-community water systems (e.g., schools) only to monitor and report (as opposed to treating), largely because of cost-benefit considerations. In setting the standard at 10 ppb, EPA cited SDWA, stating that this level "maximizes health risk reduction benefits at a cost that is justified by the benefits." The final rule applies to schools and similar non-community water systems. In the final rule, EPA estimated that reducing the standard to 10 ppb could prevent roughly 19 to 31 bladder cancer cases and 5 to 8 bladder cancer deaths each year. The agency further estimated that the new standard could prevent 19 to 25 lung cancer cases and 16 to 22 lung cancer deaths each year, and provide other cancer and non-cancer health benefits that were not quantifiable. Regarding the cost of meeting the 10 ppb standard, EPA estimated that for systems that serve fewer than 10,000 people, the average cost per household could range from $38 to $327 per year. Roughly 97% of the systems that were expected to exceed the standard are in this category, and most of these systems serve fewer than 500 people. For larger systems, projected water cost increases range from $0.86 to $32 per household. The estimated national, annualized cost of the rule is approximately $181 million. EPA's Science Advisory Board (SAB) had raised concerns about the rule's economic and engineering assessment, and concluded that several cost assumptions were likely to be unrealistic and other costs seemed to be excluded. The SAB also suggested that EPA give further thought to the concept of affordability as applied to this standard. Many municipalities and water system representatives also disagreed with the agency's cost estimates. The American Water Works Association (AWWA), while supporting a stricter standard, estimated that the new rule would cost $600 million annually and require $5 billion in capital outlays. AWWA attributed differences in cost estimates partly to the costs of handling arsenic-contaminated treatment residuals and the estimated number of wells affected. AWWA projected that the rule could cost individual households in the Southwest, Midwest, and New England as much as $2,000 per year. EPA issued the final rule on January 22, 2001. In March 2001, the Administrator delayed the rule for 60 days, citing concerns about the science supporting the rule and its estimated cost to communities. On May 22, 2001, EPA delayed the rule's effective date until February 22, 2002, but did not change the 2006 compliance date for water systems (66 FR 28342). At EPA's request, the NRC undertook an expedited review of EPA's arsenic risk analysis and the latest health effects research, the National Drinking Water Advisory Council (NDWAC) reassessed the rule's cost, and the SAB reviewed its benefits. EPA also requested public comment on whether the data and analyses for the rule support setting the standard at 3, 5, 10, or 20 ppb (66 FR 37617). The NRC determined that "recent studies and analyses enhance the confidence in risk estimates that suggest chronic arsenic exposure is associated with an increased incidence of bladder and lung cancer at arsenic levels in drinking water below the current MCL of 50 μg/L." The NDWAC concluded that EPA had produced a credible cost estimate, given constraints and uncertainties, and suggested ways to improve estimates. The SAB offered ways to improve the benefits analysis. In October 2001, EPA affirmed that 10 ppb was the appropriate standard and announced plans to provide $20 million for research on affordable treatment technologies to help small systems comply. Since the arsenic standard was revised, Congress repeatedly has expressed concern over the cost of this regulation, especially to small, rural communities. The 107 th Congress directed EPA to review its affordability criteria and how the small system variance and exemption programs should be implemented for arsenic ( P.L. 107-73 , H.Rept. 107-272 , p. 175). The conferees directed the agency to report on its affordability criteria, administrative actions, funding mechanisms for small system compliance, and possible legislative actions. In 2002, EPA submitted its report to Congress, Small Systems Arsenic Implementation Issues , on actions EPA was taking to address these directives. Major activities included developing and implementing a small community assistance plan to improve access to financial and technical assistance, improve compliance capacity, and simplify the use of exemptions. EPA also has sponsored research on low-cost arsenic treatment technologies and has issued guidance to help states grant exemptions. The 108 th Congress again expressed concern over the economic impact that the revised standard could have in many communities. In the conference report for the omnibus appropriations act for FY2005 ( P.L. 108-447 ), Congress provided $8.2 million for arsenic removal research. The conferees expressed concern that the new requirements could pose a "huge financial hardship" for many rural communities. Congress directed EPA to report on the extent to which communities were being affected by the rule and to propose compliance alternatives and make recommendations to minimize costs. This report is pending. In the 110 th Congress, as in the 109 th Congress, legislative efforts focused on helping economically struggling communities comply with the arsenic rule and other drinking water standards. Various bills were offered to promote small system compliance by providing technical assistance, financial assistance, and/or compliance flexibility. The Senate Environment and Public Works Committee reported several bills that would have authorized new funding for drinking water infrastructure. The Water Infrastructure Financing Act ( S. 3617 , S.Rept. 110-509 ), which paralleled the committee bill from the 109 th Congress, proposed to increase funding authority for EPA's Drinking Water State Revolving Fund (DWSRF) program and Clean Water State Revolving Fund (CWSRF) program and to create a grant program at EPA for small or economically disadvantaged communities for critical drinking water and water quality projects. S. 1933 ( S.Rept. 110-475 ) would have authorized a new grant program for small water systems, and S. 1429 ( S.Rept. 110-242 ) and H.R. 6313 would have reauthorized funding authority for small system technical assistance under SDWA. Other bills included S. 2509 , which proposed to require EPA to promote the use of affordable technologies (e.g., point-of-use technologies and bottled water), revise its affordability criteria, and provide more compliance assistance for high-priority rules including the arsenic rule. S. 2509 also would have required EPA or a state to ensure that funds have been made available to small systems before taking enforcement actions. H.R. 2141 would have required states to grant exemptions to eligible small systems for rules covering naturally occurring contaminants (such as arsenic and radium). None of these bills was enacted. Arsenic-specific legislation has again been offered in the 111 th Congress, although broader infrastructure bills have received wider attention. In July 2009, the Senate Committee on Environment and Public Works reported the Water Infrastructure Financing Act ( S. 1005 , S.Rept. 111-47 ), similar to the committee's bill from the 110 th Congress. This legislation would authorize appropriations for the DWSRF program in the amount of $14.7 billion over five years. It also would establish a drinking water infrastructure grant program with funding priority to be given to small and economically disadvantaged communities. In the House, the Water Protection and Reinvestment Act of 2009, H.R. 3202 , has been introduced to establish a water infrastructure trust fund and to provide a source of funding for drinking water and wastewater infrastructure projects based on the imposition of an excise tax on a wide range of beverages, pharmaceuticals, and other products. Additionally, H.R. 2206 would amend SDWA to reauthorize technical assistance to small public water systems to help them comply with federal drinking water standards generally. Bills that specifically address arsenic in drinking water include H.R. 4798 and S. 3038 . The House bill would amend the exemption provisions to require states to grant exemptions to small, nonprofit public water systems from naturally occurring contaminants, including arsenic and other specified contaminants, provided that the water system finds that compliance is not economically feasible. S. 3038 , which is similar to S. 2509 from the 110 th Congress, addresses several small system issues. This bill would require EPA to convene a work group to study barriers to using point-of-entry and other specified treatment technologies, to develop guidance to assist states in regulating and promoting these treatment options, and to revise affordability criteria for variance technologies to give extra weight to poorer households and communities. The bill also would require EPA or a state to ensure that funds have been made available to smaller systems before taking enforcement actions, and would establish a research pilot program. Safe Drinking Water Act compliance and, more broadly, drinking water safety and infrastructure issues, have long held a place on the congressional agenda. However, severe competition for federal resources and uncertainty in the policy agenda make the prospects for new funding legislation unclear. (For more information on SDWA issues, see CRS Report RL34201, Safe Drinking Water Act (SDWA): Selected Regulatory and Legislative Issues , by [author name scrubbed].)
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The Safe Drinking Water Act Amendments of 1996 (P.L. 104-182) directed the Environmental Protection Agency (EPA) to update the standard for arsenic in drinking water. In 2001, EPA issued a new arsenic rule that set the legal limit for arsenic in tap water at 10 parts per billion (ppb), replacing a 50 ppb standard set in 1975, before arsenic was classified as a carcinogen. The arsenic rule was to enter into effect on March 23, 2001, and water systems were given until January 2006 to comply. EPA concluded that the rule would provide health benefits, but projected that compliance would be costly for some small systems. Many water utilities and communities expressed concern that EPA had underestimated the rule's costs significantly. Consequently, EPA postponed the rule's effective date to February 22, 2002, to review the science and cost and benefit analyses supporting the rule. After completing the review in October 2001, EPA affirmed the 10 ppb standard. The new standard became enforceable for water systems in January 2006. Since the rule was completed, Congress and EPA have focused on how to help communities comply with the new standard. In the past several Congresses, numerous bills have been offered to provide more financial and technical assistance and/or compliance flexibility to small systems; however, none of the bills has been enacted. Similar legislation again has been offered in the 111th Congress, while broader infrastructure financing bills have received greater congressional attention.
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The Davis-Bacon Act of 1931, as amended, requires, inter alia , that construction contractsentered into by the federal government specify minimum wages to be paid to the various classes oflaborers employed under those contracts. (2) Minimum wages are defined as those determined by the Secretaryof Labor (a) to be prevailing (b) in the locality of the project (c) for similar crafts and skills (d) oncomparable construction work. The concept of wage was expanded in 1964 to include a fringebenefit component. The act has a coverage threshold of $2,000 and above. In addition to direct federal construction contracts, the Davis-Bacon prevailing wage"principle" has been written into a series of federal program statutes. The act is supplemented bythe 1934 Copeland "anti-kickback" Act (which requires weekly reporting of wages actually paid andan affirmation from employers that any deductions from wages due to employees have been proper),and by federal overtime pay and health and safety standards statues. Further, some states haveenacted "little Davis-Bacon" Acts within their respective jurisdictions. The issues surrounding the act have changed little through the years. Does the act protectworkers, help stabilize the construction industry, and serve the federal contracting community? Oris it anti-competitive, preventing flexible workforce utilization? Has it been administeredeffectively, and if not, can it be administered in an equitable fashion? Is there sufficient objectiveinformation concerning the act to allow for fair assessment of the statute and its impact? The Davis-Bacon Act is a federal statute . It does not have any direct impact uponnon-federal construction or wage rates. In so far as it ensures that persons employed on federalcontract work receive not less than the prevailing wage, the act could have a ripple effect uponnon-federal construction and/or other work. (3) Is the Davis-Bacon wage a union wage? And, does the act mandate that union wages be paidon federal contract construction projects? It may be a union wage -- where the union rate isdetermined to be the locally prevailing wage . But it need not be the union rate. It depends upon therate that the Department of Labor (DOL) finds to be prevailing in an area. If the union rate prevails,then the union rate becomes the Davis-Bacon wage. If another rate (a non-union wage) prevails, thenthat rate becomes the Davis-Bacon rate. A great deal depends upon the processes and proceduresof the Department of Labor which administers the act. Does the Davis-Bacon Act inflate the cost of federal contracts? Theoretically, it should not. The Department of Labor reviews the conditions under which public (federal) construction occurs,determines the "locally" prevailing wage, and then applies that wage to federal projects. But theDavis-Bacon rate need not be the actual rate paid, since the market may require a higher rate in orderto recruit employees. Thus, the Davis-Bacon wage may be a floor and not necessarily the wage paid. What is meant by locality ? Traditionally, the department observes the wage rates paid onseveral classes of construction (i.e., residential, public buildings, highways, and heavy construction)for each jurisdiction (normally a county unit) across the United States. It is usually upon that unitthat locality is based. Perhaps the most frequently asked question concerning the Davis-Bacon Act is the following: How much money could we save (the taxpayer and the government contractor) if the Davis-BaconAct were repealed or modified to narrow its scope? Many have claimed to have an answer, but thereis little empirical evidence available. The short answer would seem to be that no one really knows. Does the Davis-Bacon Act, in fact, save money for the federal construction consumer? It may -- butthat question is similarly open. After nearly three-quarters of a century, why is the literature on Davis-Bacon of such dubiousvalue? First, given the number of projects covered by the act (and their diversity), it is nearlyimpossible for an independent scholar to review the act's administration and to assess its impact. Second, there is the availability of basic documentation. How much information has actually beenpreserved? Third, assuming that the data are available, securing such documentation (and access toadministrative personnel) may be problematic. If one assumes that documentation exists, that the analyst is granted access to it, that all ofthe parties are cooperative, and that the means, financial and other, are available for such anundertaking, the analyst is left with a fourth complication. He or she is comparing something thatdid happen with something that in fact, for whatever reasons, did not happen. In the absence of aDavis-Bacon requirement, would the contract have gone to the same contractor? If so (or if not),would it have been managed in the same way? Did the act have any impact upon the wages actuallypaid or upon workforce utilization? Without Davis-Bacon, would different workers have beenemployed -- and would they have been paid different rates? These same questions confront a public agency in its efforts to investigate Davis-Bacon'simpact. For a public agency, the task is no less massive than it would have been for a privatescholar. And, in the public sector, there may be other constraints. Simply put, how much fundingand staff time could (or should) be devoted to an investigation of the Davis-Bacon impact onconstruction that is already in place? What political or policy concerns may come into play? One might like to be able to say, forthrightly, that a change in the statute could have apositive or a negative impact. However, the state of current exploratory research would probablybe insufficient to justify just an assertion. (4) Historically, it is not entirely clear why it was necessary for the Franklin RooseveltAdministration to have suspended the act. Only very limited documentation concerning thesuspension appears to be available. For the more recent Administrations (those of Richard Nixonand George W. H. Bush), it is also difficult to define precisely their rationales -- though the BushAdministration acted in response to particular events. The case of George W. Bush, of course, is stillunfolding. The materials, here, are presented as something of an historical sketch . As noted above, the original version of the Davis-Bacon Act (March 3, 1931), as in effectduring the Roosevelt Administration, included the provision that "in case of national emergency thePresident is authorized to suspend the provisions of this act." By the early summer of 1934, with the enactment of various New Deal statutes, there wassome confusion as to which laws took priority where the wages of construction workers wereconcerned. In this instance, there appears to have been a conflict between the provisions of theDavis-Bacon Act and the National Industrial Recovery Act (NIRA) -- the latter, a very broad generalstatute designed to restructure the economy and which was subsequently found to be unconstitutional(1937). (5) Acting upon the advice of the Secretary of Labor and the Administrator of Public Works,Roosevelt declared, simply: "I find that a national emergency exists," and, under date of June 5,1934, suspended the provisions of the Davis-Bacon Act for an indefinite period. He did not define"national emergency" in his proclamation of suspension beyond noting that concurrent operation ofthe two laws (Davis-Bacon and the NIRA) caused "administrative confusion and delay which couldbe avoided by suspension of the provisions of the Davis-Bacon Act." (6) The impact of the suspension of 1934 seems not to have been immediately felt. Chester M.Wright, a former American Federation of Labor staffer and, at that time, a Washington journalist,observed: "The suspension order did not become publicly known for a week or ten days. Even thenit was necessary to go to the State Department for a copy." When the President's action did becomepublic, building trades unions protested, charging that the suspension was the "beginning of anational wage-cut campaign." (7) On June 30, 1934, as quietly as it had been suspended (just 25 days earlier), the act wasrestored to full force, the President simply remarking of the suspension proclamation that "it appearsthat a revocation of the said proclamation would be in the public interest." (8) As in the case of the firstproclamation, the latter seems to have been little noticed, the first press account appearing on July4, 1934. Wright viewed the second proclamation as tantamount to an acknowledgment that thePresident had been "badly advised." (9) No other formal suspension of the act appears to have occurreduntil 1971. During February 15-25, 1971, the AFL-CIO Executive Council (and associated groups) metat Bal Harbour, Florida. The Davis-Bacon Act was considered, indirectly and directly, in twocontexts. First, there was a demand that general revenue sharing legislation, then pending beforeCongress (and which the AFL-CIO opposed), provide, inter alia, for labor standards comparable tothose in the Davis-Bacon Act. Second, the 40th anniversary of the enactment of the Davis-Bacon Actwas at hand. Setting the Stage. In a resolution dealing withrevenue sharing, the Council affirmed, "There is widespread agreement on the responsibility of thefederal government to provide financial aid to the state and local governments, particularly, in thistime of rapid social and economic change." However, the Council rejected the Administration'sapproach, urging in its place a diversified program of its own. The AFL-CIO resolution noted of thethen-current system for distribution of federal funds to local jurisdictions that it provided for bothlabor standards and civil rights standards -- and has "served the nation well." Then, turningspecifically to the Nixon Administration proposals, encompassed in the Baker-Betts bills, (10) the Council explained: Under the 'general revenue sharing' proposal, the federalgovernment would dispense about $5 billion a year to the states on a no-strings basis -- withformulas that would require a pass-through to the local governments. (...) ... without specific andenforceable federal performance standards there is no assurance that federal civil rights guaranteesand fair labor practices will be applied to projects supported by no-strings federal grants. (11) Although the AFL-CIO Council made no specific reference to Davis-Bacon, it was clear that it hadthat statute, among others, in mind. In a separate statement, the Council took note that 1971 was the 40th anniversary of enactmentof the Davis-Bacon Act. "This principle of prevailing wages is essential," the Council stated, "toassure that work for the federal government is not based upon exploitation of workers. Without suchrequirement, bidding on federal contracts by unscrupulous employers could result in a competitiveundermining of fair wage and labor standards." And, the Council concluded: "The Davis-Bacon Actis as important today as it was 40 years ago. Its basic principle, as well as effective enforcement,must be maintained. The AFL-CIO will not settle for less." (12) Davis-Bacon Suspended. With the dawning ofthe 1970s, President Nixon had become concerned about the wage-price structure of the constructionindustry. On January 18, 1971, he met with the tripartite Construction Industry CollectiveBargaining Commission at the White House to express his concerns. (13) "The purpose of the meeting," Labor Secretary James Hodgson said, "was for the Presidentto urge action on the part of these leaders to do something about curbing the wage-price spiral inconstruction." Various options were discussed, including suspension of the Davis-Bacon Act (aproposal reportedly offered by Federal Reserve Chairman Arthur Burns). In closing, the Presidentset a 30-day deadline during which the industry (labor, management and representatives of the public-- with Under Secretary of Labor Lawrence Silberman and Commission Executive Secretary JohnT. Dunlop) should resolve the issues troubling the President. On February 8, the Building andConstruction Trades Department, AFL-CIO, met at Bal Harbour (just prior to the winter meeting ofthe AFL-CIO Executive Council) with the presidential deadline drawing near. (14) At a February 17 presidential press conference (while the AFL-CIO Executive Council wasin session at Bal Harbour), the issue surfaced again. President Nixon was asked what action hewould take to hold down wages and prices in construction. He responded that Secretary Hodgsonwas then meeting with industry leaders and that he would await the Secretary's report. But, hepromised, "there will be action." And he noted: "The construction industry is a sick industry. It isa sick industry not because of the quality of construction in the United States -- it is the highestquality construction in the world -- but because it has had too rich a diet." He noted that constructionwage increases, then averaging 16% (while unemployment in construction was double the nationalaverage), were too high for the good of the general economy -- but he made no mention ofDavis-Bacon, per se . However, he did note that $14 billion of the federal budget, the next fiscalyear, would be devoted to construction. "Now, with this kind of financial interest in construction,"he suggested, "it is essential that the federal government use its power to the extent that it can tobring about more reasonable settlements within that industry" and to promote "... wage and pricestability." (15) The AFL-CIO Executive Council meeting was marked by rumors and speculation. SecretaryHodgson moved between Washington and Bal Harbour while trade union representatives met withDunlop. (16) Discussionbetween Hodgson and AFL-CIO President George Meany on February 4 had been less thandefinitive but Meany expressed his hope that the parties "will come up with something." (17) Following conferenceswith the President, OMB Director George Shultz and others in Washington, Hodgson returned toFlorida for additional talks with Meany on February 19-20, 1971. Saturday evening (February 20),the Secretary and his staff returned to Washington. In a statement on February 23, 1971, President Nixon announced a decision. "I am todaysuspending the provisions of the Davis-Bacon Act which requires contractors working on federalconstruction projects to pay certain prescribed wage rates to their workers," he declared. In my judgment, the operation of this law at a time whenconstruction wages and prices are skyrocketing only gives federal endorsement and encouragementto severe inflationary pressures. The action I have taken today is based on theprinciple that government programs which contribute to excessive wage and price increases mustbe modified or rescinded in periods of inflation. This was the principle I applied to industry in thecase of recent excessive increases in steel and oil prices. This is the principle I am applying toorganized labor in the construction emergency. The period, in President Nixon's view, was marked by very high wages in construction. Were theDavis-Bacon Act to apply, those excessively high wages would have to be paid by federalconstruction contractors. He noted that the act had been adopted in 1931 during a period marked byvery different circumstances. In 1971, the act meant something else entirely. He affirmed: "Ibelieve ... that this preferential arrangement does not serve the interests of either the constructionindustry or the American public at a time when wages are under severe upward pressures." Nixoncontinued: The proclamation [4031] I am issuing today alsosuspends the wage determination provision of more than 50 other federal laws relating to federallyinvolved construction which incorporate the Davis-Bacon Act. I am calling upon states and othergovernmental bodies with similar statutes to take similar action . (Italicsadded.) Suspension of Davis-Bacon may have been less an attack upon the act, per se, than an effortto twist the arms of labor and management and to encourage, from the President's perspective, amore responsible wage/price policy. He closed his statement of suspension not with an objectionto Davis-Bacon but, rather, with a word of advice -- presumably both to industry and to labor: I have suspended the Davis-Bacon Act because ofemergency conditions in the construction industry. The purposes of the Davis-Bacon Act can onceagain be realized when construction contractors and labor unions work out solutions to the problemswhich have created the emergency. In the final analysis, those who are directlyinvolved in the construction industry must assume the leadership in finding answers to thesecomplex problems. Then, Mr. Nixon added, "Construction contractors and labor leaders will have the full cooperationof this Administration as they strive to carry out this crucial responsibility." (18) The Davis-Bacon Act Reinstated. SecretaryHodgson explained the action of the President in suspending the Davis-Bacon Act -- the suspensionoccurring several hours after the adjournment of the AFL-CIO Council meeting in Florida. TheSecretary noted with respect to plans for wage and price control, In Miami, I met with a courteous reception and sensedgreat concern on the part of the labor people. But they could not offer assurances on a voluntaryplan, and all I could report to the President was that they would discuss further a governmentimposed plan. In this situation, the President really had only two options: to impose wage controlsor to take some steps that involved less government interjection into the bargaining process. Hechose the latter, and the course he took was to suspend relevant provisions of the Davis-BaconAct. Hodgson continued: You may wonder how effective this action will be. Webelieve that it will be quite effective. It has long been [thought] that these provisions of the act[,]that prescribe that wages in federal construction must be based on those prevailing in the area[,] haveoften operated to support labor costs at an artificially high level and to give an upward thrust to thoserates, not only in contract construction but throughout theindustry. Then, the Secretary concluded on an optimistic note, following the lead of President Nixon: "Webelieve suspension should help produce more reasonable settlements throughout the industry andrestore a better balance to the bargaining process." (19) (Italics added.) Organized labor was less enthusiastic. George Meany branded the suspension as "punitiveagainst workers without real effect on halting inflation" and added that it presents "an open invitationto unscrupulous employers to exploit workers by competitive undermining of fair wage and laborstandards." Iron Workers President John H. Lyons suggested that the suspension really constituteda windfall for open shop contractors since the non-union firms could bid competitively upon thebasis of union wage scales and then, in the absence of Davis-Bacon sanctions, pay whatever wagesthey might wish. (20) Meanwhile, Labor Reporter John Herling observed that the President's action "has certainly broughtcheer to the U.S. Chamber of Commerce. For decades," he pointed out, the Chamber "has battledto remove Davis-Bacon and the related Walsh-Healey Act from the Statute Books." (21) Of greater importance, however, both in the context of general revenue sharing and thedispute over Davis-Bacon, was the interrelationship between state and federal laws dealing with theprevailing wage issue. Some states had taken action to provide prevailing wage protection in publicconstruction several decades before enactment of the Davis-Bacon Act -- and many states still havesuch statutes. (22) By theearly 1970s, only about nine states had failed to enact "little Davis-Bacon" Acts. (23) In suspending the Davis-Bacon Act provisions, President Nixon had called upon the "statesand other governmental bodies with similar statutes to take similar action." (24) Normally, in the absenceof federal legislation, applicable state statutes would come into play -- even, seemingly, on projectsfunded jointly by federal and state funds or with local revenues. In the wake of the Nixon suspensionof Davis-Bacon, New York State Commission of Labor, Louis Levine, affirmed: " On apublicly-funded construction project, financially assisted by the federal government, the state lawrequiring prevailing wages remains in effect as mandated by the state legislature ." (Emphasis inthe original.) Levine added: "Therefore, I want to assure the construction industry -- labor andmanagement -- that wherever federally-aided state projects are involved the wage structure willcontinue to be based on the state prevailing wage rate law." (25) Opinion in Ohio seems, generally, to have paralleled that from New York state. During aspeech at the National Press Club, Ohio's Governor John Gilligan termed the suspension"misdirected, ineffective, carelessly drafted without any full consideration of what is really meant." Gilligan continued: Let me suggest some of the realities thatunderlie that. We have a 'little Davis-Bacon' act in Ohio on our law books. We guarantee thepayment of prevailing area wages in the construction industry. We had the question ariseimmediately after Mr. Nixon's statement that under emergency powers -- still not defined so far asI know -- he suspended that federal law. We have the proposition presented to us. Wehad a dozen road contracts coming up -- some of them joint federal-state road contracts with federalfunding in them, amounting to several millions of dollars. What were we to do? Had Mr. Nixon setaside our state law as well? Or was it to suspend it? And then what? And then throw the contractsopen to bidding by any contractor who came down the pike, who would hire labor at any price? What then would be the floor? $1.60 an hour, the federal minimum -- or what wouldapply? The whole construction industry would havebeen thrown into total chaos if that had been done. We informed the prospective bidders by telegramthat they would be expected to comply with that section of the state law. All of them came and bid. All of the bids were awarded. They came in under the estimates of our engineering department. They were awarded to union contractors who had union contracts in full force and effect. And weare not going to suspend the provisions of that law in the state of Ohio. (26) Meanwhile, Peter G. Nash, U.S. Solicitor of the Department of Labor, announced that "thePresident's action in suspending the Davis-Bacon Act renders inapplicable any state 'littleDavis-Bacon law' in all federally assisted construction where one of the federal requirements wasthat the federal Davis-Bacon Act would apply," affirming a federal preemptive power over the states. "Thus a new form of federal-state conflict is under way," suggested reporter Herling. "At a timewhen revenue-sharing has become the guideline for the Nixon Administration, new restrictions maybe implanted on state and local decision-making." (27) At the urging of the Administration, leaders of the building and construction trades and ofindustry, with public and government representatives, met under the guidance of John Dunlop in anattempt to achieve some solution to the problems in the construction industry. The suspension ofthe Davis-Bacon Act, some suggested, had not been entirely successful. Indeed, it may havesucceeded primarily in augmenting the irritation of trade union leaders toward the Administration. But it allowed Assistant Secretary of Labor Arthur Fletcher (a former city councilman from Pasco,Washington) an opportunity to predict, before a conference of the Associated Builders andContractors -- generally an anti-Davis-Bacon industry group -- that "the era of union domination ofthe employment pattern in the construction industry is over." Further, Fletcher reportedly denouncedthe act as both inflationary and discriminatory. (28) Suspending the Davis-Bacon Act was more complicated than it may have appeared at first. "The fact is," Herling reported, "that the Davis-Bacon suspension had not been operative in themonth since it was ordered.... But in that time," he added, "the Administration was made tocomprehend the legal quagmire into which it might sink as a result of the suspension." Whilebuilding trades attorneys began to explore the options open to labor, the tangled web ofinterapplicability of federal and state statutes (the 'little Davis-Bacon' laws) began to emerge. (29) On March 29, 1971, President Nixon issued another Executive Order, "establishing acooperative mechanism for the stabilization of wages and prices in the construction industry." Themechanism was the tripartite Construction Industry Stabilization Committee (30) -- later to become a partof the Cost of Living Council -- again presided over by John Dunlop. Mr. Nixon pointed out that"contractors and labor leaders have indicated their willingness to cooperate with the Government infair measures to achieve greater wage and price stability." Then: "I am therefore today reinstatingthe Davis-Bacon Act, which I suspended on February 23, 1971, and I am substituting a system ofconstraints to which I expect all parties will subscribe." (31) Reaction to restoration was mixed. Generally, attention seemsto have shifted to the broader question of wage and price restraints/controls. Some Implications of the Nixon Suspension. TheNixon suspension of the Davis-Bacon Act, together with its subsequent reinstatement, had severalimplications. But, perhaps, these may not have been entirely expected. In 1931, Davis-Bacon had been enacted as an emergency measure at the urging of the HerbertHoover Administration. It was subsequently amended in 1935 and thereafter (with some minortinkering) remained a generally accepted (although not universally accepted) part of the federal laborscene. Then, suddenly, the very existence of the statute was called into question. Labor, of course,reacted, but so did critics of Davis-Bacon. At least until the mid-1990s, repeal of Davis-Bacon hadbecome a cause célèbre for each side of the dispute. (32) Given the interconnectedness of state and federal statutes, suspension of Davis-Bacon wasmore complicated than it might have appeared. President Nixon, though he called upon the statesto act similarly, could not enforce such a commitment from the states -- nor did the President seemto imply that he had that authority. ("I am calling upon states and other governmental bodies withsimilar statutes to take similar action.") (33) The pronouncement of Solicitor Nash, cited above, would seemto have dubious value either as an interpretation of law -- or, perhaps, as policy. In retrospect, it appears the Nixon suspension of the act was never intended to be of longduration. It was, it would seem, to have been an exercise in arm-twisting, aiming to make the severalparties (but, in effect, organized labor) take seriously the Administration's wage/price control policy. If so, it did not appear to have served this purpose well, but rather it tended to create confusionwithin the industry. Bidding would move forward. Projects were underway. What impact would(or could) the suspension of the act have in that environment -- in what, it turned out, was asuspension of just over 30 days. Finally, neither the Nixon Administration nor the Roosevelt Administration before it hadformally defined what constituted a national emergency. President Bush faced challenges leading up to the 1992 election. Criticism from his ownparty included Representative Newt Gingrich (R-GA) reportedly calling the current situation"unacceptable" and urging that "[t]he president must define for his team which vision and systemhe needs to govern effectively and win decisively." (34) Suspension of the Davis-Bacon Act appears to have been under consideration by the BushAdministration at least through the early months of 1992. Senior officials suggested that a numberof items were on the presidential agenda including "suspending the Davis-Bacon Act." (35) The Washington Times ,editorially, confirmed the notion on March 15. (36) And, again on March 19, the Washington Times reported thatthe President would likely "rely on proposals prepared by Richard Darman," OMB director, one ofwhich would be to "lift the Davis-Bacon Act." (37) On March 20, the Washington Post reported that among otheritems that the President was contemplating would be "limiting the Davis-Bacon wage law." (38) But nothing occurred justthen. The President Acts on Davis-Bacon. The issueof Davis-Bacon continued to appear through the next several months. On April 21, 1992, WhiteHouse Deputy Press Secretary Judy Smith confirmed that suspension of Davis-Bacon was still underconsideration but that there was "no closure on it" yet. (39) A day later, the Daily Labor Report stated that the President"will not seek to suspend the Davis-Bacon Act by declaring an economic emergency, believing thatit would establish a precedent he does not want to set." (40) But then, on June 5, it was reported that the White House was"again giving 'serious consideration' to ordering a nationwide suspension" of the act and, accordingto "one White House source," the decision to suspend the act is now "more likely than not." (41) Critics of Davis-Bacon continued to press the President to take action. As the summerpassed, however, the Davis-Bacon issue seemed to disappear from public view. It is also possiblethat no identifiable emergency had as yet occurred. Behind the scenes, the issue seems still to havebeen under consideration, for on October 7, 1992, OMB circulated a memorandum to agency headsseeking comment on a proposed suspension of the act. The Daily Labor Report stated,"Consideration of the suspension appeared to be on a fast track as comments were requested by noonof the same day." (42) On October 9, 1992, Congress adjourned. During late August, Hurricane Andrew struck Florida and Louisiana. On September 12,1992, Hurricane Iniki struck Hawaii. Taking note of the destruction caused by the two storms,President Bush, on October 14, 1992, declared the two areas "a 'national emergency' within themeaning of Section 6 of the Davis-Bacon Act." He stated in a Presidential Proclamation (No. 6491): ... I do hereby suspend, until otherwise provided, theprovisions of any Executive order, proclamation, rule, regulation, or other directive providing forthe payment of wages, which provisions are dependent upon determinations by the Secretary ofLabor under the Davis-Bacon Act;.... (43) The Proclamation went on to discuss the relative merits of the suspension in terms of the generalreconstruction in the three areas to which it applied: Florida, Louisiana, and Hawaii. (44) Suspension of Davis-Bacon Draws Fire, Praise. The action by President Bush raised a number of questions. First, what constitutes a nationalemergency for Davis-Bacon purposes? The answer may not have been beyond dispute. Second, ifthe concept of national emergency under Davis-Bacon can be made to include such disasters ashurricanes (and, perhaps, earthquakes, floods, riots, etc.), did the act then empower the President toenter into a selective suspension of the act? Third, is the presidential suspension authority limitedto the Davis-Bacon Act, per se , or could it be extended to the various program statutes into whichthe Davis-Bacon "principle" has been incorporated? Fourth, in areas where there are state and localprevailing wage requirements, how might these be affected, if at all, by a presidential suspension ofDavis-Bacon? Fifth, what was the impact likely to be upon the entire contracting process in theseveral affected areas? Some questioned the President's authority "to selectively suspend" the act. "It is clear thatCongress delegated to the President authority to suspend application of the Davis-Bacon Act in anational emergency," stated Robert Georgine, president of the AFL-CIO Building and ConstructionTrades Department. "But it is equally clear that Congress did not authorize the president to pick andchoose where application of the act would be suspended." (45) Others "questioned thewisdom of sending low-wage, low-skilled workers to the hurricane-damaged areas where skilled andexperienced building tradesmen are needed." (46) Again, Georgine called it "a callous election-year move" and"nothing more than a baldly calculated political ploy designed to curry favor with those who opposefederal labor standards." (47) Within a two-week period, the President signed a second order -- Executive Order No. 12818-- which dealt, in part, with the concept of project labor agreements . Taken together, the two wereof critical importance, some within the trade union movement asserted. (48) Candice Johnson, writing in the AFL-CIO News, opined that "President Bush, in a desperateattempt to win business support in electoral-rich Florida and Louisiana, has suspended Davis-Baconsafeguards for hurricane relief efforts." (49) Frank Swoboda, columnist for the Washington Post, was moredirect -- discussing the two putatively anti-union directives. Swoboda cited Steven Westra, presidentof the Associated Builders and Contractors (ABC). Westra called Bush's action "courageous" andsaid "the president 'deserves our votes and our full support.'" With this, Swoboda said, the ABC, "atrade group representing 16,000 nonunion contractors, immediately announced its support for Bushin the November 3 elections." (50) The Coalition to Reform the Davis-Bacon Act (which included the ABC) wrote to expressits thanks to the President. "We appreciate that your action will enable federal assistance to gofarther in rebuilding hurricane devastated communities and create thousands of new jobs...." TheCoalition spoke of "giving residents a chance to assist in rebuilding their own communities" and of"expanded opportunities for contractors to hire local workers." (51) The National UtilityContractor headlined: "President Bush Grants Davis-Bacon Reprieve for Hurricane Stricken Areas." The President's action, it suggested, "could create as many as 11,000 new construction jobs in thethree states." (52) AndDonald Lambro, reporter for Human Events , seemed to have felt that a suspension was appropriate. Then, looking toward the future, he suggested: "By suspending it everywhere, [the newly electedPresident] Clinton could help combat high youth unemployment, give federal taxpayers more fortheir tax dollars and help open up economic opportunities for inner-city minorities." (53) On February 1, 1993, President William Clinton issued Executive Order No. 12836, revokingExecutive Order No. 12818, and restoring the use of project labor agreements in public (federal)construction. It provided, inter alia, that the "heads of executive agencies shall promptly revoke anyorders, rules, or regulations" impeding such project labor agreements. (54) The Wall Street Journalreported that Mr. Clinton has "pleased his political supporters in organized labor" by revoking theprohibition on project labor agreements. But it continued: "The so-called project-agreement orderwas issued in the heat of the presidential campaign by George W. Bush last October 23 after theAssociated Builders and Contractors, a trade group for 16,000 nonunion construction companies hadthreatened not to endorse his bid for re-election." (55) On March 6, Clinton issued Proclamation No. 6534, providing that the Bush suspension bewithdrawn and that the Davis-Bacon Act be fully restored. (56) "Within 15 days,according to Clinton's proclamation, Davis-Bacon's requirements will be back in force in the affectedareas for all direct federal construction and for federally-assisted construction." (57) On August 29, 2005, Florida and the Gulf Coast were hit by Hurricane Katrina. The resultwas one of the greatest natural disasters in the history of the United States. Gradually, the impactof the hurricane was assessed. Diverse public and private funding was made available to the areasaffected, while thousands of people were displaced from their homes, often to other states. "Year after year," observed Representative George Miller, ranking Democrat on the HouseCommittee on Education and the Workforce, "Republicans have tried to erase this law [theDavis-Bacon Act] ... But they do not have the votes in Congress to do it." (58) The hurricane, however,may have made a difference, for the Washington Post headlined, in an issue of September 10, 2005, "In the Floods, Parties' Agendas Surface." (59) There had been large pockets of poverty in the New Orleans area. When the announcementwas made to vacate the city as the storm approached, the poor apparently had few resources uponwhich to rely. Further, a lack of transportation may have been critical and, perhaps as important, thelack of a destination. After the storm passed, many poor remained amid the ruins of a once thrivingcity, still without resources, but now without homes or jobs. It was reported that on Wednesday, September 7, when Budget Director Joshua Boltenbriefed House Republicans on the President's supplemental spending request, "conservativelawmakers urged him to lift the wage rules" tied to Davis-Bacon. (60) That same day,Representatives Tom Feeney, Jeff Flake, and Marilyn Musgrave organized a letter to the President,urging him to use his presidential power to waive Davis-Bacon requirements. Temporary suspension of Davis-Bacon will help avoidcostly delays that impede clean-up and reconstruction efforts along the Gulf Coast. Time is of theessence and any action that can be taken to expedite this process need [sic] to be,' statedFeeney. Feeney went on to state general arguments against Davis-Bacon and concluded that the act oftenresults in "driving up costs" of construction. (61) In the letter to the President, signed by 35 Members of the House, the concept of a "nationalemergency" was affirmed. It was also stated that compliance with the wage processes of theDavis-Bacon Act could delay reconstruction ("... often a delay of two weeks....") and that the act's"regulations effectively discriminate against contractor employment of non-union and lower-skilledworkers" and "can even raise total construction costs by up to 38%." The letter reviewed the pasthistory of Davis-Bacon suspensions and closed, "Faced with the massive rebuilding challengesahead, we respectfully urge you to make a presidential proclamation to suspend Davis-Bacon untilour country is once again whole." (62) On September 8, 2005, President Bush suspended the Davis-Bacon Act as it relates tospecific segments of the country (i.e., to portions of Florida, Alabama, Mississippi, andLouisiana). (63) Hespecified both the act and "the provisions of all other acts providing for the payment of wages, whichprovisions are dependent upon determinations by the Secretary of Labor" under the Davis-Baconrules. The suspension would continue "until otherwise provided." (64) Representative Charlie Norwood praised the President for his "quick action to strip awayunnecessary bureaucracy that may hamper our ability to recover...." Davis-Bacon rules "are onerousand drive up the cost of any project to which they are applied...." The nation, he stated, "can't affordthat kind of inefficiency, red tape, and inflated costs when we have an entire region to rebuild,largely at taxpayer expense." (65) The Daily Labor Report , quoting the President, suggested thatsuspension "will result in greater assistance to these devastated communities and will permit theemployment of thousands of additional individuals...." (66) Or, as Representative Feeney stated: "Lots of people inLouisiana are willing to go to work tomorrow, and the market will set the wage...." (67) Organized labor opined that the President's order "would allow contractors to paysubstandard wages to construction workers in the affected areas." John Sweeney, AFL-CIOpresident, explained: "Employers are all to eager to exploit workers. This is no time to make thateasier." Sweeney stated: "Taking advantage of a national tragedy to get rid of a protection forworkers that corporate backers of the White House have long wanted to remove is nothing less thanprofiteering." Edward Sullivan, president of the Building and Constructions Trades Department,likened the effect to "legalized looting." (68) The New York Times editorialized, "By any standard of humandecency, condemning many already poor and now bereft people to sub-par wages -- thusperpetuating their poverty -- is unacceptable." (69) Somewhat anticipating the President's action, Representative Flake introduced the "Cleanupand Reconstruction Enhancement Act (CARE Act)" on September 7, 2005. The Flake bill( H.R. 3684 ) would, whenever a "major disaster" has been proclaimed under the StaffordAct, automatically suspend the Davis-Bacon Act for one year in the area of concern. A companionbill ( S. 1817 ) was subsequently introduced by Senator Jim DeMint (R-SC). In the wake of the President's action, several bills were introduced that would have had theeffect of overturning the President's Davis-Bacon proclamation: H.R. 3763 (GeorgeMiller), H.R. 3834 (Pallone), and S. 1739 (Kennedy). (70) Senator Barbara Boxerintroduced a two-pronged bill ( S. 1763 ), first, to give employment preference toworkers who have been displaced by Hurricane Katrina; and second, to restore the impact of theDavis-Bacon Act in the areas in which it had been suspended. In addition to legislation dealing specifically with the Davis-Bacon Act, two bills seemed tochallenge Administration policy in that regard. Representative Miller introduced H.Res. 467 : a bill "[r]equesting that the President transmit to the House of Representatives information inthis possession relating to contracts for services or construction related to Hurricane Katrina recoverythat relate to wages and benefits to be paid to workers." The bill was referred to the Committee onEducation and the Workforce -- where, ultimately, it was rejected by a vote of 25 to 20. (71) A separate measure, butof similar content ( H.Res. 488 ), had been introduced by Representative SteveLaTourette (R-OH) and had been forwarded to the Committee on Transportation and Infrastructurechaired by Representative Don Young (R-AK). (72) Finally, H.J.Res. 69 was introduced byRepresentative Miller, the impact of which would have been termination of the national emergencydeclared by the President and reinstatement of the Davis-Bacon Act. Gradually, conditions in the Gulf region became clearer and, in that context, a movement wasdiscerned for re-institution of the Davis-Bacon Act. In late September, some 37 Republicans "signedon to a letter" to President Bush urging that his proclamation be rescinded. In a more varied appeal,LaTourette stated: "When you suspend Davis-Bacon, you also suspend the Copeland Anti-Kickbackprohibitions" of the act "so you have no more certified payrolls." For those who are "... worriedabout profiteering and other things, reinstating Davis-Bacon is a good idea." (73) In late October, about 20 Republicans reportedly attended a meeting with White House Chiefof Staff Andrew Card at the office of Speaker Dennis Hastert. Card was described as "more thanreceptive" to suggestions from those supportive of Davis-Bacon and acknowledged that "they weren'tsaving any money" through the suspension. (74) On October 25, according to one report, Card calledRepresentative LaTourette to invite him to a meeting at the White House the following day -- October 26. During the White House meeting, Card was quoted as having said, according toLaTourette, that "there appeared to be no savings garnered from suspending the Davis-BaconAct." (75) On October 26, 2005, word began to surface that a change of policy was in the works, and,by late afternoon, it seemed to have been confirmed. The Bush Administration, the Daily LaborReport stated, would reinstate on November 8th -- just two months after its suspension -- the"Davis-Bacon Act prevailing wage requirements for reconstruction projects in the hurricane-batteredGulf Coast region." The article continued, quoting Labor Secretary Elaine Chao, that "[u]pon reviewof current conditions in the declared areas, the administration will reinstate Davis-Bacon...." (76) Under the circumstances,the suspension-related bills became moot.
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The Davis-Bacon Act is one of several statutes that deals with federal governmentprocurement. (See also the Walsh-Healey Act of 1936 and the McNamara-O'Hara Service ContractAct of 1965.) Enacted in 1931, Davis-Bacon requires, inter alia , that not less than the locallyprevailing wage be paid to workers engaged in federal contract construction. The act does not dealdirectly with non-federal construction. In addition to the act per se , the prevailing wage principlehas been incorporated within a series of federal program statutes through the years. And, manystates have enacted "little Davis-Bacon" acts of their own. The act of 1931, as amended, provides that the President "may suspend the provisions of thissubchapter during a national emergency." With slight variation, that provision has been a part of thestatute since it was enacted. The act has been suspended explicitly on four separate occasions: (a) In 1934, PresidentFranklin Roosevelt suspended the act in what appears to have been for administrative convenienceassociated with New Deal legislation. It was restored to full strength in less than 30 days with fewpeople, seemingly, aware of the suspension. (b) In 1971, President Richard Nixon suspended theact as part of a campaign intended to quell inflationary pressures that affected the constructionindustry. In just over four weeks, the act was reinstated, the President moving on to differentapproaches to the problem. (c) In 1992, in the wake of Hurricanes Andrew and Iniki, PresidentGeorge H. W. Bush suspended the act in order to render reconstruction and clean-up in Florida andthe Gulf Coast and in Hawaii more efficient. The impact of the suspension is unclear for the act wassuspended on October 14, 1992, just days prior to the 1992 election. President William Clintonrestored the act on March 6, 1993. And, (d) on September 8, 2005, President George W. Bushsuspended the act in order to render more efficient reconstruction and clean-up of Florida and theGulf Coast in the wake of Hurricane Katrina. The act was reinstated on November 8, 2005. In the suspensions of 1934 and 1971, the suspension applied to the entire country -- possiblywith the understanding that it would be restored once the immediate emergency was over. In 1992and in 2005, only portions of the country were involved. In 1992, it remains unclear how long thesuspension might have lasted -- if George H. W. Bush had been re-elected. Similarly, the suspensionunder George W. Bush was intended to be open-ended -- i.e., "until otherwise provided." But in fact,it lasted for about two months. The suspensions are also separated by the definition of "nationalemergency" used to invoke them: administrative convenience in 1934, inflationary pressures in theconstruction industry in 1971, and issues associated with hurricane damages in 1992 and in 2005. This report reviews the several cases during which the Davis-Bacon Act was suspended andwill likely be updated as developments make necessary.
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A stable, democratic, prosperous Pakistan actively working to counter Islamist militancy is considered vital to U.S. interests. Current top-tier U.S. concerns regarding Pakistan include regional and global terrorism; stability in neighboring Afghanistan; domestic political stability and democratization; nuclear weapons proliferation and security; human rights protection; and economic development. Pakistan remains a vital U.S. ally in U.S.-led anti-terrorism efforts. Yet the outcomes of U.S. policies toward Pakistan since 9/11, while not devoid of meaningful successes, have seen a failure to neutralize anti-Western militants and reduce religious extremism in that country, and a failure to contribute sufficiently to stabilizing Afghanistan. Domestic terrorist bombings and other militant attacks became a near-daily scourge in 2008 and continue at a high rate to date, with Islamist extremism spreading beyond western tribal areas and threatening major Pakistani cities. In the assessment of a former senior U.S. government official, "Pakistan is the most dangerous country in the world today. All of the nightmares of the twenty-first century come together in Pakistan: nuclear proliferation, drug smuggling, military dictatorship, and above all, international terrorism." When asked in early 2010 what worried him the most of all foreign policy issues, Vice President Joseph Biden answered "Pakistan," which he said has deployable nuclear weapons, "a real significant minority of radicalized population," and "is not a completely functional democracy." A long-time U.S.-based observer sees the fundamentals of the Pakistani state in 2011 "either failing or questionable," and proffers that, with all current U.S. policies proving ineffective, Pakistan is moving in a direction of "comprehensive failure," perhaps in as few as four years. The U.S. State Department issues stern warnings on the risks of travel to Pakistan, and many independent country indices rank the Pakistani state as a failed or failing one. The Pakistani state and people are paying a steep price for their participation in the fight against Islamist militancy and extremism. Foreign Minister Shah Mehmood Qureshi claims that, in the post-9/11 period, Pakistan has incurred some 31,000 casualties and has "arrested, apprehended, and eliminated 17,000 terrorists." Socioeconomic costs have been high, as well, and include massive human displacement; increased funding for security and law enforcement institutions, and reconstruction; sharply reduced investment and capital flight; and all manner of less tangible infrastructural and cultural costs. Pakistani government officials estimate financial losses of up to $40 billion since 2001. The severe psychological toll on the Pakistani people has led to an upsurge in reports of depression, anxiety, paranoia, and post-traumatic stress disorders. Pakistan's troubled economic conditions, fluid political setting, and perilous security circumstances present serious challenges to U.S. decision makers. On the economic front, the Islamabad government faces crises that erode their options and elicit significant public resentment. On the political front, a weak civilian leadership, ongoing power struggles between the executive and judiciary, and discord in federal-provincial relations all serve to hamper effective governance. On the security front, Pakistan is the setting for multiple armed Islamist insurgencies, some of which span the border with Afghanistan and contribute to the destabilization of that country. Al Qaeda forces and their allies remain active on Pakistani territory. The compounded difficulties faced by Pakistan and those countries seeking to work with it, along with the troubling anti-American sentiments held by much of the Pakistani public, thus present U.S. policy makers with a daunting task. Despite some positive signs, the progress of U.S.-Pakistan relations in the post-2001 era has produced few of the main outcomes sought in both capitals. Religious, ethnic, and political violence in Pakistan has only increased, as has an already intense anti-Americanism. While a reasonably free and fair election did seat a civilian government in 2008, that government remains weak and saddled with immense economic and other domestic problems. Meanwhile, the security institutions maintain a hold on the formulation of foreign and national security policies, and some elements appear to have lingering sympathies for the Afghan Taliban and other Islamist militant groups. From the U.S. perspective, Pakistan's status as a hotbed of religious extremism has only become more secure in recent years, Al Qaeda continues to operate in the tribal areas, and Afghanistan remains unstable more than nine years after the U.S.-led intervention there. More recently, there are disturbing signs that Pakistan serves as a site for the recruiting and training of American nationals intent on carrying out terrorist attacks on the U.S. homeland. In late 2010, an unnamed senior Pakistani military official, widely believed to be Pakistani Army Chief General Ashfaq Pervez Kayani himself, described Pakistan as having "transited from most sanctioned ally to most bullied ally." He located Pakistani resentment in the perception that the United States continues to pursue a "transactional relationship" with Pakistan, that it seeks "controlled chaos" inside Pakistan, and that its true strategy is to "denuclearize" Pakistan. Kayani has thus far resisted U.S. efforts at persuasion and has shown other flashes of defiance in recent months, including issuing a reportedly personal order to close the Torkham border crossing after two Pakistani solders were killed by a NATO helicopter in September. Notwithstanding Pakistan's ongoing and serious problems—including rampant domestic militancy, political and economic crises, and deep-seated resentments toward the United States and neighboring India—Obama Administration decision makers appear to see no viable alternative but to continue supporting the country and are ready to "double down" with additional military and economic support. This reportedly was the message Vice President Biden carried with him during a January 2011 visit to Islamabad. While there, the U.S. Vice President reiterated his and President Obama's view that Pakistan is "absolutely vital" to U.S. interests, and he took the opportunity to correct some key misconceptions held among Pakistanis, including that the United States represents a threat to their sovereignty ("I would respectfully suggest that it's the extremists who violate Pakistan's sovereignty and corrupt its good name"), that America disrespects or is an enemy of Islam, that U.S. policies favor India in ways that could lead to Pakistan's weakening, and that the U.S. will "abandon" Pakistan. A key aspect of the Obama Administration's approach to Pakistan has been development of a more coherent policy to include a tripling annual nonmilitary aid to improve the lives of the Pakistani people, with a particular focus on conflict-affected regions, and on focusing increased U.S. military aid to Islamabad on counterinsurgency goals while conditioning such aid on that government's progress in combating militancy. President Obama, Vice President Biden, and Secretary of State Hillary Clinton all supported the Enhanced Partnership With Pakistan Act of 2008 in the 110 th Congress (which was never passed), and they strongly encouraged the 111 th Congress to pass a newer version of that legislation. This Pakistan Enduring Assistance and Cooperation Enhancement Act of 2009 ( H.R. 1886 ) was passed by the full House in June 2009, then reconciled with the Senate bill passed that September. President Obama signed the resulting Enhanced Partnership with Pakistan Act (EPPA) of 2009 into P.L. 111-73 on October 15, 2009. The legislation is commonly referred to as the "Kerry-Lugar-Berman bill." Even as President-elect, Obama asserted that Afghanistan cannot be "solved" without "solving Pakistan" and working more effectively with that country, saying he believed Pakistan's democratically-elected government understands the threat and would participate in establishing "the kind of close, effective, working relationship that makes both countries safer." Pakistani President Asif Ali Zardari said his country looked forward to a "new beginning" in bilateral relations, but repeated his admonition that Pakistan "needs no lectures on our commitment [to fighting terrorism]. This is our war." His government repeatedly has asked the Obama Administration to strengthen Pakistan's democracy and economic development in the interest of fighting extremism. Despite Pakistani hopes that President Obama would more energetically engage diplomatic efforts to resolve the Kashmir problem, the Administration has offered no public expressions of support for such a shift. Secretary of State Clinton has recognized the dangers of rising tensions in Kashmir while also deferring calls for greater U.S. involvement there, saying during her confirmation hearing that the U.S. role will continue to be as it was under the previous Administration: settlement facilitation, but no mediation. In what many observers considered to be a bracing U.S. government wake-up call to Islamabad, Secretary Clinton told a House panel in April 2009 that "the Pakistani government is basically abdicating to the Taliban and to the extremists." Secretary of Defense Robert Gates followed with his own warning that U.S.-Pakistan relations could suffer if Islamabad did not "take appropriate actions" to deal with the militant threat. Days later, President Obama himself expressed "grave concern" about the situation in Pakistan, offering that the "very fragile" civilian government there did not appear to have the capacity to deliver basic services to the Pakistani people. He did, however, acknowledge that the Pakistani military was showing more seriousness in addressing the threat posed by militants. The Administration's tone shifted considerably after Pakistani forces launched major offensive operations against Taliban militants in the Swat Valley. Senior U.S. officials—including President Obama in his December 1, 2009, speech—laud Pakistan's military operations against indigenous Taliban militants. Yet these officials also want Islamabad to enlarge the scope of such operations to include action against a broader array of extremist threats, including those of the greatest concern to India and Western countries. As articulated by Joint Chiefs Chairman Admiral Mike Mullen, "We must help Pakistan widen its aperture in seeking out and eliminating all forms of extremism and terrorism—those who threaten not only Pakistan, but also Afghanistan, the wider South Asia region, and the globe." Secretary Gates paid an unannounced visit to Pakistan in early 2010 with a central wish to "relinquish the grievances of the past ... and instead focus on the promise of the future." In speaking to an audience of Pakistani military officers, he sought to push back against the rumors fuelling anti-Americanism there, stating unequivocally that the United States "does not covet a single inch of Pakistani soil [nor] military bases," nor does it "desire to control Pakistan's nuclear weapons." More intensive diplomacy and U.S. assurances that Pakistan will play a major role in the political future of Afghanistan may have contributed to persuading Pakistani leaders—especially military officers—that they need no longer rely on extremist groups to maintain influence. The U.S. Special Representative for Afghanistan and Pakistan, Richard Holbrooke, who died in December 2010, attributed Pakistan's early 2010 moves against the Afghan Taliban to the "cumulative effect" of hard work and multiple visits to Pakistan by numerous senior U.S. officials. Yet some in Congress express continuing skepticism about Islamabad's commitment to resolving the Afghan insurgency and to a genuine partnership with the United States. Meanwhile, many observers in Pakistan complain that U.S. diplomacy remains too skewed toward security issues and overly reliant on military-to-military relations, at some cost to public diplomacy. Reports suggest that even those Pakistanis with traditionally strong ties to the United States have begun seeking alternative destinations for work, education, and travel, a sign of troubled U.S.-Pakistan relations in the new decade. Two days after taking office, President Obama announced the appointment of former Clinton Administration diplomat Richard Holbrooke to be Special Representative to Afghanistan and Pakistan (SRAP). The SRAP's central task is to coordinate across the entire U.S. government to achieve U.S. strategic goals in the region. In accepting the job, Holbrooke called the Pakistan situation "infinitely complex" and noted the need to coordinate what he called a "clearly chaotic foreign assistance program." Prior to the announcement, there was speculation that the new U.S. President would appoint a special envoy to the region with a wider brief, perhaps to include India and even Kashmir. The State Department insisted that Holbrooke's mandate is strictly limited to dealing with "the Pakistan-Afghanistan situation." Given Holbrooke's reputation as a "bulldozer" with strong and sometimes negative views about South Asia's circumstances, his appointment caused some consternation in the region. Before his untimely death, Holbrooke made numerous trips to the region and, despite setbacks, contended that U.S.-Pakistan relations were improving. In February 2009, President Obama ordered a policy review bringing together various U.S. government strategy proposals for Afghanistan and Pakistan. A month later, he announced a new strategy conceiving of the two countries as part of "one theater of operations for U.S. diplomacy and one challenge for our overall policy." The strategy is rooted in the assumption that, "The United States has a vital national security interest in addressing the current and potential security threats posed by extremists in Afghanistan and Pakistan." All elements of U.S. national power—including diplomatic, informational, military, and economic—are to be brought to bear in attaining the "core goal" of disrupting, dismantling, and defeating Al Qaeda and its safe havens in Pakistan, and in preventing their re-emergence in Pakistan or Afghanistan. To this end, the Administration seeks to overcome the "trust deficit" the United States faces in the region and to "engage the Pakistani people based on our long-term commitment to helping them build a stable economy, a stronger democracy, and a vibrant civil society." Early in his tenure, Ambassador Holbrooke asserted that, of the many challenges faced by the Administration in formulating its policy, the most daunting was dealing with western Pakistan and the "red lines" set by Islamabad barring foreign troops from operating there. Holbrooke believed the new approach differed from that of the previous Administration in its aim of better integrating "stove-piped" policies, in its greater resource endowment, and in its proposed effort to more directly counter the propaganda of Islamist radicals in the region. Senate Foreign Relations Committee Chairman Senator John Kerry welcomed the new strategy as "realistic and bold." Then-House Foreign Affairs Committee Chairman Representative Howard Berman also voiced strong support for the President's plan to boost civilian assistance efforts in Pakistan and Afghanistan. President Zardari called the strategy "positive change" and welcomed increased U.S. aid as the best way to combat militancy. Even well before the U.S. President announced the new regional strategy, Islamabad had expressed support for a regional approach and warned that a past overemphasis on the military dimension had not proven fruitful. Following a February 2009 trilateral meeting of top diplomats from the United Sates, Pakistan, and Afghanistan, Secretary of State Clinton announced that the format had proved valuable enough to continue on a regular basis. In May 2009, President Obama hosted the Pakistani and Afghan presidents in Washington, DC, where he characterized their meeting as one of "three sovereign nations joined by a common goal": to permanently defeat Al Qaeda and its extremist allies in Pakistan and Afghanistan. The U.S. President expressed being pleased that his counterparts were serious in addressing the threat posed by such extremists and he stated that such trilateral meetings would continue on a regular basis. In October 2009, following energetic Pakistani counterinsurgency efforts in the Khyber Pakhtunkhwa province (KPk, formerly the North West Frontier Province or NWFP) and the launching of a ground offensive in South Waziristan, Secretary Clinton paid a visit to Pakistan, where she had meetings with senior political and military leaders, as well as frank and open interactions with civil society members. The lead U.S. diplomat impressed many Pakistanis with her willingness to hear and respond to criticisms of American policy; the three-day visit may have done much to repair still extensive damage in bilateral relations. A former Pakistani Ambassador to the United States lauded the Secretary's "striking and impressive display of public diplomacy," contrasting it with what she called the "patronizing style" of Ambassador Holbrooke. When then-National Security Advisor General James Jones, met with President Zardari in Islamabad in late 2009, he reportedly delivered to the Pakistani leader a personal letter written by President Obama which conveyed an "expectation" that Zardari rally his country's political and national security institutions in a united campaign against regional extremism. By some accounts, Jones and White House counterterrorism chief John Brennan told their interlocutors that the United States was prepared to take unilateral action in the absence of rapid Pakistani movement. Such action could include expanding drone strikes to Baluchistan and resuming Special Operations missions across the Durand Line. Shortly after, Pakistan's foreign minister told reporters, "We will not do anything, more or less, at the prodding of others." Zardari later delivered his own letter to the U.S. President indicating that Pakistan recognized the common threat, but was intent on following its own timeline and operational needs. The Obama Administration completed a second Afghanistan-Pakistan policy review in late 2009. In apparent recognition that recent U.S. policy toward Pakistan had failed to achieve Washington's main objectives, President Obama announced on December 1, 2009, that he would seek to shift the nature of the bilateral relationship: In the past, we too often defined our relationship with Pakistan narrowly. Those days are over. Moving forward, we are committed to a partnership with Pakistan that is built on a foundation of mutual interest, mutual respect, and mutual trust. We will strengthen Pakistan's capacity to target those groups that threaten our countries, and have made it clear that we cannot tolerate a safe haven for terrorists whose location is known and whose intentions are clear. The latter clause on safe havens was perhaps the most categorical high-visibility official statement to date, and the President continued encouraging Pakistan's leaders to sustain their fight against extremists and to eliminate terrorist safe havens in their country. Some in Congress were critical of President Obama's continued dependency on a Pakistani ally they view as unreliable and perhaps insufficiently determined to combat the extremist elements seen as most threatening to the United States. In January 2010, the SRAP's office released its Afghanistan and Pakistan Regional Stabilization Strategy . Maintaining a primary focus on disrupting, dismantling, and defeating Al Qaeda forces in the region, the document acknowledges that, There remains mistrust between our two countries, but we see a critical window of opportunity created by the recent transition to democratic, civilian rule and the broad, sustained political support across Pakistan for military operations against extremists. We seek to lead the international community in helping Pakistan overcome the political, economic, and security challenges that threaten its stability, and in turn undermine regional stability. The strategy has sought to further mobilize the international community and improve coordination among the 60 countries and international organizations providing assistance to Pakistan, as well as among the 40-odd Special Representatives for Afghanistan and Pakistan. Despite this document and rhetoric, Pakistani officials continued to express dissatisfaction with the bilateral relationship, especially with regard to U.S. recognition of the perceived threat to Pakistan represented by India. After meeting with Ambassador Holbrooke in January 2010, Foreign Minister Qureshi noted, "A very strong perception in Pakistan that, despite our very good relations, the United States has not paid sufficient attention to Pakistan's concerns, security concerns vis-à-vis India." President George W. Bush had launched a "Strategic Dialogue" process with Pakistan that included high-level meetings in 2007 and 2008. The Obama Administration revived this forum in March 2010, when a large delegation of senior Pakistani leaders visited Washington, DC. Although the delegation was officially led by Foreign Minister Qureshi, many observers saw the Army Chief, General Kayani, as being the dominant figure in planning the Islamabad government's agenda and the dominant participant in ensuing bilateral talks, in some ways overshadowing the foreign minister. In the lead-up to the dialogue, Qureshi issued categorical statements about the need for Washington to "do more" in its relations with Islamabad: "We have already done too much.... Pakistan has done its bit, we have delivered. Now it's your turn." Islamabad's unusual step of presenting a 56-page document containing requests for expanded military and economic aid was seen by some as a signal that Pakistan was willing to more openly align itself with U.S. interests, but with a possible price. Rumors circulated that Pakistan had agreed to roll back its indigenous militant networks in return for guarantees from the United States and other major governments that it would get special consideration in regional political and economic affairs, perhaps even to include civil nuclear cooperation deals. Obama Administration officials were uniformly positive in their characterizations of the Pakistanis' visit. A joint statement issued at the close of the two-day Strategic Dialogue session noted the elevation of engagement to the Ministerial level, as well as the creation of a Policy Steering Group "to intensify and expand the sectoral dialogue process." Secretary Clinton paid tribute "to the courage and resolve of the people of Pakistan to eliminate terrorism and militancy," and the United States "reaffirmed its resolve to assist Pakistan to overcome socioeconomic challenges." Pakistan, for its part, expressed its appreciation for U.S. security assistance. Some Pakistani analysts were unhappy with the outcome of the talks, arguing that, beyond the pageantry, little of substance was gained by Islamabad on its key priorities—preferential trade, access to civil nuclear technology, and U.S. assistance in resolving dispute with India. Section 1117 of the Supplemental Appropriations Act, 2009 ( P.L. 111-32 ) requires the President to issue biannual reports to Congress on progress toward U.S. policy objectives in Pakistan and Afghanistan. The Administration's delivered a September 30, 2010, report covering the first eight months of 2010, and its unclassified sections contained extensive discussion of three of the five "supporting objectives" directly relevant to Pakistan. The overall tone of the report was considered by most readers to be sober and realistic, pointing out areas of progress while not shying from recognition of significant ongoing obstacles to same. Discussion on one key objective—efforts to enhance Pakistan's civilian government capacity and stability—found that government remaining stable for the reporting period while also coming under persistent broad-based challenges, especially those posed by a "fragile" economic situation badly exacerbated by the floods, and by continuing battles between the executive and judiciary. The reported offered that, "President Zardari's declining popularity and low support among Pakistani political stakeholders stood out as the most obvious factor impacting" the civilian government's circumstances. On another key U.S. objective—developing Pakistan's counterinsurgency capabilities—the report noted Pakistan's successful military operations in several FATA and KPk regions and the general ability of security forces to hold these areas. Yet it also contended that Pakistan's army had "stopped short of the kind of large-scale operations that would permanently eject extremist groups" from their western Pakistani havens and identified a "fundamental problem" in that organization's "inability to transition to effective hold and build efforts in cleared areas." Perhaps most alarmingly for a Washington audience, the Pakistani military was seen to be continuing to "avoid military engagements that would put it in direct conflict with the Afghan Taliban or Al Qaeda forces in North Waziristan," and the report concluded this avoidance was "as much a political choice as it is a reflection of an under-resourced military prioritizing its targets." The October 2010 Strategic Dialogue session was the unprecedented third of the year and was intended to examine progress in the implementation of agreements related mostly to assistance that had been made during the summer. In the lead-up to the event, the Obama Administration announced its intention to further boost military assistance to Pakistan, at least in part as a means of encouraging more rapid and robust Pakistani military operations in the FATA. In a joint appearance with her Pakistani counterpart, Secretary Clinton lauded progress on the "action plans" created by each of the Dialogue's 13 working groups, formally announced a new Multi-Year Security Assistance Commitment to Pakistan (involving an intention to request from Congress $400 million in annual foreign Military Financing Funds for FY2012-FY2016, a boost of $100 million per year from current levels), and again reiterated her contention that reform of Pakistan's tax system was a primary need. President Obama met personally with Pakistani delegates, underlining the importance of the Dialogue in "moving the relationship toward a true partnership based on mutual respect and common interests." The resulting Joint Statement expressed mutual satisfaction with progress made since the March and July sessions, noted that the Obama Administration would "redouble its efforts" to win congressional support for ROZ and enterprise fund legislation, and announced President Obama's plans to visit Pakistan in 2011. Press reports indicated that, in private, U.S. officials warned their Pakistani counterparts that continued inaction against certain militant groups in western Pakistan could jeopardize future U.S. financial largesse, perhaps even to include a cut in coalition support fund reimbursements. The Administration's annual Afghanistan-Pakistan policy review was not released in unclassified form but for a five-page summary. This December 16, 2010, document conveyed an unchanged overarching goal (disrupting, dismantling, and defeating Al Qaeda in the region) and claimed notable gains, most especially what it called unprecedented pressure on Al Qaeda in Pakistan, resulting in their weakening. Recognizing that sustained denial of extremist safe havens is necessary for ultimate success, the Administration remains "relentlessly focused on Pakistan-based Al Qaeda." It calls for "greater cooperation with Pakistan along the border with Afghanistan" and acknowledges that effective development strategies are required to complement military means. The December strategy review was described by the Acting SRAP as being a "clear-eyed and realistic" assessment of a "tough foreign policy challenge." While recognizing ongoing problems, it noted "significant progress" on combating Al Qaeda in Pakistan and "significant activity" by the Pakistani military to shut down sanctuaries used by Islamist militants in the border region. In commenting on the review, senior Pentagon officials lauded what they called substantial improvement in the U.S.-Pakistan relationship during 2010, and a daily and measureable improvement in coordination of counterterrorism efforts. Ambassador Holbrooke's sudden December 14, 2010, death was costly for U.S. diplomacy and could prove to be a lasting setback for efforts to stabilize and realize other U.S. policy goals in the region. Holbrooke was seen to be a champion of increased economic assistance to Pakistan and a bulwark against those in the U.S. government who focus on militarized approaches to the region. His deputy and now Acting Special Representative, Frank Ruggerio, is characterized as a highly competent diplomat, but one without extensive knowledge of Pakistan and, more importantly, without the personal clout that Holbrooke wielded. In this respect, there are concerns among some observers that the influence of U.S. military leaders on U.S. policy in the region could further increase. Secretary Clinton dispatched the Acting SRAP to Islamabad and Kabul in January to reassure leaders in both capitals that U.S. policy toward the region would not change with Holbrooke's passing. The outlook for progress in Pakistan's political, economic, and security circumstances in 2011 is fairly poor. Because of this, progress toward attainment of U.S. goals in its engagement with Pakistan is likely to remain difficult, and serious mutual distrust persists in the relationship. Pakistani officials often complain that the United States is insufficiently concerned with Islamabad's regional security perspective, and they offer criticism that Washington is not moving to provide greater market access for Pakistani exports. Moreover, Pakistan continues to push for a civil nuclear cooperation deal with the United States. To date, the Obama Administration has flatly rejected any discussions with Pakistan on this issue. Meanwhile, with the Islamabad government coming under the immense dual pressures of natural disaster and widespread armed insurgency in the autumn of 2010, and concurrent negative developments in U.S.-Pakistan relations, U.S. officials became all the more concerned about political instability in Pakistan. Observers in Washington see in Pakistan an unstable ally that may not have the determination, much less the capacity, to deliver what the United States is seeking. In late September, Ambassador-Designate Cameron Munter conveyed to the Senate Foreign Relations Committee a belief that Pakistan requires a strong civilian government and that common U.S.-Pakistan successes can be achieved only "with a strong partner in Pakistan's democratically-elected government." He vowed to continue to work aggressively to improve the U.S. image in Pakistan. Some analysts, alarmed by signs that mutual disconnect are increasing, call for urgent reparative action from both Islamabad and Washington. Major tasks facing Pakistan include reforming its political system (especially by completing the transition from a presidential to parliamentary system, and by further improving both interprovincial and center-province relations) and reordering its economic priorities in order to foster greater domestic and foreign investment. The United States, for its part, can move more quickly to reduce tariffs on Pakistani textile exports, relax what some see as overly stringent visa restrictions, speed the flow to Pakistan of military equipment needed for counterinsurgency operations, and, in the longer term, channel its foreign assistance into high-visibility, high-impact infrastructure projects, especially those related to energy and water resources. It may be that the most useful near-term "deliverable" for Pakistan would be increasing U.S. market access for Pakistani exports. Many American analysts make explicit calls for a tougher U.S. line toward Pakistan by "demanding" more counterterrorism operations, and perhaps offering Islamabad a stark choice between positive incentives and negative consequences. Some call for the creation of more explicit counterterrorism benchmarks, as well as for the United States to shift more emphasis on alternative supply lines into Afghanistan and so remove Pakistan's ability to "hold the [Western] coalition ransom" by disrupting the supply line that runs from Karachi. President Obama's decision to travel to India without any stops in Pakistan created anxiety among Pakistani officials who see signs of Washington's "pro-India" tilt as destabilizing for the region. By refraining from direct engagement in the Kashmir dispute, moving forward U.S.-India civil nuclear cooperation, and seeming to sympathize with New Delhi's perspective on the root sources of regional terrorism, the Obama Administration's policies may continue to make difficult any effective winning of hearts and minds in Pakistan. Islamabad reacted angrily to President Obama's November endorsement, delivered in New Delhi, of a permanent U.N. Security Council seat for India, calling the position "incomprehensible." Pakistan in mid-2010 experienced a catastrophic natural disaster that precipitated a humanitarian crisis of major proportions. Widespread flooding affected about 20 million Pakistanis and inundated about one-fifth of the country's total land area. A joint Asian Development Bank-World Bank needs assessment estimated that Pakistan had suffered $9.7 billion in direct and indirect costs, roughly double the amount of damage caused by Pakistan's 2005 earthquake. Flood-induced devastation was so extensive that it could take decades to rebuild lost infrastructure. The floods stemmed from abnormally heavy rains during the monsoon season in July and August. This led to flooding in the Indus River Basin which traverses Pakistan from north to south. Excess water led the Indus River and its tributaries to breach their levees and inundate adjacent and downstream floodplains. Some 2,000 people were killed by the flooding and an estimated eight million Pakistanis were displaced from their homes. The number of people affected was significantly greater than seen in several major disasters around the world since 2000. Little clean drinking water was available for many of those affected and remains a problem to date. Many of those affected, particularly children, have faced potential disease outbreaks, particularly diarrhea and cholera. The catastrophic loss of livestock and crop lands and extensive damage to the country's infrastructure are projected to have long-term negative effects on Pakistan's food security and economic performance. Pakistani officials organized their emergency response at the federal, provincial and district levels. The Pakistan National Disaster Management Agency (NDMA) is responsible for overall coordination of disaster response efforts by both the government and the international community. The NDMA works closely with federal ministries, government departments, the armed forces, U.N. agencies, and donors to mobilize, receive, and deploy relief goods. Relief activities have also been coordinated by provincial-level and district-level governments. The Pakistani military took the lead in providing emergency relief to affected areas, eventually diverting about 70,000 regular and paramilitary troops to such efforts. As with the 2005 earthquake, the disaster illuminated the extremely limited capacity of Pakistan's government institutions to effectively address crises situations. This is especially so with regard to the country's civilian administration. The United States has been the leading international contributor to the relief effort, and by November had devoted more than $571 million in FY2010 and FY2011 funds to this cause. The U.S. military also provide in-kind support, including transport aircraft, helicopters, and crews, distributing some 25 million tons of relief supplies in an effort that formally ended December 1. In September, the full House passed H.Res. 1613 , which expressed condolences to and solidarity with the Pakistani people in the aftermath of the floods. The resolution also supported the use of "Kerry-Lugar-Berman" funds for long-term rehabilitation and recovery while urging a "re-examination" of spending priorities for such funds with a view toward ensuring appropriate address of the Pakistani people's needs. In July and again in November 2010, the WikiLeaks website posted thousands of sensitive U.S. diplomatic cables, many of them with content relevant to U.S. foreign relations in South Asia. The cables reportedly illuminated what may be deep fissures in the strategic goals of the United States and Pakistan, especially in the area of Pakistan's support for Taliban-linked groups. They also reportedly revealed efforts by U.S. diplomats to support Islamabad's weak civilian government while at the same time recognizing that the true locus of power on national security and foreign policy is at the military's headquarters in Rawalpindi. Islamabad's official response in July was to call the cables "misplaced, skewed and contrary to the factual position on the ground." In November, Islamabad stated that, "We are not in a position to comment on the veracity of U.S. internal documents. We consider the extremely negative reports carried on Pakistan-Saudi relations attributed to WikiLeaks as misleading and contrary to the facts." On a report that the U.S. government had sought to reacquire highly enriched uranium provided to Pakistan decades earlier, the Foreign Ministry commented: "Pakistan is an advanced nuclear technology state. No one can touch Pakistan's nuclear facilities or assets.… The U.S. suggestion to have the [nuclear] fuel transferred was plainly refused by Pakistan. The suggestion that the reactor is producing HEU is completely incorrect." U.S. officials contended that the mid-2010 release of classified documents by WikiLeaks presented an overly simplified and inaccurately negative perspective on U.S.-Pakistan relations, saying they did not reflect a significant deepening of military and civilian ties in recent months and years. The United States later expressed to Islamabad "deep regrets" at the disclosure of communications meant to be confidential and "condemned" it. Senior U.S. officials subsequently sought to play down the importance of "out of context" documents. There have been concerns that leaked diplomatic cables could further undermine U.S. efforts to build trust with Pakistan. A roundtable of Washington-based experts found the episode could have two concrete effects: (1) The airing of private statements made by Gulf State leaders critical of Pakistan's civilian government could make those leaders more reticent in future meetings with U.S. officials and (2) by exposing both U.S. efforts to reclaim enriched uranium from Pakistan and the (limited) presence of U.S. Special Forces soldiers operating inside Pakistan, the revelations have fueled virulent Pakistani national suspicions that the United States has a covert agenda that fundamentally violates the country's sovereignty. Other observers saw in the cables evidence of Pakistani instability and unreliability as a U.S. ally, with an ineffectual government and security institutions that continued to selectively support Islamist extremist groups there, perhaps including the Al Qaeda-linked Haqqani network. Moreover, suggestions found in some cables that no amount of U.S. assistance to Pakistan would alter that country's strategic orientation reveal the depth of U.S. uncertainty about the alliance. In contrast, some commentators saw in the cables positive news beyond the obvious Pakistani weaknesses: officials from both sides working with determination to increase trust and cooperation in difficult circumstances. With Pakistani news outlets focused solely on the sensational aspects of the cables, "media hysteria" is identified as a negative exacerbating factor. On January 4, Salman Taseer, the governor of the Punjab province, was assassinated when one of his own security team shot him 26 times in broad daylight while other bodyguards looked on. A senior figure in the PPP, Taseer was among the country's most liberal politicians, and he had incurred the wrath of Islamists and other conservatives with his vocal criticisms of the country's blasphemy laws. His killer, Malik Mumtaz Qadri, had apparently told other police officers of his plans, but was assigned to guard Taseer anyway. Qadri may have had links with one of the radical Islamist groups leading public resistance to changes in the blasphemy laws. The assassination, strongly condemned by Secretary Clinton, was widely viewed as a major blow to liberal forces in Pakistan. At least one unnamed Obama Administration official says it is "a reminder of how we're still losing ground in Pakistan." Pakistan and China have enjoyed a generally close and mutually beneficial relationship over several decades. Pakistan served as a link between Beijing and Washington in 1971, as well as a bridge to the Muslim world for China during the 1980s. China's continuing role as a primary arms supplier for Pakistan began in the 1960s and included helping to build a number of arms factories in Pakistan, as well as supplying complete weapons systems. Chinese companies and workers are now pervasive in the Pakistani economy. Most recently, China intends to build two new civilian nuclear reactors in Pakistan in what would be an apparent violation of international guidelines (see the "Nuclear Weapons, Power, and Security" section below). As U.S.-India ties deepen, many observers see Islamabad becoming more reliant than ever on its friendship with Beijing. President Zardari undertook his fifth trip to China as the head of his government in July 2010, and Islamabad seeks full membership in the Shanghai Cooperation Organization, in which it currently holds observer status. During Chinese Premier Wen Jiabao's December 2010 visit to Islamabad, the two governments signed 12 Memoranda of Understanding (MoUs) covering a broad range of cooperative efforts and designated 2011 as the "Year of China-Pakistan Friendship." Also during the visit, Pakistani and Chinese businesses signed contracts covering cooperation in oil and gas, mining, space technology, heavy machinery, manufacturing, and other areas worth some $15 billion. This added to the nearly $20 billion worth of government-to-government agreements reached. Some cynical observers reject claims that China can in any way "replace" the West as a source of significant foreign investment for Pakistan; one leading commentator deemed the MoUs worthless and noted that Beijing has produced only nominal flood relief aid. In August 2010, a delegation of Pakistani military officers in the United States for a conference departed the country early and in protest after saying they had been unjustly removed from a flight to Florida, then interrogated and rudely treated by security officials at Dulles International Airport in Virginia. The Pakistani Army called the treatment "unwarranted" and canceled the visit. A State department spokesman attributed the incident to misunderstanding and miscommunication between the delegation and flight crew, and the Department expressed regret to Islamabad. Yet the events fit well into a Pakistani narrative in which its citizens and even ranking officials meet with discriminatory treatment in the United States. When, in December 2010, the identity of the CIA's Pakistan station chief became public and that figure quickly left the country, some U.S. officials were reportedly convinced that his cover had been intentionally blown by Pakistan's military intelligence agency, possibly in retaliation for civil lawsuit that had recently been filed in a New York court. The suit, brought by relatives of some of the victims of the 11/08 Mumbai terrorist attack, implicated the ISI chief and summoned his testimony. An ISI official angrily denied any Pakistani involvement in the revelation, and Islamabad announced that the summons would not be obeyed. Islamist extremism and militancy has been a menace to Pakistani society throughout the post-2001 period, becoming especially prevalent since 2007, but the rate of attacks and number of victims may have peaked in 2009. The U.S. National Counterterrorism Center reports a major decline in terrorist incidents in 2010 as compared to the previous year, with 687 terrorist incidents in Pakistan in 2010 (down from 1,915 in 2009) resulting in 1,051 fatalities (down from 2,670). Despite the declined rate, the figures again placed the country third in the world on both measures, after Afghanistan and Iraq. Suicide bombing is a relatively new scourge in Pakistan. Only two such bombings were recorded there in 2002; that number grew to 59 in 2008 and 84 in 2009, before dropping to 29 in 2010 (the lowest level since 2005). Still, Pakistan was last year the site of far more deaths caused by suicide bombing (556) than any other country and accounted for about one-quarter of all the world's such bombings. A particularly alarming development in recent years is the significantly increased incidence of militants making direct attacks on Pakistani security institutions. There have also been more attacks on foreign-based charitable organizations, such as the March assault of the KPk offices of the American Christian group World Vision by about a dozen masked gunmen, which left six Pakistani employees dead. According to the State Department's most recent Country Reports on Terrorism (August 2010), Foreign terrorist organizations, including Al Qaeda and its affiliates, continued to operate and carry out attacks in Pakistan. Violence stemming from Sunni-Shia sectarian strife and ethnic tensions, limited to certain geographical areas, claimed civilian lives. Similar to last year, attacks occurred with greatest frequency in the regions bordering Afghanistan, including Baluchistan, the Federally Administered Tribal Areas (FATA), and the North-West Frontier Province (NWFP). Attacks targeting the country's major urban centers, including Lahore, Islamabad, Peshawar, Karachi, and Rawalpindi, continued to increase. The coordination, sophistication, and frequency of suicide bombings continued to climb in 2009. The myriad and sometimes disparate Islamist militant groups operating in Pakistan, many of which have displayed mutual animosity in the past, appear to have become more intermingled and mutually supportive since 2009 (see "Islamist Militant Groups in Pakistan," below). According to U.S. Joint Chiefs Chairman Admiral Mullen, speaking in December 2009, It's very clear to me, over the last 12 to 24 months, that these organizations are all much closer than they used to be, whether it's Pakistan Taliban and Al Qaida, or Al Qaida/Afghan Taliban, [Lashkar-e-Taiba, Jamaat-ud-Dawa, Jaish-e-Mohammed]—they're all working much more closely together. So I think it doesn't accurately reflect the need or the strategy to single out one group or another. They're very much all in this in ways, together, that they weren't as recently as 12 months ago. This developing "syndicate" of armed Islamist extremist in Pakistan even incorporates the apparently tactical joining of TTP and LeT forces. An extensive 2010 study found that Pakistan-based militant groups continue to present a significant threat to Pakistan, the United States, and other countries. This threat persists, according to the report, due mainly to Islamabad's lack of an effective "population-centric" strategy, the government's refusal to make a systematic break with all militant groups, and the inability of Pakistan's army and paramilitary forces to clear and meaningfully hold territory. The study determined that Pakistan will continue to be unsuccessful in addressing its indigenous militant threat over the long term unless its government undertakes two major changes. First, Islamabad is urged to take a "population-centric" approach to counterinsurgency that makes civilian security the central goal. Reforming and strengthening local police forces would be central to this effort. Second, Pakistan must conclusively relinquish militancy as a policy tool. This process could be facilitated by a U.S. policy that focuses on altering Pakistan's strategic calculus. For its part, Washington is urged to reduce its reliance on Pakistan, especially through development of alternative supply lines to Afghanistan, and to be more willing to use foreign policy "sticks" such as withholding of aid in the absence of measureable progress, while also seeking means of offering the strategic "carrots" most valued by Islamabad. In 2010, the U.S. government accelerated its official designation of terrorists and terrorist groups, as well as their financial support networks operating in Pakistan. In June, five U.S. Senators sponsored legislation to instruct the Secretary of State to designate the TTP as a Foreign Terrorist Organization (FTO). This "Combating the Pakistani Taliban Act of 2010 ( S. 3560 ) did not move out of committee. However, during a July nomination hearing for the newly named Commander of U.S. Central Command, the Chairman of the Senate Armed Services Committee and Gen. James Mattias both agreed that the Haqqani network and Quetta Shura should be designated as FTOs. In August, Secretary Clinton ordered that, under Executive Order 13224, the TTP be named an FTO, and that TTP leaders Hakimullah Mehsud and Wali ur Rehman be named a Specially Designated Global Terrorist. The announcement was made in September, when the Justice Department unsealed criminal charges against Mehsud, accusing him of conspiring in the deadly suicide bomb attack on the CIA outpost in Khost, Afghanistan, and senior counterterrorism official Daniel Benjamin also noted that the U.S. government was offering $5 million reward for information leading to the arrest of either of the two militant leaders. In November, the State Department also designated Jundallah, an Iran-oriented militant group operating in Baluchistan near the Iranian border, as an FTO. The Treasury Department is continuing its efforts to isolate terrorist figures and curtail terrorist financing in the region. In November, it targeted the financial support networks of both the LeT and JeM. U.S. leaders remain concerned that Al Qaeda terrorists operate with impunity on Pakistani territory, and that the group appears to have increased its influence among the myriad Islamist militant groups operating along the Pakistan-Afghanistan border, as well as in the densely populated Punjab province and in the megacity of Karachi. In early 2009, the Obama Administration declared that the "core goal" of the United States should be to "disrupt, dismantle, and defeat Al Qaeda and its safe havens in Pakistan, and to prevent their return to Pakistan or Afghanistan." The President continues to assert that Al Qaeda represents the top-most threat to U.S. security, and the State Department's most recent Country Reports on Terrorism flatly stated that "In 2009, Al Qaeda's core in Pakistan remained the most formidable terrorist organization targeting the U.S. homeland." Recent unclassified assessments place more than 300 Al Qaeda operatives in Pakistan's tribal areas. While taking questions from senior Pakistani journalists during an October 2009 visit to Pakistan, Secretary of State Clinton offered a pointed expression of U.S. concerns that some elements of official Pakistan maintain sympathy for most-wanted Islamist terrorists: Al Qaeda has had safe haven in Pakistan since 2002. I find it hard to believe that nobody in [the Pakistani] government knows where they are and couldn't get them if they really wanted to. And maybe that's the case. Maybe they're not gettable.... I don't know what the reasons are that Al Qaeda has safe haven in your country, but let's explore it and let's try to be honest about it and figure out what we can do. Pakistani officials are resentful of such suggestions, and the Islamabad government claims that Al Qaeda chief bin Laden is not in Pakistan. A 2010 analysis calculated that more than one-third of all "serious terrorist plots" in the West since 2004 were operationally linked to Al Qaeda or its allies inside Pakistan. Evidence suggests that some of the 9/11 hijackers were themselves based in western Pakistan in early 2001, and a former British Prime Minister has estimated that three-quarters of the most serious terrorism plots investigated in Britain had links to Al Qaeda in Pakistan. Moreover, as tensions between Pakistan and India remain tense more than two years after the November 2008 terrorist attack on Mumbai, Secretary Gates warned that groups under Al Qaeda's Pakistan "syndicate" are actively seeking to destabilize the entire South Asia region, perhaps through another successful major terrorist attack in India that could provoke all-out war between the region's two largest and nuclear-armed states. Al Qaeda apparently was weakened in Pakistan in 2009 and 2010 through the loss of key leaders and experienced operatives. Drone strikes, Pakistani military operations, and internal rifts all combine to degrade the group's capabilities. Pakistan's late 2009 offensive in South Waziristan appears to have pushed Al Qaeda operatives from that region, and some reporting suggests that Taliban fighters in western Pakistan have become wary of assisting Al Qaeda elements. The CIA Director claims that improved coordination with the Pakistani government and "the most aggressive operation that CIA has been involved in in our history" have forced top Al Qaeda figures even deeper into hiding while disrupting their ability to plan future attacks. Yet some U.S. officials saw the group and its allies rebuilding their damaged infrastructure in 2010. Moreover, while the strategic goals of Al Qaeda and the Quetta Shura Taliban diverged following the former's relocation into the FATA after 2001, Al Qaeda continues to function as a "force multiplier" for myriad militant groups in western Pakistan, providing manpower, specialized knowledge, propaganda, and general advice. Lahore—the provincial capital of Punjab and so-called cultural heart of Pakistan—was for many years mostly unaffected by spiraling violence elsewhere in the country. This conclusively ended with three major terrorist attacks in less than three months in early 2009. Militants from western Pakistan have appeared intent on attacking Lahore to demonstrate the extent of their capabilities and to threaten the government's writ throughout the country. More bomb attacks on Sufi shrines, including some notable ones in Punjab, have demonstrated that militants are specifically targeting more moderate Pakistani Muslims. Islamist militants have in recent years been increasing their influence in southern Punjab, where most anti-India groups have originated and where a number of Taliban cells have already been discovered. A 2009 report from the Brussels-based International Crisis Group urged Islamabad to end its effort to differentiate between militant networks and instead move toward a "zero-tolerance" policy, especially with regard to Punjab-based Sunni extremist organizations. The somewhat misnamed "Punjabi Taliban," a loose conglomeration of banned militant groups in the Pakistani heartland, are comparatively better educated and better equipped than their Pashtun countrymen to the west, and are notable for having in many cases enjoyed state patronage in the recent past. In June 2010, Interior Minister Malik offered a rare public admission that extremist groups were well-entrenched in southern Punjab. He also conceded that Punjabi groups such as the LeJ, SSP, and JeM were close allies of both the Taliban and Al Qaeda. According to several Pakistani experts, Punjab has become a major recruiting ground and planning hub for terrorists, and also provides a source of many militants fighting in Afghanistan. Some analysts hold the provincial ruling (Pakistan Muslim League – Nawaz) party responsible for fostering extremism there by taking religiously conservative and strongly right-wing positions while failing to openly criticize militancy. There has even been evidence that officials from the Sharif brothers' PML-N use militant groups to drum up political support, even to the extent of funding institutions linked to the Jamaat-u-Dawa, a front group for the LeT. The megacity of Karachi is among the world's largest, and is also Pakistan's leading business and finance hub. The Sindh provincial capital generates two-thirds of all government revenue and one-quarter of the country's GDP. Extremists also appear to be moving from the FATA to the Sindhi capital of Karachi in large numbers in recent months and years, exacerbating preexisting ethnic tensions and perhaps forming a new Taliban safe haven in Pakistan's largest city. Taliban fighters are increasingly present in Karachi, and reports indicate that the megacity has become a favored destination for numerous international jihadis. Militants fleeing from battles in Swat and the FATA have sought refuge in Karachi, where some 2,800 have been arrested in government anti-terrorism sweeps. Hundreds of thousands of flood refugees only added to ethnic tensions in the summer of 2010. Under threat of expanded U.S. drone strikes on Quetta, senior Afghan Taliban leadership, including Mullah Omar himself, may have moved to Karachi, perhaps even with the support of ISI elements. The megacity's sprawling ethnic Pashtun neighborhoods provide ideal hideouts for both Afghan and Pakistani Taliban fighters. The disproportionate political representation enjoyed by the city's Muhajir community engenders ethnic grudges among Pashtuns. These Pashtun militants are said to have established "mafia-like" criminal syndicates in Karachi to raise millions of dollars to sustain their insurgencies through kidnaping, bank robberies, and extortion. Pakistan has since 2007 faced a "neo-Taliban" insurgency in the scenic Swat Valley of the KPk's Malakand district, just 100 miles northwest of the capital, where radical Islamic cleric Maulana Fazlullah and some 5,000 of his armed followers sought to impose Sharia law. This rebellion against the state was notable as the only with geographic reach beyond the "tribal belt" and in part of Pakistan's "settled areas" nearer the Indus river plains. Fazlullah, also known as "Maulana Radio" for his fiery (and unlicensed) FM broadcasts, moved to create a parallel government like that established by pro-Taliban commanders in South Waziristan. Some 2,500 Frontier Corps soldiers were deployed to the valley, and the army soon took charge of the counterinsurgency effort at the request of the provincial governor, massing about 15,000 regular troops. By the close of 2007, militant elements in the area were reported to be in retreat, and the Pakistani government claimed victory. Yet, in 2008, with militants still active in Swat, government officials reportedly struck a peace deal. That deal collapsed by mid-year, with sporadic and sometimes heavy fighting in Swat continuing throughout the year. By all accounts, Islamist insurgents greatly expanded their influence in Swat in 2008, and many observers asserted that, by 2009, the state's writ had completely vanished from the valley. By early 2009, the KPk chief minister was calling the Swat problem a full-blown rebellion against the state, and President Zardari himself conceded that militant forces had established a "huge" presence in his country. Shortly after, Zardari reportedly agreed in principle to restore Sharia law in the Swat region in a bid to undercut any popular support for the uprising there. In addition to bringing Islamic law to the entire Malakand division of the KPk (including Swat), the accord, announced in February of that year, included requirements that the Taliban recognize the writ of the state, give up their heavy weapons and refrain from displaying personal weapons in public, denounce suicide attacks, and cooperate with local police forces. In return for such gestures, the government agreed to gradually withdraw the army from the region. Pakistanis appeared to strongly support the government's move. In April, Zardari signed a regulation imposing Islamic law after Parliament passed a resolution recommending such a move. A White House official was critical of the Sharia deal in Swat, saying that solutions to Pakistan's security problems "don't include less democracy and less human rights." A State Department spokesman emphasized that the United States was "very concerned" and maintained a view that "violent extremists need to be confronted." Pakistan's lead diplomat in Washington sought to assure a skeptical American audience that his government was not offering any concessions or ceding any ground to the Taliban, but rather was "attempting to drive a wedge" between Al Qaeda and Taliban militants on the one hand, and an indigenous Swati movement on the other, as part of a "pragmatic" strategy "to turn our native populations against the terrorists." Still, most observers saw the deal as a blatant capitulation and unprecedented surrender of territory to a militant minority beyond the FATA, and as part of a disturbing broader trend. The Human Rights Commission of Pakistan marked it as a day of "humiliating submission" by the government. A senior independent Pakistani analyst and former army general said the government "has yielded under compulsion at a time when Talibanization is sweeping the country and overwhelming the state." Even a senior Pakistani Islamist politician, told Parliament that the Taliban were threatening the Pakistani capital. The peace deal was particularly alarming for India, where officials feared it would further exacerbate the existing Islamist militant threat they face. As with past iterations of truce deals in the nearby FATA, the Swat accord was seen to give militants breathing space and an ability to consolidate their gains. Reports immediately arose that Taliban forces were moving into the valley by the thousands to establish training camps in the forests around Mingora, Swat's largest town. Fears that, rather than being placated by the truce, militants would use their Swat positions as a springboard from which to launch further forays were quickly confirmed. In April 2009, Taliban forces moved into the neighboring Buner district, now only 60 miles from the Pakistani capital. Local tribal militias put up resistance, but were quickly overwhelmed, and the Pakistani army had no local presence. Within two weeks Taliban forces were said to have taken full control of Buner. In response, Pakistani paramilitary troops supported by helicopter gunships engaged militants in Buner and Lower Dir. At the same time, the army accused the militants of "gross violations" of the accord. Pakistani commandos were airdropped into Buner's main town and regained control, but heavy fighting forced many hundreds of civilians to flee. The fighting pitted about 15,000 government troops against an estimated 4,000-5,000 militants. As militants appeared to consolidate their hold on large swaths of the KPk, alarm grew in Washington that the Pakistani government may have lacked the will to sustain the fight. Joint Chiefs Chairman Admiral Mullen expressed being "gravely concerned" about the progress made by militants, and he indentified Pakistan's simultaneous pursuit of peace deals and military operations as "strategic moves" that were, from an American perspective, "at cross purposes." Secretary of Defense Gates concluded that the Swat agreement's "failure," followed by militant movements into neighboring Buner, was a "real wakeup call for the Pakistani government." Heavy combat raged in May 2009, with militants putting up strong resistance. When Taliban forces returned in large numbers to Mingora, Swat's main city, army leaders reportedly resolved to finally abandon negotiations and press ahead with a larger offensive, this time with greater support from the Pakistani public. By the close of June 2009, the army was claiming to have cleared the last remaining Taliban stronghold in Swat. By November, police patrols were a common sight in Mingora, signaling a return of relative normality to the Valley, and TSNM leader Maulana Fazlullah reportedly fled to Afghanistan. A senior Pakistani official reportedly claimed the two-month-long Swat offensive left more than 3,500 militants dead, but Islamabad's official body count stood at roughly half that number. No top Taliban commanders are known to have been killed or captured and, by many accounts, the military succeeded only in establishing control of Malakand's urban centers and main roadways. Particularly skeptical observers suspect that the Pakistani military has vastly over-reported Taliban casualties in a possible effort to impress an American audience and so continue to receive large assistance packages. Swat residents apparently continue to rely on the military to maintain order and continue to feel insecure in the face of a lingering threat from pro-Taliban militants that the still struggling police forces have found difficult to neutralize. Moreover, efforts to repair the shattered regional economy have yielded limited results and cold require at least $1 billion in state funding. As of late 2010, more than one year after most displaced citizens returned home, government services remain almost entirely absent. An ongoing Taliban insurgency in Afghanistan and its connection to developments in Pakistan remain matters of serious concern to U.S. policy makers. It is widely held that success in Afghanistan cannot come without the close engagement and cooperation of Pakistan, and that the key to stabilizing Afghanistan is to improve the longstanding animosity between Islamabad and Kabul. In late 2008, Joint Chiefs Chairman Admiral Mullen said he viewed Pakistan and Afghanistan as "inextricably linked in a common insurgency" and had directed that maps of the Afghan "battle space" be redrawn to include the tribal areas of western Pakistan. As President-elect, Barack Obama asserted that Afghanistan cannot be "solved" without "solving Pakistan" and working more effectively with that country. Numerous other senior U.S. officials—both civilian and military—share the view that Pakistan and Afghanistan are best considered as a single "problem set" in the context of U.S. interests. This conceptual mating of the two countries was not well received in Pakistan; President Zardari was himself openly critical of a strategy linking "AfPak," saying the two countries were too distinct from one another to be "lumped together for any reason." Pakistani military officials echoed the sentiment. Still, most independent analysts agree that, so long as Taliban forces enjoy "sanctuary" in Pakistan, their Afghan insurgency will persist (see Figure 2 ). Obama Administration intelligence officials continue to inform Congress of a crucial Pakistani link to the Afghan insurgency. According to former U.S. Director of National Intelligence Dennis Blair, testifying before a House panel in early 2010, "The safe haven that Afghanistan insurgents have in Pakistan is the group's most important outside support. Disrupting that safe haven won't be sufficient by itself to defeat the insurgency, but disrupting insurgent presence in Pakistan is a necessary condition for making substantial progress. National Intelligence Estimates on Pakistan and Afghanistan issued in early December 2010 reportedly took a bleak view of the situation and suggested that U.S. success in Afghanistan was not possible so long as insurgents continued to find safe haven in western Pakistan. As recently as January 2011, Joint Chiefs Chairman Admiral Mullen said, "It is absolutely critical that the safe havens in Pakistan get shut down. We cannot succeed in Afghanistan without that." Some independent analysts echo the claim that targeting Afghan Taliban leaders in Baluchistan is a requirement for curbing the Afghan insurgency. Afghan officials openly accuse Pakistani officials of aiding and abetting terrorism inside Afghanistan. Pakistan's mixed record on battling Islamist extremism includes an ongoing apparent tolerance of Afghan Taliban elements operating from its territory. The "Kandahari clique" reportedly operates not from Pakistan's tribal areas, but from populated areas in and around the Baluchistan provincial capital of Quetta. Many analysts believe that Pakistan's intelligence services have long known the whereabouts of these Afghan Taliban leadership elements and likely even maintain active contacts with them at some level as part of a hedge strategy in the region. Some reports indicate that elements of Pakistan's major intelligence agency and military forces aid the Taliban and other extremists forces as a matter of policy. Such support may even include providing training and fire support for Taliban offensives (see also "Questions About Pakistan's Main Intelligence Agency" below). Pakistani leaders insist that Afghan stability is a vital Pakistani interest. They ask interested partners to enhance their own efforts to control the border region by undertaking an expansion of military deployments and checkposts on the Afghan side of the border, by engaging more robust intelligence sharing, and by continuing to supply the counterinsurgency equipment requested by Pakistan. Yet, despite efforts by both the Islamabad and Kabul governments to secure it, the shared border remains highly porous, with corrupt border guards allowing more-or-less free movement of militants and smugglers. Pakistan has contributed about $330 million to Afghan development and reconstruction since 2001. Given Pakistan's pivotal role in attaining U.S. regional goals, President Obama's December 1, 2009, policy announcement on Afghanistan had major ramifications for Pakistan. The extent to which the Pakistani government was consulted on this issue is not clear, but the key concern in both Washington and Islamabad appears to have been that any new strategy in Afghanistan does nothing to further destabilize Pakistan. In a cautious response to President Obama's speech, Pakistan's Foreign Ministry reaffirmed Islamabad's commitment to uproot regional terrorism and further stabilize Afghanistan, and also expressed a desire to ensure that the new U.S. strategy would cause "no adverse fallout on Pakistan." The Pakistani Army Chief did welcome the mis-2010 appointment of General David Petraeus to lead the U.S. military effort in Afghanistan, calling him a known quantity who "has a full understanding of Pakistan's perspective and [who] is acutely appreciative of Pakistan's sacrifices." Many independent analysts identify problems with the U.S. Afghanistan strategy. Primary among these has been a perception that, with the announcement of a July 2011 starting date for U.S. withdrawal, the United States was confounding its allies in the region and perhaps preparing to leave them to their own devices. Pakistanis are also concerned that any expansion of the war to include more operations inside Pakistan could further destabilize an already shaky political and economic climate, and even undermine already thin public support for Pakistan's role. The U.S. government maintains pressure on Pakistan to expand its military efforts against Islamist militants in western Pakistan on the assumption that such action is needed to ensure the strategy's effectiveness. Islamabad has consistently rejected such external prodding, while also undertaking more energetic military operations. The Pakistani government has been deeply skeptical about the expansion of U.S. combat operations in Afghanistan, fearing that these would push militants across the border into Pakistan's Baluchistan province and put untenable pressure on its already taxed security forces. There is little persuasive evidence that this has occurred. Nevertheless, fears of a spillover of conflict, a possible shift of U.S.-launched drone attacks to include Pakistan's southwestern regions, and other signs of expanded U.S. operations in Pakistan leave many Pakistani observers deeply wary of U.S. policy. At the same time, Islamabad is discomfited by signs that the U.S. presence in Afghanistan is not long-term and that the international community may "abandon" the region in ways damaging to Pakistani interests, as was seen to be the case during the 1990s. Many analysts see President Obama's explicit call for U.S. troop withdrawals to begin in July 2011 as a signal to the Pakistani (and Afghan) government and Taliban elements, alike, that the United States was most concerned with an exit strategy and may not make a long-term commitment to stabilizing the region. This could even allow the Afghan Taliban to retreat into Pakistan and wait out the American "surge." According to the Pakistani foreign minister himself, "The Administration's withdrawal date was music to the ears of the militants and terrorists." The Obama Administration at least partially addressed these concerns by offering an "expanded strategic partnership" with Pakistan to include additional military, economic, and intelligence cooperation, along with assurances that the United States would remain engaged in Afghanistan and was planning no early withdrawal from that country. The Administration vows to assist Pakistan in the political, economic, and security realms, with the latter to include helping Pakistan to shift its military from a conventional posture to one oriented toward counterinsurgency. For Islamabad, another key issue is the role the Washington plays in triangular relations between Pakistan, India, and the United States. India's presence in Afghanistan exacerbates Pakistani fears of encirclement. Some analysts insist that resolution of outstanding Pakistan-India disputes, especially that over Kashmir, is a prerequisite for gaining Pakistan's full cooperation in efforts to stabilize Afghanistan. Islamabad remains wary of India's diplomatic and reconstruction presence in Afghanistan, viewing it as a strategic threat to Pakistan, and is concerned that progress in the U.S.-India "strategic partnership" may come at serious geostrategic cost for Pakistan. President Obama did not mention India in his December 2009 speech, but the next day the U.S. Ambassador to India issued a statement saying that the core U.S. goal in Afghanistan and Pakistan is an "aspiration we share with India," and declared that the United States values "the positive role India continues to play in the region, including its significant humanitarian aid to Afghanistan." According to many Indian analysts, official Pakistan's unstated aims with regard to Afghanistan are to maintain a Taliban sanctuary in western Pakistan, keep Afghanistan's security forces small in size, and curtail "natural" India-Afghanistan links. When leaders from 60 countries met in London in late January 2010 to discuss Afghanistan stabilization efforts, Pakistani officials expressed a keen and largely unexpected interest in promoting Afghan peace through a mediator role in any anticipated negotiations. In fact, Islamabad had for some time been pressing the U.S. government to seek negotiation with Taliban figures. Pakistani leaders believe they could serve as effective brokers in such potential contacts. Even some Pakistani analysts contend that, until the United States develops a strategy that recognizes Pakistan's "preeminent role" in Afghanistan, tensions between Washington and Islamabad will persist. The Pakistani offer to mediate is controversial, given Afghans' longstanding mistrust of their eastern neighbors, yet could also prove fruitful due to Islamabad's historical links with the Taliban. Some analysts attributed the Pakistani shift to "a combination of self-interest and fear," with Islamabad hoping that a future power-sharing arrangement in Kabul that includes the Taliban would be friendlier to Pakistani interests. Still, some U.S. officials responded favorably, with then-Central Command chief General Petraeus welcoming Pakistan's "constructive involvement" in reaching out to Afghan Taliban elements open to reconciliation. Many independent analysts believe that no sustainable political settlement can be reached in Afghanistan without the participation of Pakistan. The Islamabad government considers itself to be indispensible to successful peace talks in Afghanistan. In the opening months of 2010, the Afghan Taliban's top military commander and key aide to Mullah Omar, Mullah Abdul Ghani Baradar, was captured in a joint ISI-CIA operation in Karachi. Baradar's arrest, which at first appears to have been the result of happenstance rather than design, may have signaled a change in Pakistani strategy, a new willingness to pursue Afghan Taliban leaders long believed to find sanctuary on Pakistani soil, and newly intensive bilateral intelligence collaboration between the United States and Pakistan. Within days, two other Taliban "shadow governors" of northern Afghan provinces were captured in Pakistani cities, and a fourth senior Taliban figure arrested in the NWFP, bolstering the perception that a new Pakistani strategy was at hand. By one accounting, Pakistani authorities arrested seven of the Afghan Taliban's top fifteen leaders during the month of February. The developments served to confirm the Afghan Taliban's presence in Karachi, where a fifth notable figure—the finance minister under Taliban rule—was reported captured in March, and the new pressure may be forcing other Taliban leaders to spread out into cities across Pakistan in an effort to evade capture. Skeptical observers have contended that U.S. officials should not view the ISI's new moves against Afghan Taliban elements as indicative of a major strategic shift in Pakistan; they consider Pakistan's geopolitical incentives to preserve the Taliban remaining unaltered. By some accounts, Pakistani elements "orchestrated" the Baradar arrest to facilitate talks with "willing" Taliban commanders so as to pave the way for reconciliation negotiations. Cynics contend that the ISI's motives may simply have been to thwart any anticipated negotiations. Unnamed Pakistani officials even later changed their story, saying that Baradar's capture had been intentional as a means of shutting down secret peace talks he had been conducting with Kabul, talks that excluded Pakistan. Analysts also point to continuing Pakistani inaction against the Haqqani group, the LeT, and other militant anti-India elements as evidence that Pakistan's security services are continuing to manipulate and make use of Islamist extremists as part of their regional strategy. There are conflicting reports on whether or not direct access to and interrogations of Baradar have produced useful intelligence for U.S. officials. In June 2010, Pakistan launched an effort to broker a reconciliation between the Kabul government and the Haqqanis, perhaps the most active and dangerous of Afghan insurgent groups. This initiative sparked concerns that Islamabad will seek to exploit the political situation—both in the region and in Washington—to create a political settlement giving Pakistan maximal influence in a post-conflict Kabul. Warming relations between Pakistan and Afghanistan are seen by some to heighten the risk that the United States will be largely omitted from a settlement arranged by Islamabad and Kabul. Senior U.S. officials have expressed skepticism about pursuit of any settlement that included a future role for Taliban elements. The British government more clearly sees Pakistan having a key role to play in brokering talks between Afghan militants and the Kabul government. In October, NATO facilitated the secret travel of at least three Quetta Shura Taliban figures and a representative of the Haqqani network from Pakistan to Kabul for meetings with senior Afghan government officials. It is unclear whether Pakistani officials were included in this process; some reports indicated they were not, but others described ISI officials participating directly. Yet, in a sign that Pakistan's "double game" was continuing, there also were reports that the ISI was simultaneously pressuring Taliban field commanders to step up their fight against NATO forces. A State Department spokesman acknowledged that talks were taking place as part of an Afghan-led process and asserted that Pakistan "does have a legitimate role to play in supporting this process." With roughly three-quarters of supplies for U.S. troops in Afghanistan moving either through or over Pakistan, insurgents in 2008 began more focused attempts to interdict NATO supply lines, especially near the historic Khyber Pass connecting Peshawar with Jalalabad, Afghanistan, but also to include the route from Karachi to Kandahar, which runs through Quetta and the Chaman border crossing. Such efforts have left thousands of transport and fuel trucks destroyed, and numerous Pakistani drivers dead. Near the end of 2008, the Pakistani military reported launching a major offensive in the Khyber agency aimed at securing the supply route, which was temporarily closed during the height of the fighting. Despite the Pakistani effort to secure the gateway to the Khyber Pass, sporadic interdiction attacks continue to date. U.S. military officials claim that attacks on supply routes have had a negligible effect on combat operations in Afghanistan, with less than 2% of the cargo moving from the Karachi port into Afghanistan being lost to "pilferage," and with stockpiled supplies that could last 60-90 days in the event of a severing of the supply chain. Nevertheless, in the latter half of 2008 the U.S. military began testing alternative routes, concentrating especially on lines from Central Asia and Russia. Moscow at first would allow only non-lethal NATO supplies to Afghanistan to cross Russian territory, and later agreed to allow U.S. troops and weapons to fly into Afghanistan through Russian airspace as sought by NATO. By mid-2010, this "northern distribution network" was carrying well over half of NATO's total supplies (not including all military equipment). Attacks on NATO trucks have caused transportation fee rates to more than double since 2006, but using the northern distribution network is still said to cost 2.5 times as much as the Pakistan route. Corruption is a major factor in moving cargo through Pakistan. A June 2010 report from a House subcommittee's majority staff found extensive evidence of extortion and corruption along the supply line, especially with regard to the Chaman crossing near Quetta, where a "Colonel Abdul Razziq," a local tribal chief, is said to wield "near total control" and demand a major share of all cargo that transits the border. Moreover, there have been suspicions that corrupt trucking contractors have actually destroyed their own vehicles. Ammonium nitrate (AN) is widely-used fertilizer that also has commercial uses as an explosives precursor. The great majority of improvised explosive devices (IEDs) used by Islamist insurgents fighting in Afghanistan employ AN and, since the Kabul government's January 2010 ban on the substance, nearly all AN in Afghanistan is believed to arrive through illicit transshipments from neighboring Pakistan. The U.S. government is urging Islamabad to adjust Pakistani national laws to restrict access to AN there or, short of that, to encourage Pakistani law enforcement and border security agencies to be more active and effective in efforts to prevent its movement into Afghanistan. The U.S. government's efforts to counter the growing threat of IEDs in Afghanistan fall into three main categories: (1) diplomatic initiatives; (2) law enforcement initiatives; and (3) science and technology efforts. Washington's efforts are led by the Pentagon's Joint Improvised Explosive Device Defeat Organization (JIEDDO), staff of the State Department's Special Representative for Afghanistan and Pakistan (SRAP), and staff of the Department of Homeland Security's Immigration and Customs Enforcement office. Over the course of 2010, Pakistan-Afghanistan relations showed multiple signs of improvement. In a public show of friendship, Prime Minister Gilani hosted Afghan President Karzai in Islamabad in March, but it is not clear if Karzai's widely suspected mission—to solicit Pakistani help in pursuing conciliatory gestures toward the Taliban—was successful, and serious policy differences appeared to remain. Bilateral relations appeared to improve following a series of mid-2010 discussions on ending the Afghan insurgency that included Pakistan's ISI chief making an unprecedented visit to Kabul. General Kayani himself also met with President Karzai in the Afghan capital. In July, the two countries inked a cross-border trade agreement after decades of on-and-off negotiations. A concrete and unprecedented sign of a changed bilateral dynamic came with news that Karzai had agreed to send a small group of Afghan military officers to train in Pakistan. By opening numerous new border crossings and providing Afghans with access to major Pakistani ports, the pact could boost bilateral trade and facilitate regional peace. Yet it does not allow Afghan truckers to transit through Pakistan to India. Still, it was warmly welcomed by Washington, where a State Department spokesman called it "one of the most important, concrete achievements between the two countries in 45 years." In September, President Karzai again visited Islamabad, where he and President Zardari agreed to strengthen the bilateral "partnership" through increased institutional engagement; greater security cooperation; expanded transit, trade and investment; and mutual infrastructure and energy development, among others. Prime Minister Gilani was in Kabul in December, at which time he and the Afghan leader reiterated their mutual intentions to further accelerate bilateral initiatives in a range of issue-areas. A resulting Joint Statement included agreement to further increase counterterrorism economic cooperation. In January 2011, the Karzai government sent a high-level "peace delegation" to Islamabad led by former Afghan President Burahuddin Rabbani, reportedly in an effort to reassure Pakistani leaders, including General Kayani, that the current Kabul government is friendly toward Pakistan and is ready to negotiate with the Taliban. Warming Pakistan-Afghanistan ties tend to elicit anxiety in other regional capitals, especially New Delhi and Tehran, where there are significant fears of a future Afghanistan heavily influenced by Islamabad and with Taliban elements in possession of a governance role. Fighting between Pakistani government security forces and religious militants intensified in 2008. Shortly after former Prime Minister Benazir Bhutto's December 2007 assassination, the Pakistan army undertook a major operation against militants in the South Waziristan agency assumed loyal to Baitullah Mehsud, who was named as a suspect in that killing. Occasionally fierce fighting continued in that area throughout 2008 and into 2009, when a full-blown ground operation was launched to take control of the region. The apparent impunity with which Mehsud was able to act caused serious alarm in Washington, where officials worried that the power and influence of his loyalists were only growing. Mehsud was killed in a mid-2009 drone attack, but his "Pakistani Taliban" has fought on under new leadership, while also threatening to take their fight to American shores. Analysts also continue to view Pakistan's tribal areas as being a crucial safe haven for continued Al Qaeda plotting and training. An April 2009 assessment by the FATA Secretariat calculated that conflict in the tribal areas alone has cost the Pakistani government more than $2 billion. The Tehrik-i-Taliban Pakistan (TTP) emerged as a coherent grouping in late 2007 under Baitullah Mehsud's leadership. This "Pakistani Taliban" is said to have representatives from each of Pakistan's seven tribal agencies, as well as from many of the "settled" districts abutting the FATA. There appears to be no reliable evidence that the TTP receives funding from external states. The group's principal aims are threefold: (1) to unite disparate pro-Taliban groups active in the FATA and KPk; (2) to assist the Afghan Taliban in its conflict across the Durand Line; and (3) to establish a Taliban-style Islamic state in Pakistan and perhaps beyond. As an umbrella group, the TTP is home to tribes and sub-tribes, some with long-held mutual antagonism. It thus suffers from factionalism. In 2008, the Islamabad government formally banned the TTP due to its involvement in a series of suicide attacks in Pakistan. After the August 2009 death of Baitullah, leadership passed to Hakimullah Mehsud (no relation). Upon the October 2009 launch of major Pakistani military operation against the TTP's South Waziristan bases, this new Mehsud was believed to directly command 5,000-10,000 militants, with the total TTP force comprised of up to 35,000 armed militants. Militancy in western Pakistan is not coherent, and Taliban forces there are riven by deep-seated tribal rivalries that may prevent the TTP from ever becoming a truly unified force. Some analysts believe that, by pursuing sometimes contradictory military strategies in the region, the United States and Pakistan have missed a chance to exploit such divisions. According to this argument, U.S.-launched missile strikes have a unifying effect on the militants and so undermine the Pakistani strategy of driving a wedge between various Islamist factions. In 2009, U.S. intelligence agencies reportedly launched a major effort to examine potential fault lines within the Islamist militant groups of western Pakistan with an eye toward exploiting rifts with diplomatic and economic initiatives, a strategy associated with General Petraeus that realized successes in Iraq. Some scholars argue, however, that the Taliban is not nearly as fragmented as many believe, but rather is a decentralized organization, and that distinctions between Pakistani and Afghan networks are largely arbitrary. Founding TTP chief Baitullah Mehsud was apparently killed in a U.S.-launched missile strike on August 5, 2009. Later that month, militants declared that Hakimullah Mehsud, a 28-year-old with a reputation for brutality and risk-taking, would be the new TTP chief. Baitullah's elimination was seen as a major victory for both Pakistani and U.S. interests, and a psychological blow to the Pakistani Taliban. Yet it did not lead to any reduction of militancy in Pakistan, given that leading operational commanders remained active and attacks on government and civilian targets became even more common. By successfully targeting the primarily anti-Pakistani government Baitullah, U.S. officials may have sought greater Pakistani action against Pakistan-based, Afghan-oriented militants such as Mullah Omar and Sirajuddin Haqqani. Baitullah's death was seen by some as presenting an opportune time to apply maximum pressure on TTP militants, but Pakistani military officials continued to defer, saying they suffered from serious equipment shortages and needed "months" to create the right conditions for a FATA offensive. Some U.S. officials became concerned that vital momentum was lost in the interim. The Pakistan army has deployed up to 150,000 regular and paramilitary troops to western Pakistan in response to the surge in militancy there. Their militant foes have employed heavy weapons in more aggressive tactics, making frontal attacks on army outposts instead of the hit-and-run skirmishes of the past. Pakistan has sent major regular army units to replace Frontier Corps soldiers in some areas near the Afghan border and has deployed elite, U.S.-trained and equipped commandos to the tribal areas. Major battles with militants have concentrated on three fronts: the Swat valley (see above), and the Bajaur and South Waziristan tribal agencies. Yet all seven tribal agencies and adjacent regions have been affected by conflict. By early 2009, Taliban forces had spread their activities into the relatively peaceful Orakzai agency, the only in the FATA that does not border Afghanistan. Moreover, an unprecedented January 2009 attack on a Frontier Corps outpost in the Mohmand agency by some 600 Taliban militants represented an unusual reversal in that the militants had crossed into Pakistan from Afghanistan, signaling increased coordination by Taliban units spanning the border. Sporadic, but sometimes major military operations in the FATA have been ongoing since 2008, with Pakistani authorities sometimes reporting significant militant casualties, although these claims cannot be corroborated. Civilians are often killed in the fighting, and millions have been forced from their homes. Nevertheless, the Pakistani military reports that many FATA tribal leaders are fully supportive of the army's efforts there. Analysts warned that the FATA would present a battlefield very different from that found in the Swat Valley. The oftentimes treacherous mountain terrain replete with caves was seen to favor the Taliban's guerilla tactics over a conventional force such as the Pakistan military. Some counterinsurgency experts cast doubt on the Pakistan army's ability to hold ground seized in offensive operations and predicted that militants would quickly re-infiltrate into "cleared" areas of the FATA. Such warnings have since appeared prescient: By mid-2010, it was apparent that Pakistani forces were facing further combat on nearly all fronts previously thought secured, as an absence of effective civilian political authority had precluded a consolidation of military gains. Pakistani military operations appear to have succeeded only in pushing militants from one agency to another while their leadership remains intact. Some American observers contend that, if Pakistan is genuinely unable to eradicate the militant safe havens there, the United States and its allies should not be prevented from doing so. "Operation Sher Dil," launched in Bajaur in September 2008, reportedly caused the deaths of more than 1,500 militants and some 100 soldiers before Pakistani officials declared it successfully completed five months later. Still, pessimistic analysts viewed the gains from such operations as temporary and predicted that widespread militant presence in Bajaur and neighboring regions was apt to continue in the future. On this account, the pessimists were proven right. A new peace agreement was signed with Bajaur's tribal elders, but it appears that the bulk of militant forces repositioned themselves, and the army's heavy bombardments may have alienated large segments of the local population. Some 8,000 Pakistani troops were backed in Bajaur by helicopter gunships and ground attack jets. The Frontier Corps' top officer estimated that militant forces in the agency numbered about 2,000, including foreigners. The fighting apparently attracted militants from neighboring regions and these reinforced insurgents were able to put up surprisingly strong resistance, complete with sophisticated tactics, weapons, and communications systems, and reportedly made use of an elaborate network of tunnels in which they stockpiled weapons and ammunition. Although sporadic fighting continues in Bajaur to date, there are indications that most militant strongholds in the agency have fallen into government hands, with the strategic town of Damadola reclaimed in February 2010 and official Pakistani claims of victory in the agency a month later. Still, mid-2010 saw the TTP has issued warnings to local security forces in Bajaur to halt operation or face further attacks. In May 2009, President Zardari told an interviewer "We're going to go into Waziristan ... with army operations." Weeks later, Pakistani security forces apparently opened a new front for offensive operations in the northwest. In mid-month, some 800 militants reportedly moved into the Bannu region abutting the two Waziristan tribal agencies, only 90 miles southwest of Peshawar. The army responded with artillery and helicopter gunship assaults on Taliban positions. Operations were then expanded into South Waziristan with multiple strikes by fixed-wing aircraft in direct response to Taliban-launched suicide attacks in Pakistani cities. The KPk governor announced that the federal government was preparing to begin military operations targeting Baitullah Mehsud and his loyalists in South Waziristan, with army troops massing in surrounding areas. Within days, the troops were reported to have virtually surrounded Mehsud-controlled areas (on the Pakistani side of the international border). Islamabad ramped up pressure by posting large monetary rewards for information leading to the death or capture of Mehsud and his deputies. A military blockade of Mehsud's strongholds and weeks of near-constant airstrikes against his fighters' positions weakened Taliban forces in South Waziristan, yet the assassination of a key pro-government tribal leader there demonstrated that Mehsud remained a potent enemy able to violently suppress local opposition. Still, more than four months after Zardari's vow, no offensive ground operation was underway. Islamabad officials pointed to the unexpectedly large internally displaced person (IDP) problem in the region as causing the delay, but independent observers again began to doubt Pakistani determination. At the same time, the interim months also saw the Pakistan air force increasing its combat missions over the FATA, employing better surveillance to more effectively target militants while avoiding excessive civilian casualties. America-supplied F-16 aircraft figured prominently in this campaign. By early October, Pakistani officials issued statements that sufficient troops and equipment were in place for a now imminent offensive operation. On October 16, 2009, after being briefed by top military officials, Pakistan's civilian leadership gave the go-ahead for about 30,000-40,000 security forces to launch their long-awaited ground offensive—code-named "Operation Rah-e-Nijat" or "Path of Salvation"—on three fronts in South Waziristan. The early days of fighting saw Pakistani forces facing heavy resistance and even some reversals. After one week, less than 100 militants were reported to have been killed. By early November, however, Pakistani troops took control of Kaniguram, a town believed to be a stronghold of Uzbek militants, as well as the Ladha Fort that had been captured by TTP forces in August 2008. About one month after the operation's start, officials were reporting that all major militant bases in South Waziristan had been cleared, although they acknowledged that thousands of militants had been able to escape into the remote surrounding terrain. Indeed, only 548 militants were said to have been killed, and another 17 captured, only a small percentage of the 8,000 or more in the region at the battle's onset. Moreover, all notable Taliban commanders appear to have escaped. These militant leaders vowed to sustain a long-term guerrilla war and responded with new attacks on Pakistani cities, thus significantly eroding perceived gains by the government and military. Nevertheless, by January 2010's end, Pakistani military leaders were declaring that their forces had "broken the back of terrorists in South Waziristan." While the Waziristan offensive reportedly left numerous militants and Pakistani soldiers dead, and the army in control of all of the region's main towns, the bulk of the insurgent forces appear to have retreated into other havens unscathed. Indeed, reports indicate that the Pakistani victory is not so clear cut as portrayed by military spokesmen, and that most of the militants are likely to have escaped to North Waziristan. Pakistan's army denies reports that Taliban forces have reentered previously cleared areas of South Waziristan. By many accounts the North Waziristan tribal agency—home to the Al Qaeda- and Taliban-allied Haqqani network and the TTP forces of Hafiz Gul Bahadar, among others—is currently the most important haven for both Afghan- and Pakistan-oriented militants. It may also represent a more threatening haven for global jihadists than did pre-2001 Afghanistan. U.S. pressure on Pakistan to clear the region of militants has been fairly consistent for at least one year. In October 2010, Joint Chiefs Chairman Admiral Mullen told an interviewer that General Kayani had "committed to me to go into North Waziristan and to root out these terrorists." Days later, Secretary Clinton told an interviewer that the U.S. government was "pressing very hard that [Pakistan] do more with their military forces, their intelligence forces" to go after Taliban forces linked with Al Qaeda and that it is "going to keep pressing because we think there's no way to divide this threat." This pressure again became evident during Admiral Mullen's December visit to Pakistan, where he expressed what he called a strong sense of "strategic impatience" with the Pakistani leadership. Pakistani officials have continued to demur on requests that their military move into what many consider the "final" militant haven of North Waziristan, saying they need to consolidate the areas newly under their control. Pakistani military officials say a ground assault on militant positions in North Waziristan will come only after other tribal areas are secured, a process that they say will not be completed until May 2011, at the earliest. They report having some 34,000 troops in North Waziristan and suffering more than 500 combat deaths in this area alone. The Pakistani army is seen by the Pentagon as unlikely to launch the kind of "steamroller" operation there as was undertaken in South Waziristan. In the spring of 2010, Secretary Gates described the situation as analogous to the United States being in the passenger seat and Pakistan being "behind the wheel"; Pakistani officials are the ones who will "determine the direction and the speed of their operations." Some reports suggest that a "clear" operation has been underway since March. It is widely assumed that any eventual ground offensive into North Waziristan will be of limited scope, involving occasional forays from heavily fortified Pakistani army positions in the main town of Miranshah. There are concerns that a major push could again scatter militants across Pakistan and cause another backlash in the form of increased terrorism in Pakistani cities. In late 2010, reports indicated that the Haqqani network was relocating to the neighboring Kurram agency, perhaps with active Pakistani government support. This movement was apparently facilitated by a deal struck with Shiite militias, who granted access to Haqqani fighters in return for their help in making peace with local Sunni tribes. Some tribal leaders in Kurram are actively resisting Haqqani group incursions into their region. As noted above, Islamist militant groups are active in all seven of the FATA agencies, and notable Pakistani ground operations have been undertaken against them in six (all but North Waziristan). Government forces have engaged a sporadic, but sometimes deadly campaign against Khyber agency militants; the Frontier Corp's September 2009 effort to secure the area near the strategic Khyber Pass reportedly left more than 100 militants dead. In mid-April, at least 73 civilians were killed when a Pakistani jet targeting insurgents bombed their village in a remote regional of the Khyber agency; the army issued a formal apology. Moreover, heavy militants losses have been reported in Orakzai, where pitched battles and government air strikes continue. Government troops reportedly took control of Lower Orakzai in April 2010. In June, Pakistan's army declared a "successful conclusions of operations" in Orakzai, where more than 700 pro-Taliban militants were reported killed in battle in May alone. Yet it appears that the army successfully cleared only limited parts of the agency, and reports indicated that the "victory" was a fleeting one, at best. Other areas previously declared cleared, including parts of the Mohmand agency, likewise have seen a quiet return of Taliban insurgents. The Pakistani military's large-scale domestic air and ground operations are unprecedented in the country's history and, for many observers, reflect a new recognition among Islamabad's civilian and military leaders, alike, that pro-Taliban militants had become a dire threat to Pakistan's security and stability. With the military successes in Malakand and Swat, a meaningful shift in public opinion supporting government counterinsurgency efforts, and the killing of Baitullah Mehsud and several other Taliban leaders, some saw reason for cautious optimism about trends in Pakistan in 2009 and 2010. Indeed, the ground offensives launched that year garnered much praise from U.S. and other Western observers; U.S. Central Command chief General David Petraeus called the counterinsurgency operations in Swat and South Waziristan "quite impressive" and said the tactics used would be studied for years to come. More recently, General Petraeus called Pakistan's 2010 counterinsurgency operations "impressive" and said he hopes to see more "hammer and anvil" coordination on the border. Pakistan's security services have made tremendous sacrifices in post-2001 efforts to combat Islamist extremism. According to Pakistani military sources, the country has lost more soldiers fighting militants since 2004 (more than 2,400) than has the entire U.S.-led coalition fighting in Afghanistan since 2001. Pakistan also has deployed more troops to these operations (about 150,000) than has that coalition. Western Pakistan presents an extremely daunting landscape in which to conduct offensive military operations. Mountain warfare gives huge advantages to the defense, constraining attack and mobility options, limiting the role of artillery and air power, and obstructing resupply and reinforcement, among many other challenges. Along with this treacherous geography, the constantly morphing stew of militant groups in the region cannot be tackled without a large body of government-friendly informants, a cadre badly diminished by a relentless militant campaign to root out and execute "spies." Concerns about the capacity of Pakistani institutions and authorities to sustain and consolidate gains persist and are centered on questions about military effectiveness and political reform. Moreover, from a U.S. perspective, there remain reasons to be skeptical about the regional strategy being pursued by Pakistani leaders. With regard to military capacity, observers note that, from the perspective of "textbook counterinsurgency doctrine," Pakistan may not be able to bring to bear sufficient security forces to secure the FATA and KPk in the long term. One assessment finds a shortfall of perhaps 400,000 troops to meet the minimum force-to-population ratio called for by the doctrine. Even in the most optimistic scenario, with a major redeployment of some 250,000 troops away from the Indian border, this assessment concludes that Pakistan still has insufficient manpower to meet the standard of 20-25 troops for every 1,000 inhabitants. Pakistan's security forces appear to remain heavily reliant on overwhelming conventional force to fight insurgents and have yet to demonstrate a meaningful ability to administer cleared areas long enough to restore normal civil governance. The Swat Valley offers an important test case of Islamabad's counterinsurgency strategy in this regard, and many experts fear that in the absence of a comprehensive, "population-centered" approach, the army's tactical gains in 2009 may realize little long-term benefit. There are, however, signs that the army's efforts in the Bajaur tribal agency have employed "smarter" counterinsurgency (COIN) strategies. Some analysts remain convinced that, in the absence of meaningful political reforms in conflict-affected areas, the spread of Islamist militancy in the FATA will not be halted, with one report contending that, "the military's resort to indiscriminate force, economic blockade, and appeasement deals is only helping the Taliban cause." In August 2009, President Zardari announced that his government would lift a long-standing ban on political party activity in the FATA with the intention of normalizing the region's administrative structures and integrating them into Pakistan's mainstream. It would also amend the controversial Frontier Crimes Regulation. Yet, more than one year later, no meaningful action had been taken; Zardari's spokesman has said that announced reforms would only come "when the situation improves." In January 2010, Islamabad announced a relief package for conflict-affected areas of the FATA, including tax concessions, rebates on duties, and utility bill waivers. The package also called for a 1% boost in the share of federal funds allocated for the KPk. The Pakistani army has attempted to undertake its own development projects in the FATA, including major road- and dam-building projects. Meanwhile, the central government announced that it would transfer administrative responsibility in South Waziristan to a group of more than 500 Mehsud tribe elders who unanimously agreed with a government proposal. Perhaps most importantly for U.S. interests, Pakistan's regional strategy may not yet be fully compatible with that of the U.S. or neighboring governments. As the Pakistani military continued its summer-long build-up in South Waziristan, some analysts became concerned that its commanders were setting what were, in Washington's view, overly narrow objectives in targeting Baitullah while leaving untouched other Taliban groups operating in the FATA. The army's strategy appeared to seek isolation of the Mehsud faction of the TTP by keeping other regional militant commanders on the sidelines of the battle. These primarily are Wazir tribesmen, traditional South Waziristan rivals of the Mehsuds, led by Maulvi Wazir, the North Waziristan faction under Hafiz Gul Bahadar, and the Haqqani group, also in North Waziristan, and are in some accounts considered to be "pro-government Taliban." Indeed, to the extent that the Pakistani military's motives were limited to ending the Mehsud faction's ability to launch attacks inside Pakistan, they may not have sufficiently coincided with the U.S. aim of ending the region's status as an Al Qaeda safe haven from which attacks inside Afghanistan and potentially on Western/U.S. targets can be plotted and launched. Because Pakistani forces were targeting domestically-focused militants, analysts did not foresee see the offensive as being likely to benefit the U.S.-led effort in Afghanistan. Violence between Pakistani security forces and religious militants in northwestern Pakistan beginning in the first half of 2008 and continuing to date has driven millions of civilians from their homes and caused a humanitarian crisis of major proportions. Estimates of the total number of Internally Displaced Persons (IDPs) ranged from 1.9 million to 3.5 million at the May 2009 peak, a significant discrepancy that in part reflects the difficulty of identifying and reaching a population that is scattered in villages, remote areas, and urban environments. A U.N. report showed Pakistan having the highest number of IDPs in the world in 2009 at nearly 3.5 million, three times as many as second-place Congo. About half of the displaced have been children. Less than 10% of the IDPs were reported to be staying in U.N.-run camps; the remainder found haven with friends, relatives, or in "spontaneous shelters." Those in camps faced extremely difficult conditions. In mid-2009, Islamabad announced that safe return to the Malakand district was possible and that the military would remain in the area to provide security until local police forces could reassemble. Some aid officials argued that returning the displaced while the security situation remained fluid could present new problems. Despite such warnings, by the end of August 2009 up to 1.6 million IDPs were reported to have returned home in the region. The U.S. emergency response to Pakistan's IDP crisis was significant. In May 2009, Secretary of State Clinton announced that some $110 million in urgent U.S. humanitarian aid would flow into Pakistan, to include relief kits, tents, radios, and generators to provide light and water, along with many thousands of tons of wheat and other basic foodstuffs. Ambassador Holbrooke later vowed an additional $200 million in urgent assistance to address the problem. As of April 2010, USAID had provided about $430 million in related humanitarian relief funds in FY2008-FY2010 to date, much of this in the form of emergency food aid channeled through the World Food Program. Despite this American largesse, the United Nations has warned that a severe lack of funds is hampering regional relief programs. Pakistan's IDP refugee crisis provided the U.S. government with an opportunity to demonstrate its professed humanitarian concerns for the Pakistani people and so perhaps reverse widespread public hostility toward the United States. Yet Islamist charities have been active in the relief effort and by some accounts are using the opportunity to forward an anti-Western agenda, potentially turning public sentiment against Islamabad's cooperation with the United States. Such a tack is facilitated by the near-total absence of an overt U.S. "footprint" due to still-pervasive anti-American sentiments, despite America's status as the leading contributor of international relief funds. Sensitive to being too closely associated with an unpopular ally, Pakistani authorities reportedly have not allowed American aid workers or aircraft to distribute humanitarian aid at IDP camps, thus denying potential public diplomacy gains and leaving open a space in which extremist groups such as the banned Jamaat-ud-Dawa (JuD, now operating as Falah-i-Insaniat) could influence opinion without "competition." Joint Chiefs Chairman Admiral Mullen lauded the Pakistani army for learning from previous failed campaigns against the Taliban and for dealing effectively with the problem of IDPs. Yet poor civil-military coordination appears to have hindered humanitarian relief efforts. Numerous independent analysts strongly urged the Islamabad government and the international community to ensure that relief and reconstruction efforts are overseen by civilian authorities so as to best empower displaced communities in determining their own needs and priorities. The Inter-Services Intelligence Directorate (ISI) is Pakistan's main intelligence agency. Close U.S. links with the ISI date back at least to the 1980s, when American and Pakistani intelligence officers oversaw cooperative efforts to train and supply Afghan "freedom fighters" who were battling the Soviet Army. Yet mutual mistrust has been ever-present and, in 2008, long-standing doubts about the activities and aims of the ISI compounded. Some analysts label the ISI a "rogue" agency driven by Islamist ideology that can and does act beyond the operational control of its nominal administrators. Yet most conclude that the ISI, while sometimes willing to "push the envelope" in pursuing Pakistan's perceived regional interests, is a disciplined organization that obeys the orders of its commanders in the Pakistani military. U.S. officials repeatedly have fingered the ISI for actively supporting the Afghan Taliban with money, supplies, and planning guidance. There appears to be an ongoing conviction among U.S. officials that the Afghan Taliban's sanctuaries in Pakistan have allowed them to sustain their insurgency and that elements of the ISI have continued to support them. Accusations of ongoing ISI links with and potentially active support of Islamist militant groups are abundant and include the following: A 2002 statement by the then-British foreign secretary noted the British government's acceptance of "a clear link" between the ISI and Pakistan-based terrorist groups including the LeT, JeM, and Harakat Mujahideen. A former French counterterrorism judge has claimed that the Pakistani government once ran training camps for the LeT with the CIA's knowledge. He contends the two intelligence agencies had an agreement that Pakistan would not allow foreign militants to train at an LeT camp "run by the Pakistani military." The Afghan government claims to have evidence of ISI complicity in both an April 2008 assassination attempt on President Karzai and in the July 2008 bombing of India's Kabul Embassy. New Delhi joined Kabul in accusing the ISI of involvement in the latter attack. The top Afghan intelligence official reported to his government in 2009 that the ISI provides material support to Taliban commanders based in Quetta. A book by a senior New York Times reporter cited a May 2008 U.S. signals intelligence intercept in which Pakistan's Army Chief allegedly referred to terrorist leader Jalaluddin Haqqani as a "strategic asset." In early 2009, Secretary of Defense Gates told an Afghan interviewer that "the ISI's contacts with some of these extremist groups [such as those led by Hekmatyar, Haqqani, and others] are a real concern for us." During the same period, coinciding with the public release of the newly seated Obama Administration's regional strategy, senior U.S. military officers issued other accusations of ongoing ISI support the regional militants. In September 2009, the then-top U.S. commander in Afghanistan, General Stanley McChrystal, accused ISI elements of materially aiding insurgent groups that attack coalition forces in Afghanistan. A 2010 book by investigative journalist Bob Woodward makes the unsourced claim that the CIA "received reliable intelligence that the ISI was involved in the training for [the November 2008 terrorist attack on] Mumbai." A retired senior Canadian diplomat who spent six years working in Afghanistan, testifying before an Ottawa parliamentary committee in 2010, stated that the Taliban would already have been conclusively defeated if not for ongoing support from Pakistan's intelligence agencies. A 2010 report based on extensive interviews with current and former Taliban commanders concluded that the ISI "orchestrates, sustains, and strongly influences the [Taliban] movement," and that ISI officials are at times physically present, as participants or observers, at the Taliban's supreme leadership council sessions. In October 2010, a Pentagon spokesman expressed U.S. concerns about the ISI's "strategic focus," saying some of its interaction with insurgents "may be seen as supporting terrorist groups." Even some retired, U.S.-trained Pakistani military officers are suspected of continuing to recruit, train, and finance Islamist insurgents. One, known as "Colonel Imam," was among those believed to have served as a "quasi-official bridge" to Taliban leaders. In 2008, a top U.S. intelligence official reportedly presented evidence to Pakistani officials that ISI agents were providing assistance to militant elements who undertake attacks in Afghanistan. Specifically mentioned was an alleged relationship between ISI agents and members of the Haqqani network believed based in the FATA and named as responsible the Kabul embassy bombing. U.S. counterterrorism officials do not appear to believe that senior Pakistani leaders have sanctioned aid to the Haqqani network, but suspect that local and retired ISI operatives are complicit. Islamabad angrily rejected such reports as "baseless and malicious," but the federal information minister did concede that some individuals within ISI "probably" remain "ideologically sympathetic to the Taliban" and act out of synch with government policy. In 2010, Afghan officials were again accusing the ISI of lethal malfeasance inside their country, this time involving a May suicide bombing in Kabul that killed six NATO soldiers. In September 2008, the Islamabad government named a new ISI chief, Lieutenant General Ahmed Shuja Pasha, who had served as director general of military operations since 2005. Pasha, said to be close with General Kayani, is identified as a professional soldier who takes the threat of Islamist extremism seriously. Although little is known about this intelligence chief, his appointment was met with cautious optimism by the Bush Administration. Later that year, the civilian government disbanded the ISI's political wing, which was widely suspected of manipulating domestic political outcomes over a period of decades. Foreign Minister Qureshi said the move would free the ISI to concentrate on counterterrorism efforts. In March 2010, General Kayani granted an unusual one-year extension to General Pasha's term under "compulsory retainment." Pakistani officials repeatedly provide assurances that no elements of the ISI are cooperating with militants or extremists. In May 2009, a State Department spokesman indicated that the United States takes such officials "at their word," but U.S. suspicions about the ISI have not receded. A late 2009 Los Angeles Times report indicated that the ISI's cooperation with U.S. intelligence agencies has been instrumental in the capture or killing of numerous militant fugitives, and that covert U.S. rewards for such assistance is valued in the hundreds of millions of dollars, accounting for as much as one-third of the entire ISI budget. According to this report, despite holding deep misgivings about the ISI, U.S. intelligence officials recognize no alternative but to work with them. Over the past one or two years, Pakistani public sentiments toward both Islamist militancy and the United States appear to have grown measurably less favorable. During the first several months of 2009, the FATA-based Taliban launched numerous suicide bombings and other terrorist attacks across Pakistan in retaliation for the army operations against their allies in Swat. They took responsibility for multiple bomb explosions and warned people to evacuate several large cities, saying major attacks would be forthcoming. Taliban militants and their allies had been terrorizing the people of western Pakistan for some time before 2009, but they may have gone one step too far by quickly violating the Swat accord with incursions into neighboring districts. Moreover, in April 2009, video footage of Taliban militants in Swat flogging a teenaged girl accused of having an affair was widely viewed on television and the internet, and contributed to turning public sentiment against the extremists. Available evidence now strongly indicates a major shift in Pakistani public attitudes toward religious militancy and extremism has occurred, with a majority of citizens now supporting military operations that were only recently and for many years seen to have come only at the behest and in the interests of the United States. Anti-American sentiments and xenophobic conspiracy theories remain rife among ordinary Pakistanis, however. A Pew Research Center survey released in June 2010 showed only 17% of Pakistanis holding a favorable opinion of the United States, as low a percentage as in any of the 22 countries surveyed, and roughly the same as in the three previous years. Many across the spectrum of Pakistani society express anger at U.S. global foreign policy, in particular when such policy is perceived to be unfriendly or hostile to the Muslim world (as in, for example, Palestine, Afghanistan, and Iraq). Some popular, mainstream Pakistani TV talk-show hosts routinely promote anti-American conspiracy theories, call for more Islamist-influenced governance, and bash religious and ethnic minorities. Pakistan's Urdu-language press is much more widely read than are English-language sources, and the Urdu press is much more willing to convey exaggerated and/or distorted views on both the United States and India, including conspiracy theories only tenuously linked to facts. In late 2009, the U.S. Embassy in Islamabad began issuing statements to immediately and directly counter false or misleading information about American foreign policy in the Pakistani media. Allegations of U.S. malfeasance inside Pakistan abound. The alleged presence of thousands of American security contractors in Pakistan is a key focal point of the paranoia. Fears that private contractors were pouring into Pakistan has added to the growing sense that a larger American footprint has potentially sinister aspects. U.S. plans to significantly expand its embassy compound in Islamabad only fuel theories among Pakistanis convinced that Americans are seeking to dominate their country. A November 2009 U.S. press report claimed that employees of the private security contractor Blackwater—now called Xe Services—work closely with U.S. Special Operations anti-terrorism missions on Pakistani soil, by at least one account in a Pentagon effort to bypass congressional oversight. While in Pakistan in January 2010, Secretary of Defense Gates made a statement inadvertently fueling rumors of Blackwater's presence there; Pentagon clarifications did not fully repair the damage. Pakistan's Islamist politicians commonly blame Blackwater—as a representation of covert U.S. operations inside Pakistan—as actively fomenting terrorism in their country. Long-standing worries that American citizens were being recruited and employed in Islamist terrorism by Pakistan-based elements have become more concrete in recent months. In May 2010, a naturalized U.S. citizen of Pakistani origin, Faisal Shahzad, was arrested on charges related to the attempted detonation of a large, but crudely-constructed car bomb in New York City on May 1. The Pakistani Taliban claimed responsibility for the attempted bombing, calling it an act of vengeance for the killing of two Iraqi Al Qaeda leaders in April, but later withdrew the claim and denied even knowing the suspect. Shahzad himself confessed to having received bomb-making training in "Waziristan," although later reports indicate the training took place in the nearby Mohmand tribal agency. He also told investigators he drew inspiration from radical Muslim cleric Anwar al-Awlaki, a Yemeni-American fugitive believed hiding in Yemen. Eight days after Shahzad's arrest, Attorney General Eric Holder Jr. said investigators had "developed evidence that shows the Pakistani Taliban was behind the attack." Shahzad was indicted by a federal grand jury in June, then four days later pled guilty to ten criminal charges related to the bombing attempt. In October, he received a mandatory life sentence. Pakistani authorities made numerous arrests and detentions in connection with the Times Square case. These include an unnamed man believed connected with the TTP who claims to have aided Shahzad in traveling to the FATA; the owner of an Islamabad catering company that organized events for American diplomats; an Islamabad computer business owner suspected of providing Shahzad with up to $15,000 to finance the attack; and a Pakistan army major said to have had cellphone contact with Shahzad just before the attempted bombing. A senior Pakistani official said another among those detained in Pakistan was Mohammed Rehan, identified as head of the Peshawar branch of the Pakistan-based Jaish-e-Mohammed (JeM) terrorist group, who allegedly traveled to Peshawar with Shahzad in July 2009. Pakistani authorities claim to have received confessions from three Pakistani businessmen admitting to providing financial and other assistance to Shahzad. Meanwhile, the FBI has pursued leads that individuals in Massachusetts and Maine may have helped Shahzad with financing. In December 2009, federal prosecutors charged David Coleman Headley, a Chicagoan convert to Islam, with traveling to Mumbai five times from 2006 to 2008 as scout for the 2008 Mumbai terrorist attack by the Pakistan-based Lashkar-e-Taiba (LeT) terrorist group; he subsequently pleaded guilty to the charges. Headley's case is perhaps the first in which a former Pakistani military officer has been directly linked to terrorism suspects in the United States. Headley and another Pakistan-born Chicagoan, Tahawwur Rana, are suspected of having reported to Abdur Rehman, a retired Pakistani major suspected of being an LeT contact. Headley also interacted with Ilayas Kashmiri, a possible former Pakistani special forces commando with close ties to Al Qaeda. Kashmiri was subsequently indicted by a federal court for abetting a plot to attack the offices of a Danish newspaper that had published cartoon depictions of the Prophet Mohammed. The Indian government energetically petitioned Washington for direct access to Headley as part of its own investigative efforts. Such access was granted with an extensive interrogation in June; afterward Indian officials said the information gleaned established an official Pakistani role in the attack. Just days after Headley was charged, Pakistani authorities arrested five young American men reported missing from their homes in northern Virginia. The men's families had contacted the FBI, fearing they were intent on joining jihadi groups inside Pakistan. The Muslim men are believed to have had extensive coded email contacts with a Taliban recruiter and with the chief of an Al Qaeda-linked Pakistani terrorist group, the Harakat-ul-Jihad-al-Islami (HuJI). A Pakistani judge barred their deportation back to the United States, and the police chief in Sargodha, the city of their arrest, stated that the Taliban intended to use the men to carry out attacks inside Pakistan. The men deny this and claimed to only be seeking to "help the helpless Muslims." In March, the court charged the five with financing and plotting terrorist attacks. In June 2010, the so-called Virginia Five were sentenced to ten years of labor in prison by a Sargodha court for conspiring against the Pakistani state and helping to finance a militant organization. The conviction came surprisingly quickly for Pakistan's weak and slow-moving criminal justice system. The case of would-be terrorist bomber Najibullah Zazi—an Afghan national and legal U.S. resident arrested in September 2009 after months of FBI surveillance—seemed to demonstrate that terrorist training camps continue to operate in the FATA, where Zazi is said to have learned bomb-making skills at an Al Qaeda-run compound. In July 2010, the Justice Department unsealed new terrorism-related charges against Zazi and four other men who allegedly had plans to bomb the New York subways under the direction of Al Qaeda leaders based in Pakistan. Among the others was Tariq ur Rehman, a Pakistani-American. Other Americans have received terrorist training in western Pakistan, including Bryant Neal Vinas, who was in the region in 2008 and later confessed to plotting a bomb attack against the Long Island Railroad in New York. After traveling to Lahore, Mohmand, North Waziristan, and Peshawar, Vinas reportedly became a full-fledged member of Al Qaeda. In 2009, he pleaded guilty to all charges against him, including receiving military-type training from a foreign terrorist organization. In June 2010, a Pakistani-American man was sentenced to 15 years in prison by a New York court for conspiring to provide material support to terrorists. Syed Hashmi, who loaned money to an Al Qaeda operative in London in 2004-2006, was found by the judge to have been a "knowing and willing Al Qaeda supporter." Most recently, in October 2010, federal law enforcement agents arrested a Pakistani-American Virginia man on charges that he was plotting a series of bomb attacks on the Washington Metro system. Senior U.S. government officials have recognized increasing evidence of links between Pakistan, terrorism, and U.S. nationals. In the period immediately after the failed car bomb attack in Times Square, President Obama allegedly determined that militant safe havens would no longer be tolerated, telling his lieutenants that "We need to make clear to people that the cancer is in Pakistan." When asked in May if, even in light of the Times Square bombing attempt, she was "comfortable with the cooperation" from Pakistan, Secretary Clinton replied, Well, no, I didn't say that. I said that we've gotten more cooperation and it's been a real sea change in the commitment we've seen from the Pakistani government. We want more. We expect more. We've made it very clear that if, heaven forbid, an attack like this that we can trace back to Pakistan were to have been successful, there would be very severe consequences. Such stern warnings from senior U.S. officials in the wake of the Times Square incident are considered a departure from the more gentle prodding Pakistani leaders received from the Administration in the past, and the episode has served to highlight persistent mistrust that clouds the bilateral relationship. Also in May, President Obama dispatched his national security advisor and CIA director to Pakistan, reportedly to press officials there for more aggressive military action in the tribal areas. Centcom commander General Petraeus has opined that, by further illuminating the extremist threat, the failed Times Square bombing attempt could actually serve to strengthen the U.S.-Pakistan relationship. A successful terrorist strike inside the United States that is traced back to Pakistani sources is apt to lead to more direct U.S. military intervention in that country. The Pentagon reportedly has stepped up reviews of options for a unilateral strike in Pakistan under "extreme circumstances" such as a catastrophic attack. Such an effort would likely rely on air and missile strikes, but could also involve small Special Forces units already positioned near the border in Afghanistan. The spread of Islamist militancy in Pakistan has elicited acute U.S. government attention, multiple high-level visits, and increasingly large amounts of security-related assistance. The New York Times reported that, during President G.W. Bush's second term, the U.S. military used secret authority to carry out covert attacks against Al Qaeda and other militants in several countries, including Pakistan. Then-President Musharraf rejected suggestions that U.S. troops could be more effective than Pakistanis in battling militants, saying a direct U.S. military presence in Pakistan was neither necessary nor acceptable. Upon assuming the presidency, Asif Zardari warned that Pakistan "will not tolerate the violation of [its] sovereignty and territorial integrity by any power in the name of combating terrorism." He, too, insisted that, with the provision of U.S. intelligence, Pakistani forces are better suited to combating terrorists in the border region. In mid-2009, it was reported that the CIA had recently halted a program to insert Special Forces teams into Pakistan (and other countries) to capture or kill top Al Qaeda leaders. The plans, which were never operational, reportedly had been kept secret from Congress for nearly eight years on the orders of former Vice President Dick Cheney. Past U.S. military incursions into Pakistan (see below) put tremendous pressure on both Islamabad's civilian government and on the country's military. Pakistan's Ambassador to the United States warned that such attacks are counterproductive to the extent that they turn Pakistani public opinion against the counterterrorism effort. A line of argument exists that U.S. efforts to strengthen the civilian government in Islamabad and improve the U.S. image in Pakistan suffer major setbacks with even one occurrence of Western airstrikes on Pakistani territory, and may ultimately be rendered futile by continued drone strikes on Pakistani territory. In the face of "red lines" precluding direct U.S. military operations inside Pakistan, American policy has concentrated on improving intelligence collection and sharing among U.S., Pakistani, and Afghan services, and on bolstering the Pakistani military's own counterinsurgency capabilities. Forums for these efforts include an institutionalized defense consultative body and a formal defense working group, a dedicated U.S. counterinsurgency assistance fund, border coordination centers near the Pakistan-Afghanistan border, U.S.-provided training for Pakistani security forces, and joint intelligence operations. The U.S. government also apparently has funded covert "Counterterrorism Pursuit Teams," a 3,000-man Afghan paramilitary force reportedly designed as an "elite" unit to pursue" highly sensitive covert operations into Pakistan." Islamabad denies the existence of such a force. In 2003, a U.S.-Pakistan-Afghanistan Tripartite Commission was established to bring together military commanders for regular discussions on Afghan stability and border security. Officers from NATO's International Security Assistance Force in Afghanistan have since joined the body, which met for the 32 nd time in December 2010. The United States has built coordination and intelligence-sharing centers on the Afghan side of the shared border. Three such Border Coordination Centers (BCCs) are operating and more are being considered. In October 2010, Pakistan for the first time provided senior officers at the BCCs to join those from Afghanistan and the United States. Hundreds of millions of dollars of U.S. aid has been devoted to training and equipping thousands of paramilitary Frontier Corps (FC) troops who operate in Pakistan's two western provinces. A task force of U.S. military advisors and technical specialists has been working in Pakistan since the summer of 2008; by mid-2010, their numbers had grown to about 200. The American soldiers are reported to be joining their Pakistani trainees in the field for the "hold and build" phases of their domestic counterinsurgency operations. Other reports say that U.S. Special Operations Forces join Pakistani troops on aid projects. Plans to establish new training centers near the Afghan border suggest that the number of U.S. Special Forces trainers is likely to increase. Joint CIA-ISI operations reportedly became more common in 2010, even as the two organizations continue to have sometimes conflicting goals; one report had the lead American and Pakistani intelligence agencies carrying out 63 joint operations for the year ending in mid-April 2010. Moreover, in 2009, the Obama Administration reportedly launched a clandestine effort in Pakistan and Afghanistan to prevent Taliban forces from using FM radio transmissions and the internet to intimidate civilians and plan attacks, by jamming or otherwise blocking such communication channels. U.S. and Pakistani military forces continue to improve their coordination and intelligence sharing efforts, perhaps reflecting a greater willingness by Pakistan to combat militants on its territory. Pakistani officers are now allowed to view video feeds from unmanned American drones and to access U.S. intercepts of militants' communications. Yet some reporting has been less encouraging and suggests that progress on cooperation and coordination is hampered by language barriers, tensions between Pakistani and Afghan officials, and pervasive mistrust among the U.S., Pakistani, and Afghan militaries. For example, the $3 million BCC at Torkham opened in March 2008, but operations were long delayed by logistical problems and political wrangling. During the period, the number of insurgent attacks in the region increased sharply, reportedly delaying construction of a second BCC to the southeast. In June 2008, Pakistani paramilitary troops were caught in a firefight between Taliban militants and U.S.-led coalition forces at the Pakistan-Afghanistan border in the Mohmand tribal agency. U.S. air assets, apparently targeting insurgents, delivered 12 gravity bombs on Pakistani territory, killing 11 Frontier Corps soldiers. Islamabad strongly condemned the airstrike, calling it "unprovoked" and "a gross violation of the international border." A Pakistani military statement called the airstrike "cowardly," and some in Pakistan believed the country's troops were intentionally targeted. The Bush Administration expressed regret for the deaths of Pakistani soldiers, but the incident served to inflame already sensitive bilateral ties. Two months later, U.S. special forces troops staged a helicopter raid in a South Waziristan village; at least 20 people were reported killed, women and children among them. The Pakistani government condemned the "completely unprovoked act of killing" and lodged formal protests with the U.S. Embassy for the "gross violation of Pakistan's territory." Both chambers of Parliament issued unanimous resolutions condemning the "cowardly" attack. In a strongly-worded statement, Pakistan's army chief, "The sovereignty and territorial integrity of the country will be defended at all cost and no external force is allowed to conduct operations inside Pakistan.... There is no question of any agreement or understanding with the Coalition Forces whereby they are allowed to conduct operations on our side of the border." Plans for further U.S. ground incursions reportedly were suspended to allow the Pakistani military to press its own attacks, although some observers say the Pentagon had underestimated the strength of the Pakistani response to cross-border raids. The backlash may have caused U.S. officials to focus on an intensified missile strike campaign. In September 2010, NATO helicopters reportedly entered Pakistani airspace after a NATO outpost near the border came under attack from militants on the Pakistani side. In ensuing combat, some 55 suspected Haqqani network insurgents were reported killed inside Pakistan. Islamabad reacted angrily, calling the incident "a clear violation and breach of the UN mandate." Pentagon officials attributed the incident to "communication breakdowns" that prevented local commanders from contacting their Pakistani counterparts until after the combat had ended. Only two days later, the Pakistan army reported that two NATO helicopters crossed into Kurram agency airspace and attacked a Frontier Corps outpost 200 meters from the border, killing at least two Pakistanis. A NATO spokesman said the helicopters were dispatched after ground troops in Afghanistan's Paktia province determined that a mortar attack from the Pakistani side was imminent. U.S. officials later extended a "deepest apology" over the incident, saying that warning shots had been mistaken for hostile fire. Within hours of the incident, Pakistan ordered the Torkham border crossing closed and, despite U.S. expressions of regret, it remained closed for ten days. Missile strikes in Pakistan launched by armed American Predator and Reaper unmanned aerial vehicles (UAVs) have been a controversial, but sometimes effective tactic against Islamist militants in remote regions of western Pakistan. Pakistani press reports suggest that such drones "violate Pakistani airspace" on a daily basis, and there appear to have been 169 separate U.S.-launched drone attacks on Pakistani territory since President Obama took office through December 2010. The year 2010 alone saw more such strikes (118) than were reported for the previous six years combined (96), for an average of more than two attacks each week. More than 90% of the strikes have taken place in the two Waziristan agencies, with more than half in North Waziristan alone. Attacks on Haqqani network targets in that region were accelerated in the latter half of 2010. According to one extensive assessment, the strikes have caused roughly 1,750 deaths since 2004, including perhaps 1,325 militants among these, for a civilian fatality rate of approximately one-quarter. However, internal U.S. intelligence estimates reportedly claim a civilian death rate of only 5%, and other estimates vary widely. New levels of coordination and common strategizing between the United States and Pakistan apparently have led to much more accurate strikes from the summer of 2009 and correspondingly fewer civilian casualties. At least three Predators reportedly are deployed at a secret Pakistani airbase and can be operated by the U.S. Central Intelligence Agency without specific permission from the Islamabad government. However, most strikes on Pakistan-Afghanistan border region are said to be launched from an air base in Jalalabad, Afghanistan, although the base at Shamsi, Pakistan, is still in use. While the assembly and fitting of ordinance previously was performed by CIA employees, these tasks reportedly are more recently being performed by contractors from Blackwater/Xe. By some accounts, U.S. officials reached a quiet January 2008 understanding with then-President Musharraf to allow for increased employment of U.S. aerial surveillance and UAV strikes on Pakistani territory. Musharraf's successor, President Zardari, may even have struck a secret accord with U.S. officials involving better bilateral coordination for UAV attacks and a jointly approved target list. Reports citing unnamed senior officials from both countries have claimed that a tacit agreement on drone attacks was reached in September 2008; these reports are officially denied by Islamabad. Nevertheless, Secretary of Defense Gates has assured Congress that the U.S. intent to continue with such strikes was conveyed to the Pakistani government. In February 2009, the CIA for the first time publically acknowledged the drone campaign it is widely believed to oversee in Pakistan when the Agency's new director, Leon Panetta, said the effort had been successful and would continue. During the latter half of 2009, Obama administration officials reportedly considered expanding drone attacks on western Pakistan as an alternative to escalating U.S. troop levels in Afghanistan; the White House later authorized such an expansion, a move opposed by Islamabad. Still, there was no indication that such strikes would be made in the Baluchistan province, something President Obama himself reportedly believes would be risky and unwise. Yet, in late 2010, Washington again sought Islamabad's permission to expand drone strikes into the Quetta area. Such requests are consistently rebuffed. The accelerated UAV-launched missile campaign in western Pakistan appears to have taken a significant toll on Al Qaeda and other Islamist extremist militants. Centcom Commander General Petraeus claims that such strikes are "extremely important." According to Pakistani intelligence officials, who reportedly are now providing targeting information to the United States, drone attacks have eliminated more than half of the top 20 Al Qaeda "high-value targets" in western Pakistan since mid-2008. Even a self-described "Taliban logistics tactician" conceded that the tactic has been "very effective." Yet, despite an intensive campaign to destroy Haqqani Network targets in North Waziristan in 2010, the impact has been moderate, and the militants remain a major obstacle to progress in Afghanistan. Moreover, as the drone strikes in the FATA have intensified, so too has the rate of assassinations of suspected spies in the region. By one accounting, some 70 ISI informants have been killed in North Waziristan alone since 2004. In the spring of 2009, the U.S. military said that Pakistan was for the first time being given a broad array of noncombat surveillance information, including real-time video feeds, collected by American UAVs, but they denied a Los Angeles Times report that Pakistan had been offered joint control of armed drones. The Pakistani government also denied any agreement on joint control. The limited intelligence-sharing program is said to be part of a bilateral trust-building effort. While in Pakistan in January 2010, Secretary of Defense Gates made the unprecedented offer to Pakistan of a dozen "Shadow" surveillance UAVs. Although smaller than the Predator and unarmed, the Shadows would significantly boost Pakistan's aerial surveillance capabilities and are seen as a compromise offer aimed at placating Pakistani political leaders who face a suspicious and anti-American public. The Pentagon originally had aimed to deliver the Shadows or alternative unarmed drones by early 2011, yet, more than a year after Secretary Gates first offered to supply them, the offer remains in suspension, with Pakistani officials reportedly complaining that quoted prices are too high and the delivery schedule too long. President Zardari had called on then-President-Elect Obama to re-assess the Bush Administration policy of employing aerial attacks on Pakistani territory. Yet dual Predator strikes took place just days after President Obama took office. Officially, Pakistan's Foreign Ministry calls drone attacks "destabilizing" and "helping the terrorists." Strident Pakistani government reaction has in the past included summoning the U.S. Ambassador to lodge strong protest, and condemning missile attacks that Islamabad believes "undermine public support for the government's counterterrorism efforts" and should be "stopped immediately." In 2009, Pakistan's defense minister warned a visiting General Petraeus that the strikes were creating "bad blood" and contributing to anti-American outrage among ordinary Pakistanis. The Islamabad government has asked for full Pakistani control of UAVs over Pakistani territory. A 2010 opinion survey taken in the KPk and FATA found nearly three in five respondents saying drone strikes in the region were "never justified," with less than 30% offering qualified or full support for the tactic. Yet, in other accounts, drone strikes actually have broad support among local residents as a successful and relatively limited counterterrorism tool, and media reports of civilian casualties are said to be of dubious credibility. United Nations officials have called for an end to drone strikes on human rights grounds, and even some CIA drone operators are reported to believe the program is a major boon to Al Qaeda recruitment efforts in the region. Indeed, there exists an ongoing and vigorous debate over whether drone attacks create more extremists than they eliminate. Some critics suggest that its managers use the secrecy surrounding the effort to hide abuses and sometimes significant civilian casualties. Increased anti-Americanism is identified as one result of drone strikes, as is a corresponding increase in support for the Taliban. By angering American Muslims, some assert that the tactic is even fomenting homegrown militancy in the United States. Critics contend that the many perceived costs of drone strikes outweigh any short-term benefits accrued. Civilian deaths, the undermining of Pakistani government authority, resentments that fuel militant recruitment, and concerns that the United States is violating international law are among the downsides outlined by such critics. The secrecy surrounding the program has also caused some analysts to complain about a lack of accountability and that international laws are being violated. One called the drone campaign a largely ineffective and merely tactical response to a serious long-term problem. Moreover, as alleged wrongful actions, the strikes could also lead to legal action against their perpetrators: In November 2010, a North Waziristan man announced that he planned to sue the CIA for the "wrongful death" of two relatives. The State Department has pushed back against accusations that the strikes represent a form of "unlawful extrajudicial killing" by citing domestic and international laws allowing for national self-defense. In March 2010, the Department's legal advisor laid out a legal rationale for drone strikes, saying the U.S. "armed conflict" with Al Qaeda and the Taliban allows for "use of force consistent with its right to self-defense under international law." This view has been echoed by other Administration counterterrorism officials, as well as by senior figures in Congress. Three full-scale wars—in 1947-1948, 1965, and 1971—and a constant state of military preparedness on both sides of their mutual border have marked six decades of bitter rivalry between Pakistan and India. The acrimonious partition of British India into two successor states in 1947 and the unresolved issue of Kashmiri sovereignty have been major sources of tension. Both countries have built large defense establishments at significant cost to economic and social development. The Kashmir problem is rooted in claims by both countries to the former princely state, divided since 1948 by a military Line of Control (LOC) into the Indian state of Jammu and Kashmir and Pakistan-held Azad [Free] Kashmir. India blames Pakistan for supporting a violent separatist rebellion in the Muslim-dominated Kashmir Valley that has taken up to 66,000 lives since 1989. Pakistan admits only to lending moral and political support to the rebels, and it criticizes India for human rights abuses in "Indian-occupied Kashmir." A major factor in U.S. interest in South Asia is the ongoing tension between Pakistan and India rooted largely in competing claims to the Kashmir region and in "cross-border terrorism" in both Kashmir and major Indian cities. In the interests of regional stability, the United States strongly endorses an existing, but recently moribund India-Pakistan peace initiative, and it remains concerned about the potential for conflict over Kashmiri sovereignty to cause open hostilities between these two nuclear-armed countries. Most observers assert that U.S. success in Afghanistan is to a significant degree dependent on improved India-Pakistan relations, the logic being that Pakistan will need to feel more secure vis-à-vis a perceived existential threat on its eastern front in order to shift its attention and military resources more toward the west. Some in Pakistan believe that, by feeding their country's insecurities, the increasingly warm U.S.-India relationship actually foments regional instability. A bilateral Composite Dialogue reengaged in 2004 has realized some modest, but still meaningful successes, including a formal cease-fire along the entire shared frontier, and some unprecedented trade and people-to-people contacts across the Kashmiri Line of Control (LOC). As per Islamabad's and New Delhi's intent, the dialogue is meant to bring about "peaceful settlement of all bilateral issues, including Jammu and Kashmir, to the satisfaction of both sides." Yet 2008 saw significant deterioration in Pakistan-India relations, especially following the large-scale November terrorist attack on Mumbai, India, that left some 165 civilians dead. More broadly, militarized territorial disputes over Kashmir, the Siachen Glacier, and the Sir Creek remain unresolved, and Pakistani officials regularly express unhappiness that more substantive progress, especially on the "core issue" of Kashmir, is not occurring. Pakistani leaders maintain that the absence of substantive bilateral dialogue only favors extremists in both countries. The Obama Administration continues to refrain from taking any direct role in the bilateral dispute, and Indian leaders see no need for third-party involvement, in any case. In February 2010, India proposed new high-level talks with Pakistan, inviting Foreign Secretary Salman Bashir to New Delhi. Pakistani observers variously attributed the Indian move to an apparent failure of coercive diplomacy, to U.S. pressure, and to new talk of Western reconciliation with the Afghan Taliban, which could leave India in a disadvantageous position vis-à-vis Kabul. From the Indian perspective, New Delhi's leaders were compelled by the desire to offer Islamabad tangible benefits for cooperating, and by a perceived need for greater flexibility in the case of a future terrorists attack traced to Pakistan. Pakistan accepted the Indian offer, saying it would raise "all core issues" at the talks and urge India to resolve them quickly. New Delhi responded by asserting that the Composite Dialogue remained in suspension and that, while all subjects could be raised at the impending meeting, India would focus only on terrorism. Following the meeting, which ended with no agreements, Bashir called it "unfair, unrealistic, and counterproductive" for India to have focused solely on the terrorism issue, saying the Kashmir dispute remained the "core issue" and calling for resumption of the Composite Dialogue. India's foreign secretary declined to comment on the outcome, but said "the time is not yet right" for such a resumption. Subsequent major military exercises by both countries near their shared border (India in February, Pakistan in April) indicated that mutual distrust remained serious. A new breakthrough in the peace initiative may be in store, however. In 2010, conflict over water resources has emerged as another exacerbating factor in the bilateral relationship. Some in Pakistan accuse India of violating international law, bilateral agreements, and ethical principles of peaceful coexistence through the allegedly illicit manipulation of water flows into Pakistan. Of particular concern for Indian and Western observers has been the fact that some of these complaints are emanating from the leaders of militant Pakistani Islamist groups such as Lashkar-e-Taiba. Foreign Minister Qureshi sees water "emerging as a very serious source of [bilateral] tension," but a senior Indian official denies that India is in violation of the Indus Waters Treaty and calls Pakistani rhetoric a "political gimmick" meant to distract from Islamabad's own poor water management. The perpetrators of a horrific terrorist attack on India's business and entertainment capital were identified as members of the Pakistan-based Lashkar-e-Taiba (LeT), a U.S.-designated terrorist group that has received past support for Pakistani government agencies. The Indian government demands that Pakistan take conclusive action to shut down the LeT and bring its terrorist leadership to justice. Of particular relevance for India is LeT founder Hafiz Saeed, whom India believes is demonstrably culpable, but whom Pakistani officials say they do not possess sufficient evidence to formally charge. In September, police in Lahore placed Saeed under house arrest. Only weeks later, a court dismissed the two cases brought against him (unrelated to the Mumbai attack), but he remained confined to his home. The Islamabad government insisted that it was powerless to take further action against Saeed in the absence of more convincing evidence of wrongdoing. New Delhi countered that Pakistan is "shielding" the masterminds of the attack. In May, Pakistan's Supreme Court dismissed a government appeal and upheld a lower court's decision to release Saeed, saying the case presented against him was insufficient. A senior Indian official expressed disappointment with the ruling. In November 2009, Pakistani authorities brought formal charges against seven men accused of planning the Mumbai raid, among them Zaki ur-Rehman Lakhvi, a senior LeT figure said to have been the operational commander. Yet the Islamabad government has to date pressed no further than preliminary hearings, and the start-and-stop nature of the proceedings has only engendered Indian and international skepticism about Pakistan's determination. One senior observer, reflecting a widely-held view, contends that the Pakistani military "will do everything to preserve Lashkar as long as it believes there is a threat from India." Analysts warn that another major terrorist attack in India that is traced to Pakistan would likely lead to a significant international crisis. One offers numerous U.S. policy options for preventing such an attack or managing any crisis that results. President Zardari, like many independent observers, believes that regional peace is inextricably linked to a solution of the Kashmir dispute. While levels of violence in Kashmir have declined significantly as compared to previous years, the situation there fragile, and Islamabad insists that what it calls New Delhi's "administrative and half-hearted political measures" will not resolve what is in essence a Kashmiri "struggle for the right to self-determination." In September 2009, India's home minister stated that the Pakistani threat to Indian Kashmir has "not diminished" and he estimated that 50-60 militants infiltrate across the LOC each month. India's army chief accused Pakistan of providing assistance to "push in additional terrorists" before winter's onset. According to India's defense minister, militants made an average of more than one cross-LOC infiltration attempt per day during 2009. Under the Obama Administration, the U.S. government has continued its long-standing policy of keeping distance from the Kashmir dispute and refraining from any mediation role therein. Special Representative Holbrooke, who has many times used the term "K-word" in discussing Kashmir, said in February, "We are not going to negotiate or mediate on that issue and I'm going to try to keep my record and not even mention it by name." Despite suggestions by the previous (Musharraf) government that Pakistan might be willing to reconsider its traditional Kashmir position (focused on dispute settlement in accordance with relevant U.N. resolutions), the current government insists that this course remains Pakistan's unambiguous position. Islamabad's current leaders have criticized the "wavering" of the Musharraf regime, saying back-channel diplomacy from 2004-2007 had done damage to Pakistan's traditionally "principled" commitment to resolution through U.N. resolutions. An unusual major opinion survey of Kashmiris involved the interviewing of more than 3,700 on both sides of the LOC in 2010 and found that less than half supported separatist goals. Only in the Muslim-majority valley did a large majority (up to 95%) express support for full Kashmiri independence. Pakistan and India appear to be fighting a "shadow war" inside Afghanistan with spies and proxies. Islamabad accuses New Delhi of using Indian consulates in Afghanistan as bases for malevolent interference in Pakistan's Baluchistan province, specifically by materially supporting Baloch separatist militants. The Pakistani government also accuses India of interfering in the FATA. When asked about such claims in late 2009, Secretary of State Clinton said the U.S. government had seen no supporting evidence. Yet Pakistani officials remain insistent: In October, a senior Pakistani military officer declared there was "a lot of evidence" of Indian involvement in supporting the Baloch separatist movement, and Interior Minister Malik later echoed the claim, adding an accusation that India was supporting the Taliban, as well. This latter assertion was supported by the alleged discovery in Waziristan of large quantities of Indian-made arms, ammunition, and literature. In December, Malik said four arms-laden Indian trucks had been seized in the Khyber agency. India is the leading regional contributor to Afghan reconstruction and development efforts, having devoted some $1.3 billion in this effort, as compared to about $300 million from Pakistan. In the view of many analysts, Pakistan's "paranoia" with regard to the perceived threat from India leads Pakistani leaders engage a zero-sum regional competition with that rival. In this way, Pakistan's primary goal with regard to Afghanistan is to prevent any dominant Indian influence there. Some observers saw General McChrystal's August 2009 assessment that "increasing India's influence in Afghanistan is likely to exacerbate regional tensions" as sign that U.S. officials might press India to keep a low or lower profile there, the U.S. government has continued to welcome and laud India's role in Afghanistan while at the same time recognizing Islamabad's legitimate security interests in having a friendly western neighbor. The security of Pakistan's nuclear arsenal, materials, and technologies continues to be a top-tier U.S. concern, especially as Islamist militants have expanded their geographic influence there. The illicit nuclear proliferation network allegedly overseen by Pakistani metallurgist A.Q. Khan was disrupted after its exposure in 2004, but neither Khan himself—a national hero in Pakistan—nor any of his alleged Pakistani co-conspirators have faced criminal charges in the case, and analysts warn that parts of the network may still be intact. Some in Congress demand direct access to Khan by U.S. and international investigators (see, for example, H.R. 1463 in the 111 th Congress), but Pakistani authorities refuse such cooperation and insist that the case is closed. In August 2010, a State Department spokesman said suspected ongoing operations by Khan's network is "an area of ongoing concern." While most analysts and U.S. officials believe Pakistan's nuclear security is much improved in recent years, there is ongoing concern that Pakistan's nuclear know-how or technologies remain prone to leakage. Two 2009 assessments both concluded that, despite elaborate safeguards put in place by the Pakistani government, serious weaknesses and vulnerabilities still exist in the country's nuclear safety and security structures. Insider threats are considered especially potent, along with the dispersion and increasing size of nuclear material and facilities. China apparently intends to build two new civilian nuclear reactors in Pakistan in what would be an apparent violation of Nuclear Suppliers Group (NSG) guidelines (China has been an NSG member since 2004). The deal poses a challenge for the Obama Administration, which may tacitly allow it to go forward while seeking Beijing's cooperation on other issues. Some analysts urge the Administration to actively oppose the deal, contending that China has little reason to engage a quid pro quo and that the transfers would do harm to U.S. regional interests, in part by indirectly helping Pakistan to build its nuclear weapons arsenal. Others have advocated changing U.S. law to allow for civilian nuclear trade with Pakistan as a means of building bilateral trust, the argument being that overt U.S. acceptance of Pakistan's nuclear program would instill a confidence that billions of dollars in U.S. aid cannot. In mid-2010, the Obama Administration suggested that the proposed Pakistan-China nuclear deal would require NSG consensus approval, and the State Department raised concerns that Beijing was not planning to seek what U.S. officials see as a required special exemption by the NSG as had been done for India in 2008. In September, Beijing provided its clearest statement of intentions to date by asserting that it would seek to build two new nuclear reactors in the Punjab province, saying the arrangement was consistent with a 2003 bilateral agreement on civil nuclear cooperation. This spurred the chief of the U.S. National Nuclear Security Administration to suggest the NSG directly address the issue. Many analysts warn that if the deal goes through, it could have serious negative implications on nuclear rivalries in South Asia and beyond. Some see the arrangement as a clear abrogation of China's NSG obligations and urge Washington to convey "strong concern" as a means of prompting Beijing to reconsider its plans. Soaring inflation and unemployment, along with serious food and energy shortages, elicit considerable economic anxiety in Pakistan and weigh heavily on the civilian government. All of these existing problems were hugely exacerbated by devastating flooding in mid-2010. A leading Pakistani economist has called his country's economy the worst-performing in Asia, and most experts do not see infusions of foreign aid and loans as having any lasting impact. About two-thirds of Pakistanis name economic issues, specifically inflation and unemployment, as the country's foremost problems. The federal government's 2010-2011 budget raised taxes on numerous sectors while also cutting some subsidies on energy and food. The Finance Ministry's most recent annual Economic Survey (May 2010) reported provisional GDP growth of 4.1% in the outgoing fiscal year, up from a dismal 1.2% in 2008-2009, but called the "recovery" fragile and far from assured, and noting that "not all sectors of the economy or regions of the country appear to have participated so far in the modest upturn." According to analyses by IHS Global Insight following the floods, "a major correction to real growth will take place during FY2011.… Major supply setbacks stem from direct losses in agriculture and manufacturing, as well as indirect effects of the lost capital stock on the industrial production." However, a short-term boost in aggregate supply may partially counteract this, leading to an estimated growth rate of about 2% in the current fiscal year. Clearly, even before the floods, Pakistan was in dire economic shape. In 2008, Pakistan was seen to require substantial external financing to stabilize its economy. Pakistani leaders approached the IMF to discuss infusions of desperately sought capital. In November of that year, the IMF reached a Stand-By Arrangement to provide a $7.6 billion loan to Pakistan aimed at resolving the country's serious balance of payments difficulties. Total IMF support was later raised to $11.3 billion. At 2010's end, the IMF agreed to extend Pakistan's loan, providing another nine months for officials there to complete the tax and other fiscal reforms. According to a 2010 World Bank report, Islamabad's stabilization efforts since 2008 combined with lower world commodities prices to reduce external imbalances, rebuild foreign exchange reserves, and reduce inflation. Yet The government still has more work to do in a difficult security environment to further reduce inflation and the fiscal deficit, particularly to eliminate the large losses of public sector entities in the power, transport and manufacturing industries, and increase public revenues through the introduction of a value added tax and better tax administration. Repayment of IMF loans will place significant constraints on Islamabad's federal budget. Moreover, the World Bank provided more than $2 billion worth of loan assistance to Pakistan in FY2009 and FY2010, the institution's highest ever annual support for the country. Foreign direct investment dropped by nearly 10% in the quarter ending September 2010, with U.S. investors falling just behind those from the United Arab emirates as leading contributors. A June 2010 Pakistani government report on poverty reduction identified three main structural weakness in the national economy: (1) the large fiscal deficit; (2) the large trade deficit (with the value of imports far exceeding that of exports); and (3) inadequate social services. Further causes of economic instability included a poor law and order situation, a global spike in the prices of oil and other key commodities, uncertainty in international financial markets, and, "most importantly," the direct and indirect costs of Pakistan's role as a frontline state in the "War on Terror," which have included significant capital flight. The report calculates that this latter cost has exceeded $25 billion for the period 2004-2009. Consumer prices in 2008 reached their highest levels since 1975, with an inflation rate above 25% for many months. The rupee's value also hit record lows, down more than 20% against the U.S. dollar for that year, and net international reserves declined by more than half to below $7 billion. Inflation rates have declined from their 2008 peak, although they rose again in early 2010 and have remain in the double-digit range. The rupee's value is partly recovered, and IMF injections boosted foreign exchange reserves back to more than $17 billion by the end of 2010. Two major international investor rating indices cut Pakistan's sovereign debt rating to "negative" in 2008 and the county's rating remains six levels below investment grade. Pakistan's struggling power sector puts a significant damper on commerce and everyday activities, causing factory shutdowns and rioting by mobs angry with price hikes and shortages. A 2009 survey found more than half of all Pakistanis going without power for at least eight hours per day. More recently, shortfalls in electricity supply have led to unannounced outages of up to 20 hours per day in parts of the country. Prime Minister Gilani has called for provincial ministries and his own energy-related cabinet ministers to produce a detailed national energy strategy. In April 2010, he instituted measures including extending the official weekend from one to two days, earlier closure of street markets, and a 50% reduction in power to government offices. By one estimate, the government will need to add 20,000 megawatts of generation capacity over the next decade at a cost of $32 billion, roughly half of which would need to come from foreign donors. Much of Pakistan's economic instability is rooted in perpetually low government revenue generation. For most observers, this itself is caused by what essentially is mass tax evasion by the country's economic elite, and is exacerbated by a federal budget overemphasizing military spending at considerable cost to social development. Some analysts warn that, so long as international "bailouts" remain available to Pakistan, the country's elite will see little motive to adjust their habits, and unsustainable debt will continue to mount. In early 2010, the U.S. Ambassador to Pakistan noted for a Karachi business audience that, at 9%, Pakistan has one of the lowest tax-to-GDP ratios in the world, and she urged the government to raise more revenue from its own citizens. Finance Minister Shaukat Tarin resigned a month later, by some accounts because of Prime Minister Gilani's earlier refusal to give Tarin greater authority to crack down on tax evaders. Secretary of State Clinton and former SRAP Holbrooke made repeated public references to the fact that Pakistan's wealthy elite pay little or no taxes and, following massive devastation to Pakistan caused by mid-2010 floods, international relief donors pressured Islamabad to reform its tax system so that the country's wealthy citizens make increased contributions to national welfare. Pakistani legislators have moved forward a controversial Reformed General Sales Tax bill which, if passed into law, could have some ameliorative effects. Corruption is another persistent and serious problem for Pakistan's economy, harming both domestic and foreign investment rates, as well as creating skeptical international aid donors. For 2010, Berlin-based Transparency International placed Pakistan 143 rd out of 178 countries in its annual ranking of world corruption levels, giving it a lower ranking than such countries as Nigeria and Bangladesh, among others. A September 2010 agreement between the U.S. government and Transparency International established a hotline through which people can report any misuse of U.S. funds. TI contends that its workers in Pakistan have since faced threats and harassment, and there have even been reports that the Islamabad government planned legal action against TI for allegedly paying bribes to officials to extract information. In one survey, nearly one in three Pakistanis reported paying a bribe to settle a traffic violation in the past year. Islamabad unveiled a major new initiative to tackle corruption in November 2010. A central goal for Pakistani leaders is to acquire better access to Western markets. With the security situation scaring off foreign investors (net investment fell by nearly 50% in the latter half of 2009), exports, especially from the key textile sector, may be key to any future Pakistani recovery. As stated by Prime Minister Gilani in March 2010, "If there is an acceptance of the heavy price that Pakistan is paying for this war, then there must be international action to facilitate our exports." That same month, U.S. officials vowed to work for greater U.S. market access while acknowledging that Pakistani hopes for a bilateral free-trade agreement will be dashed in the foreseeable future. To date, and despite the contention of many analysts that expanding market access would be a boon to U.S. strategic interests, significant changes in U.S. tariffs have not been seen, in large part because the American textile industry lobbies against them, arguing that they would cost American jobs. Islamabad has continued to press Washington and European capitals for reduced tariffs on textile exports, especially following massive flood damage to Pakistan's cotton crop. By some accounts, the textile sector directly employs 3.5 million Pakistanis and accounts for 40% of urban factory jobs. Pakistani officials and business leaders estimate that abolishing American tariffs, which currently average 17% on cotton apparel, would boost their country's exports by $5 billion annually. In September, EU leaders agreed to grant Pakistan limited trade concessions as a means of helping Islamabad to deal with the flood crisis and to enhance political stability there. The "immediate and time-limited reduction" in EU import duties was especially favored by Britain and Germany. The Obama Administration has continued to support congressional passage of a bill to establish Reconstruction Opportunity Zones (ROZs) in western Pakistan (and Afghanistan) that could facilitate development in Pakistan's poor tribal regions. An initiative of President Bush during his 2006 visit to Pakistan, the program would provide duty-free access into the U.S. market for certain goods produced in approved areas and potentially create significant employment opportunities. The bill was considered by the 110 th Congress, but no action was taken. In the 111 th Congress, the House passed ROZ legislation as Title IV of H.R. 2410 . No action has been taken on the Senate version ( S. 496 ), although identical language has been introduced as an amendment to other bills. While observers are widely approving of the ROZ plan in principle, many question whether there currently are any products with meaningful export value produced in the FATA. Some analyses suggest that the ROZ initiative is unlikely to be useful even if it becomes U.S. law. Pakistani businessmen reportedly find the bill's restrictions on textile exports too extensive, essentially excluding the bulk of such Pakistani products, thus rendering the initiative "largely worthless." In late August 2010, the U.S. Chamber of Commerce delivered a letter to the U.S. Trade Representative and the Secretary of State expressing its support for ROZ legislation, as well as further expansion of trade preferences to Pakistan. Only days later, a group of six major U.S. textile associations warned the same officials that such expansion "would cause irreparable damage to the U.S. textile industry resulting in significant job losses." Democracy has fared poorly in Pakistan, with the country enduring direct military rule for more than half of its existence. From 1999 to 2008, Army Chief General Pervez Musharraf ran the government after leading a bloodless coup unseating the democratically elected Prime Minister Nawaz Sharif. Musharraf assumed the presidency and later oversaw passage of the 17 th Amendment to Pakistan's constitution, greatly increasing the power of that office. In March 2008, however, only months after the assassination of former Prime Minister Benazir Bhutto, a coalition led by Bhutto's Pakistan People's Party (PPP) was elected in a sweeping rejection of the Musharraf-allied parties. The Pakistan Muslim League led by Sharif (PML-N) also fared well, especially in the densely-populated Punjab province, and joined the PPP in an unprecedented coalition that collapsed only after Musharraf's August 2008 resignation from the presidency and exit from Pakistan's political stage. Bhutto's widower, Asif Zardari, subsequently won Electoral College vote for the presidency. Although Prime Minister Gilani was seated in early 2008, Zardari retained most of the powers of the Musharraf presidency until April 2010. U.S. officials had for some time expected Zardari's powers to wane and reportedly readied themselves for this by developing ties with other leaders in both the ruling and oppositions parties, as well as in the Pakistani military. Indeed, the demise of Zardari's influence could make the U.S. government increasingly reliant on the Pakistani army. Prime Minister Gilani has been able to step into the political space opened by Zardari's woes and has managed to balance well competing pressures from the opposition, members of his own party and coalition allies, and the army, which may find him more amenable and trustworthy than Zardari. Although April's passage of the 18 th Amendment gives him new and sweeping powers, Prime Minister Gilani, a consensus-builder and a staunch ally of Zardari, has not radically altered the dynamics of their relationship. Still, the civilian government has remained weak, and some analysts even expected the PPP-led coalition to collapse during 2010. Nearly three years after Pakistan's relatively credible national elections seated a civilian government, the country's military establishment is still seen to be where Pakistan's foreign policy and national security policies originate. Hand-picked by President-General Musharraf to lead the army, General Kayani has since his 2007 appointment taken concrete measures to withdraw the military from direct involvement in the country's governance. Many analysts saw the moves being motivated by a desire to improve the institutional image of the military after a serious erosion of its status under Musharraf. Yet there remain no signs of meaningful civilian control of the army or ISI, and analytic views of Kayani's role as a secular- and democratic-minded figure appear to have shifted away from guarded optimism toward a perception that he, like the generals who came before him, will place the interests of the security services above all others, and may not be fully trustworthy partner in efforts to battle Islamist extremism. By all accounts, since Musharraf's 2008 departure the influence of what one commentator calls Pakistan's "biggest and best organized political party, the Pakistani army," has only increased. President Zardari has for many years been a controversial figure dogged by allegations of serious corruption and other crimes. While he continued to dictate PPP (and thus civilian government) policy, he became increasingly unpopular as measured by public opinion polling. Moreover, a series of crises, including several high-profile battles with Pakistan's Chief Justice and a failed effort to gain parliamentary validation of a controversial amnesty bill promulgated under Musharraf—the National Reconciliation Ordinance (NRO)—further weakened his position. In late October, the government floated a plan to validate the NRO through approval in the National Assembly. The proposed amnesty bill—which would have protected Zardari and other senior politicians from graft charges—nearly led to a split in the ruling coalition when parties aligned with the PPP and even some PPP legislators said they would vote against it. Opponents of the plan, led by Sharif and his opposition PML-N party, called it a "legitimization of corruption." The government hastily withdrew the proposal, but further damage to Zardari's credibility was done. When hundreds of NRO beneficiaries, including Zardari and many senior PPP figures, were publically named in late November, it was seen as another blow to the president's position. The Supreme Court began hearing challenges to the NRO and, on December 16, in a unanimous decision, invalidated the law, suddenly leaving thousands of Pakistani politicians—including the president's chief of staff, and the interior and defense ministers—open to prosecution (under the Pakistani Constitution, the president himself is immune from prosecution while in office). Opposition leaders hailed the decision and called for the resignation of top PPP figures. Some 247 government officials were placed on an exit control watch list to prevent their leaving the country. Anticipated prosecutions of senior figures did not occur, and Zardari remained determined to remain in office. Yet his government began 2010 in a "siege environment," under intense pressure and criticism from the military, the opposition, the judiciary, and the media. Zardari responded with defiance, counterattacking his detractors, putting them on the defensive, and winning votes of confidence in three of the country's four provincial assemblies. Soon he was making rare trips around the country to give rousing speeches and seemed to reverse his most negative fortunes, surviving in office even as he appeared to remain weak and unpopular. President Zardari's thin popularity nearly disappeared altogether in the closing months of 2009, as his perceived closeness to the United States and "soft" views on India, deadly battles with insurgents, and widespread economic woes combined with a perception that the government was rudderless and ineffective to bring the Pakistani president under more intense criticism, with some demanding his resignation. With pressure to abolish the 17 th Amendment and relinquish most powers of his office intensifying, analysts predicted that agreeing to become a "figurehead" was the most likely course for his political survival. Still, Zardari was able to reassert his grip on the presidency, in part because his PPP allies rallied behind him, and also because the army likely was reluctant to see the country again thrown into political chaos and suffer the international opprobrium that could result. In an effort to allay his critics, Zardari surrendered his office's powers to appoint military service chiefs, and later ceded his position as Chairman of the National Command Authority, giving his Prime Minister nominal control over the country's nuclear weapons (in practice, the military retains control of this arsenal). By April, the National Assembly had fulfilled a long-standing PPP vow to overturn nondemocratic constitutional amendments made under Musharraf. The body unanimously passed the 18 th Amendment bill, which President Zardari then signed into law on April 19, saying "the Constitution has been made truly democratic and federal in character, and provincial rights and Parliamentary sovereignty have been restored." Among the most notable of the 102 clauses of the bill were those removing the President's powers to dismiss the Prime Minister and Parliament; transferring to the Prime Minister the lead role in appointing armed service chiefs; ending the courts' abilities to suspend the Constitution; limiting the President's ability to impose emergency rule; removing the bar against prime ministerial candidates who had already served two terms; changing the name of the North West Frontier Province to Khyber Pakhtunkhwa; and adding four new Senate seats reserved for non-Muslim minorities. In February 2010, a new row between the executive and judiciary arose when the Chief Justice objected to the President's appointment of new Supreme Court and Lahore High Court judges without consultation, and convened an emergency panel that ruled to suspend Zardari's order. Numerous lawyers boycotted courts to protest Zardari's move and opposition leader Nawaz Sharif called it "unconstitutional" and a "threat to democracy." The crisis was defused when the government withdrew the appointments. Yet the Supreme Court has kept pressure on the government to reopen numerous graft cases, including some against top officials, and the country's Attorney General resigned in April, accusing the government of preventing him from carrying out Supreme Court orders to reopen graft investigations involving President Zardari. There are fears that any escalating conflict between the executive and the judiciary would "inevitably" bring the military into the political fray, potentially precipitating an even greater political crisis. In October 2010, the Supreme Court gave the government a two-week deadline to reopen corruption cases against Zardari and several other top PPP leaders, spurring the opposition PML-N to threaten another "long march" demonstration, as well as rumors that the government would seek to unseat adversarial justices. Prime Minister Gilani subsequently pledged to respect the court, but the cases have remained moribund. In February 2008 National Assembly elections, the Pakistan People's Party of President Zardari and Prime Minister Gilani won a clear plurality of seats (121 out of 342), but not nearly enough to form a government without coalition allies. Some of these have proven difficult and unreliable, although a ruling coalition has remained in place to date. Yet, in late 2010, serious threats to majority status arose. In mid-December, the Jamaat Ulema Islami—a small, but influential Islamist party—withdrew its support for the PPP-led coalition, narrowing its National Assembly majority to only nine seats. The decision was taken after the Prime Minister dismissed a JUI federal minister on accusations of corruption. Then, only weeks later, the PPP-led ruling coalition began the year with a new crisis: in the first week of January, the Karachi-based MQM announced it was withdrawing from the national ruling coalition in reaction to rising fuel prices, inflation, and perceived government mismanagement. The loss of the MQM's 25 seats removed that coalition's majority in the National Assembly, potentially leading to the collapse of the government. Yet most observers concluded that the move was an effort to extract maximum concessions in the form of greater administrative control for the MQM in its Karachi base. Only days later, Prime Minister Gilani backtracked on recently enacted fuel subsidy reductions, a move that mollified opposition parties and cleared the way for the MQM's return to the coalition, but that also elicited criticism from the U.S. government and the IMF as a reversal of progress made toward strengthening Pakistan's economic base. Independent analysts echoed the criticisms, saying a collapse of reform efforts would preclude economic stabilization and leave the country dependent on foreign assistance. In an apparent effort to capitalize on the PPP's crisis, Nawaz Sharif, leader of the opposition-leading PML-N, issued a 10-point "national agenda" for broad socioeconomic development. In addition to calling for an end to the fuel price hikes, the agenda includes requests that the government urgently address electricity shortages and eliminate ministers accused of corruption, among other measures. Prime Minister Gilani signaled that his government would extend cooperation in its implementation. Some commentators saw Gilani's acceptance of the opposition agenda as an implicit admission that his government had failed. Pakistan is the setting for serious perceived human rights abuses, some of them perpetrated and/or sanctioned by the state. According to the U.S. Department of State, the Islamabad government is known to limit freedoms of association, religion, and movement, and to imprison political leaders. Notable recent abuses have been related to violent attacks on religious minorities, indefinite government detention of detainees related to anti-terrorism efforts, and alleged extrajudicial executions perpetrated by the Pakistani military in conflict areas. Most recently, specific U.S. government attention to human rights abuses in Pakistan have centered on press freedoms, abuses perpetrated by security forces, and religious freedoms threatened by Pakistan's "blasphemy law." Press freedoms in Pakistan are seen to be seriously constrained, despite the existence of booming news media. Watchdog groups rank Pakistan as the world's most dangerous country for journalists. In May 2010, the Islamabad government instituted a nation-wide ban on the Internet social networking site Facebook after a contest on that site invited users to submit caricatures of the prophet Mohammed, something viewed as blasphemous by Muslims. Soon after, the government blocked access to YouTube, a video sharing website with content deemed "blasphemous." Many observers felt the authorities went too far and used the Facebook incident as an excuse to clamp down on political speech. Press freedom watchdogs assert that journalists who report on stories critical of Pakistani authorities often face threats. One high-visibility 2010 case involved the apparent kidnapping and torture of a journalist working for a major Pakistani newspaper, allegedly at the hands of government intelligence agents. Punjab's Law Minister later explicitly fingered the ISI for responsibility. The Ranking Member of the Senate Foreign Relations Committee called the case a "bellwether" and penned a letter to the Pakistani Prime Minister urging him to "demonstrate Pakistan's commitment to rule of law and a free press by ensuring that your government aggressively investigates and prosecutes those responsible" for the man's kidnapping. In late 2010, acute U.S. concerns were elicited by evidence that Pakistani security forces may have engaged in serious human rights abuses, including extrajudicial executions. New York-based Human Rights Watch has pressed the Pakistani government to launch investigations into reports of summary executions and torture perpetrated by soldiers and police during counterterrorism operations in the Swat Valley. In September, an internet video showed what appeared to be the extrajudicial execution by men in Pakistani military uniforms of six young men in civilian clothes in the Swat Valley. The Army Chief himself ordered an inquiry into the incident, saying such actions "will not be tolerated." In December, two top Pakistani intelligence agencies admitted that 11 missing persons were, in fact, in their custody. The Obama Administration subsequently announced that it would abide by "Leahy amendment" provisions by withholding train and equip funding for several Pakistani army units believed to be complicit in human rights abuses, and it remains concerned about potential mass disappearances of detainees into the hands of Pakistani security forces. Laws prohibiting blasphemy in Pakistan are meant to protect Islamic holy persons, beliefs, customs, and objects from insult or defilement. They are widely popular with the public. Yet they are criticized by human rights groups as discriminatory and arbitrary in their use, which often arises in the context of personal vendettas, and can involve little or no persuasive evidence. Pakistan's blasphemy laws, rooted in 19 th -century colonial legislation but coming to the fore only under the Islamist-tinged rule of General Zia in the 1980s, have never resulted in an official execution and, while convictions are common, most cases are overturned on appeal. Still, accusations have led to lynchings, and are often used to cower religious minorities. The blasphemy laws again came under scrutiny in late 2010 when a Pakistani Christian woman was sentenced to death for what seemed a minor offense. International human rights groups issued newly urgent calls for the law's repeal, and President Zardari himself vowed to personally review the case. However, the law appears to have significant public support in Pakistan, and a federal minister said that the government would only consider reforming the law to stop its "misuse," but would not consider a repeal. A bill to amend the law was introduced in late November, with the aim of eliminating its perceived vague terminology and to limit its application to cases in which premeditation or malicious intent are clear. When PPP figures suggested the amendments, thousands of people took to the streets in protests and strikes organized by religious leaders. Islamist hardline groups, including some with links to terrorist organizations, were able to rally as many as 50,000 people on the streets of Karachi, where speakers sought to justify the assassination. Still, Bilawil Bhutto Zardari, the President's son and PPP co-chair, issued a televised pledge to "defend" Pakistan's Christian and other minorities, saying those who celebrated the January assassination of the Punjab governor (a critic of the laws) were "the real blasphemers." Pakistan is today among the world's leading recipients of U.S. aid. Since the 2001 renewal of large U.S. assistance packages, Pakistan by the end of FY2010 had obtained more than $10.7 billion in overt assistance since 2001, including about $6 billion in development and humanitarian aid, and some $4.4 billion for security-related programs. (This does not include reimbursements for militarized counterterrorism efforts. See Table 1 .) In September 2009, both chambers of Congress passed their own Pakistan-specific bills authorizing increased nonmilitary aid to Pakistan (to $1.5 billion per year for five years) and placing certain conditions on future security-related aid to that country. The Enhanced Partnership with Pakistan Act of 2009 became P.L. 111-73 on October 15. Earlier in 2009, Congress established a new Pakistan Counterinsurgency Capability Fund (PCCF) that is being used to enhance the ability of Pakistani security forces to effectively combat militancy. To date, PCCF appropriations have totaled $1.1 billion. Moreover, since FY2002 Congress has appropriated billions of dollars to reimburse Pakistan (and other nations) for their operational and logistical support of U.S.-led counterterrorism operations. At more than $8 billion, these "coalition support funds" (CSF) have accounted for nearly half of all overt U.S. financial transfers to Pakistan since 2001. The Obama Administration's FY2010 budget request had already reflected a major new emphasis on nonmilitary assistance to Pakistan, most notably by greatly increasing funds meant for economic development (the ESF request of more than $1 billion nearly doubled that of the previous fiscal year). In addition, both law enforcement and military training funding were roughly doubled. For FY2011, the Administration has requested further boosts in foreign assistance for Pakistan, including a doubling of Global Health and Child Survival funds (to $67 million) and increased economic support. Security-related assistance may also increase significantly, most notably with the Administration seeking to fund the PCCF—now overseen by the State Department—with $1.2 billion. The total assistance to Pakistan channeled through State is thus set to increase by about 20% (from $2.5 billion in FY2010 to more than $3 billion in FY2011), even when FY2010 supplemental requests are included. In addition to boosting development aid and placing conditions on future military aid to that country, major Pakistan-specific legislation in the 111 th Congress ( P.L. 111-73 ), also known as the "Kerry-Lugar-Berman" bill, contains numerous reporting requirements, most aimed at ensuring maximal accountability and transparency for U.S. future assistance funds. The act caused major controversy in Pakistan, where elements of the military and political opposition parties criticized it as an "infringement on Pakistani sovereignty." Many independent observers saw the unexpectedly strong Pakistani reaction as being fueled and perhaps even generated by a combination of military elements and opposition political forces who shared a common cause of weakening the PPP-led government. More specifically, this perspective had Army Chief General Kayani engaged in an ongoing struggle with President Zardari and Prime Minister Gilani over ultimate control of the country's military. One effect of the U.S. legislation was to place the United States in the middle of this battle, which dissipated as quickly as it had arisen. There is an ongoing debate about how best to channel large increases in foreign assistance to Pakistan. It is claimed that roughly half of all U.S. aid pledged for Pakistan is spent on administrative costs, including highly-paid foreign experts, thus forwarding the argument that aid flows would be more effective if channeled through Pakistani agencies. Pakistani officials believe that administrative costs can be further reduced by channeling aid primarily through Pakistani government agencies rather than through nongovernmental organizations. The State Department has planned to significantly scale back its use of U.S. aid contractors in Pakistan and begin channeling more money directly to Pakistani officials and local groups. Yet there are energetic opponents of such a shift. Representative is a "dissent cable" from a senior economist working for USAID in Pakistan warning that Pakistani aid contractors and NGOs are inexperienced and ill-equipped to effectively deliver aid: "Directing an immediate shift away from U.S. contractors already on the ground to local implementers without an appropriate transition period will seriously compromise the more important requirements for quick counterinsurgency and economic impacts." Some nongovernmental U.S. aid experts have issued similar warnings. Even some in Pakistan believe that experienced Western aid professionals are likely to produce better results than "low-paid government functionaries." Senator John Kerry is concerned that large-scale corruption could seriously undermine the U.S. aid effort in Pakistan and he has pressed the State Department to carefully track aid flows to that country. The Senate Foreign Relations Committee Chairman has warned Ambassador Holbrooke that plans to shift a majority of assistance funds directly though Pakistani organizations and government agencies increases the possibility that those funds will be stolen or poorly spent. A "Friends of Democratic Pakistan" (FODP) group was launched in September 2008, when President Zardari and the top diplomats of the United Arab Emirates, Britain, and the United States were joined by foreign ministers from Australia, Canada, France, Germany, Italy, Japan, and Turkey, and representatives of China, the European Union, and the United Nations. A resulting statement expressed agreement to work in strategic partnership with Pakistan to combat violent extremism; develop a comprehensive approach to economic and social development; coordinate an approach to stabilizing and developing border regions; address Pakistan's energy shortfall; and support democratic institutions. In April 2009, 31 countries and 18 international institutions sent representatives to an FODP/Donors' Conference in Tokyo. There Ambassador Holbrooke announced the Administration's intent to provide a total of $1 billion in assistance to Pakistan over the 2009-2010 period, bringing to more than $5 billion the total offered by the international community on top of the IMF package. At an FODP summit meeting in New York in September co-chaired by President Obama, President Zardari, and British Prime Minister [author name scrubbed], the forum reiterated its central goals, but no further specifics were discussed pending more detailed Pakistani development proposals. The FODP's Third Ministerial Meeting took place in October, when donors continued to press Pakistan to reform its economy, especially through an expansion of the tax base. The Obama Administration's congressionally-mandated Pakistan Assistance Strategy Report, issued in December 2009, lays out the principal objectives of nonmilitary U.S. assistance to Pakistan (to help "in building a stable, secure, and prosperous Pakistan"), a general description of the programs and projects designed to achieve these goals, and a plan for monitoring and evaluating the effort. For FY2010-FY2014, it proposes to devote $3.5 billion—nearly half of the $7.5 billion of the aid authorized by The Enhanced Partnership With Pakistan Act of 2010—to "high-impact, high-visibility" infrastructure programs, especially in the energy and agriculture sectors. Another $2 billion will fund health, education, and humanitarian programs, while the remaining $2 billion will seek to develop Pakistani government capacity by improving national and local governance, and security and legal institutions. A focus on infrastructure projects is meant to "provide tangible benefits to Pakistani citizens and help Pakistan ameliorate energy and water shortages, and to demonstrate that "the United States is committed to helping address some of the problems that most affect the everyday lives of Pakistanis." Geographically, U.S. programs concentrate on the KPk province and FATA , along with other areas "vulnerable to extremism," such as southern Punjab. The Special Representative for Afghanistan and Pakistan (SRAP) presents five goals for civilian assistance to Pakistan: (1) helping to address urgent energy and water crises ; (2) supporting broader economic and political reforms necessary for sustainable growth; (3) improving Pakistanis' prospects for better health care and education ; (4) helping respond to humanitarian challenges ; and (5) combating extremism . In this effort, reliance on large international contractors will be reduced in favor of building local capacity through Pakistani implementing partners that will be carefully vetted by American and Pakistani accountants. To mitigate the risk of increased corruption, the numbers of direct-hire contracting staff and inspector-general personnel inside Pakistan will be increased. In mid-2009, the Obama Administration began emphasizing the importance of upgrading Pakistan's struggling energy sector. U.S.-Pakistan security cooperation accelerated rapidly after 2001, and President Bush formally designated Pakistan as a major non-NATO U.S. ally in 2004. The close U.S.-Pakistan security ties of the cold war era, which came to a near halt after the 1990 aid cutoff, were restored as a result of Pakistan's role in the U.S.-led anti-terrorism campaign. In 2002, the United States began allowing commercial sales that enabled Pakistan to refurbish at least part of its fleet of American-made F-16 fighter aircraft and, three years later, Washington announced that it would resume sales of new F-16 fighters to Pakistan after a 16-year hiatus. During the G.W. Bush Administration, a revived U.S.-Pakistan Defense Consultative Group (DCG)—moribund from 1997 to 2001—sat for high-level discussions on military cooperation, security assistance, and anti-terrorism. The forum has continued under the Obama Administration; its 19 th and most recent session came in August 2010, when an American delegation led by Under Secretary of Defense for Policy Michelle Flournoy met with their Pakistani counterparts to continue dialogue on strategic security issues and seek means to accelerate counterterrorism cooperation. Pentagon officials have for some time been frustrated by the allegedly feckless counterinsurgency efforts of the internally squabbling Islamabad government in the recent past. Reports indicate that U.S. officials have been disheartened by signs that the Pakistani military is slow to shift away from a conventional war strategy focused on India, and they have made clear the United States stands ready to assist Pakistan in reorienting its army for counterinsurgency efforts. This is not clearly a task the Pakistani military leadership has been eager to complete. In an effort to more effectively channel U.S. security assistance so as to specifically strengthen Pakistan's counterinsurgency capabilities, the Pentagon proposed—and Congress later endorsed—creation of a dedicated fund, the PCCF. There are concerns that allegedly serious human rights abuses by the army in Swat, including extrajudicial killings and the holding of some 2,500 suspected militants in indefinite detention, could trigger so-called "Leahy Amendment" restrictions on future U.S. security assistance. Major U.S. arms sales and grants to Pakistan since 2001 have included items useful for counterterrorism operations, along with a number of "big ticket" platforms more suited to conventional warfare. In dollar value terms, the bulk of purchases are made with Pakistani national funds, but U.S. grants are currently eclipsing this in recent years. The Pentagon reports total Foreign Military Sales agreements with Pakistan worth $5.4 billion for FY2002-FY2010 (in-process sales of F-16 combat aircraft and related equipment account for more than half of this). The United States also has provided Pakistan with more than $2.1 billion in Foreign Military Financing (FMF) since 2001 (including scheduled FY2010 funds). These funds are used to purchase U.S. military equipment for longer-term modernization efforts. Pakistan also has been granted U.S. defense supplies as Excess Defense Articles (EDA). Major post-2001 defense supplies provided or soon-to-be provided under FMF include: eight P-3C Orion maritime patrol aircraft and their refurbishment (valued at $474 million; two delivered); about 6,312 TOW anti-armor missiles ($186 million; at least 2,007 delivered); more than 5,600 military radio sets ($163 million); six AN/TPS-77 surveillance radars ($100 million); six C-130E transport aircraft and their refurbishment ($76 million); five refurbished SH-2I Super Seasprite maritime helicopters granted under EDA ($67 million); the USS McInerney , an ex-Perry class missile frigate (via EDA, $65 million for refurbishment); 20 AH-1F Cobra attack helicopters via EDA ($48 million, 12 refurbished and delivered); and 121 refurbished TOW missile launchers ($25 million). Supplies paid for with a mix of Pakistani national funds and FMF include: up to 60 Mid-Life Update kits for F-16A/B combat aircraft (valued at $891 million, with $477 million of this in FMF; Pakistan's current plans are to purchase 35 such kits); and 115 M-109 self-propelled howitzers ($87 million, with $53 million in FMF). Notable items paid for entirely with Pakistani national funds include: 18 new F-16C/D Block 50/52 combat aircraft, with an option for 18 more (valued at $1.43 billion, 17 delivered to date); F-16 armaments including 500 AMRAAM air-to-air missiles; 1,450 2,000-pound bombs; 500 JDAM bomb tail kits for gravity bombs; and 1,600 Enhanced Paveway laser-guided bomb kits, also for gravity bombs ($629 million); 100 Harpoon anti-ship missiles ($298 million); 500 Sidewinder air-to-air missiles ($95 million); and six Phalanx Close-In Weapons System naval guns ($80 million). Major articles transferred via EDA include: 14 F-16A/B combat aircraft; 59 T-37 military trainer jets; and 550 M-113 armored personnel carriers. Under 1206, Frontier Corps, and Pakistan Counterinsurgency Capability Fund authorities, Pakistan has received four Mi-17 multirole helicopters (another six were provided temporarily at no cost), two King Air 350 surveillance aircraft, 450 vehicles for the Frontier Corps, 20 Buffalo explosives detection and disposal vehicles, hundreds of M-141 Bunker Defeat Munitions, helicopter spare parts, sophisticated explosives detectors, night vision devices, radios, body armor, helmets, first aid kits, litters, and large amounts of other individual soldier equipment. Pakistan is eager to receive more counterinsurgency hardware for use in western Pakistan, including armored personnel carriers, laser target designators, laser-guided munitions, and more night-vision goggles and surveillance gear. They also request better and more sophisticated surveillance and communications equipment, along with more attack and utility helicopters. The Defense Department has characterized F-16 fighters, P-3C patrol aircraft, and anti-armor missiles as having significant anti-terrorism applications. The State Department has claimed that, since 2005, FMF funds have been "solely for counterterrorism efforts, broadly defined." Such claims elicit skepticism from some observers, and analysts who emphasize the importance of strengthening the U.S.-India strategic partnership have called U.S. military aid to Pakistan incompatible with U.S. strategic goals in the region. Moreover, U.S. officials are concerned that Pakistan has altered some conventional U.S.-supplied weapons in ways that could violate the Arms Export Control Act. Such alleged modification include expanding the capability of both Harpoon anti-ship missiles and P-3C naval aircraft for land-attack missions. The Islamabad government categorically rejects the allegations. Indian observers were unsurprised by the claims; New Delhi's leaders continuously complain that Pakistan diverts most forms of U.S. assistance toward India. Some more suspicious analysts even see purpose in such a dynamic: a U.S. wish to maintain Pakistan's viability as a regional balancer to Indian hegemony. In the summer and fall of 2009, some reports had Pakistani officials claiming the military could not take immediate advantage of TTP chief Baitullah Mehsud's death due to a shortage of counterinsurgency equipment it needed from the United States. Some analysts complained that a delay in the expected South Waziristan offensive could in part be traced to U.S. "withholding" of equipment. Pentagon officials deny that Pakistan has been prevented or deterred from acquiring the counterinsurgency equipment it wants and needs. Indeed, during the course of the fighting in South Waziristan, Pakistan received low-profile but significant U.S. assistance in the form of transport helicopters, parts for helicopter gunships, and infantry equipment, along with unprecedented intelligence and surveillance video sharing from American UAVs. In anticipation of new counterinsurgency operations in 2010, the United States provided the Pakistani air force with about 1,000 quarter-ton bombs, along with up to 1,000 kits for making gravity bombs laser-guided-capable. As noted above, transfers to Pakistan of such offensive weaponry are viewed with a wary eye by the Indian government. Pakistani officials have continued to complain that U.S.-supplied defense equipment, especially that most needed for counterinsurgency operations such as attack and utility helicopters, has been too slow in coming. The Pakistani Ambassador to the United States has himself been quoted as claiming that, in his first two years in Washington, Pakistan received only eight used Mi-17 transport helicopters and that Pakistan's military operations have been hindered by a lack of equipment. Such claims rile U.S. officials, who document that the United States has provided Pakistan with at least 50 helicopters since 2006—12 of them armed Cobra models—and who note that the delivery of more top-line attack helicopters has come under delay because of Pakistani inaction. Former Joint Chiefs Chairman and Secretary of State Colin Powell has urged the Obama Administration to do a better job of providing the Pakistani military with the mobility and intelligence capabilities needed for counterinsurgency operations. In September 2010, the Pentagon notified Congress of a potential sale to Pakistan of 30 Bell 412 utility helicopters and related support and training worth up to $397 million. The Bush Administration launched an initiative to strengthen the capacity of the Frontier Corps (FC), an 65,000-man paramilitary force overseen by the Pakistani Interior Ministry. The FC has primary responsibility for border security in the KPk and Baluchistan provinces. The Pentagon in 2007 began using its funds to train and equip the FC, as well as to increase the involvement of the U.S. Special Operations Command in assisting with Pakistani counterterrorism efforts. Americans are also engaged in training Pakistan's elite Special Service Group commandos with a goal of doubling that force's size to 5,000. The U.S. program to train Pakistan's paramilitary forces reportedly has been hampered by Pakistan's reluctance to send troops who are needed for urgent operations elsewhere. Some analysts also contend that only U.S. military personnel (as opposed to contractors) can effectively train Pakistani soldiers. Other security-related programs for Pakistan are aimed especially at bolstering Islamabad's counterterrorism and border security efforts, and have included U.S.-funded road-building projects in the KPk and FATA. The United States also has undertaken to train and equip new Pakistan Army Air Assault units that can move quickly to find and target terrorist elements. U.S.-funded military education and training programs seek to enhance the professionalism of Pakistan's military leaders, and develop respect for rule of law, human rights, and democratic values. At least 300 Pakistani officers have received such training since 2001. U.S. security assistance to Pakistan's civilian sector is aimed at strengthening the country's law enforcement capabilities through basic police training, provision of advanced identification systems, and establishment of a new Counterterrorism Special Investigation Group. U.S. efforts may be hindered by Pakistani shortcomings that include poorly trained and poorly equipped personnel who generally are underpaid by ineffectively coordinated and overburdened government agencies. Pakistan's weak criminal justice sector is marked by conviction rates below 10%, poorly trained investigators, and rampant corruption. Some analysts link the problem to democratization more broadly, and urge much greater U.S. and international attention to bolstering Pakistan's civilian security sector. The findings of a 2008 think-tank report reflected a widely held view that Pakistan's police and civilian intelligence agencies are better suited to combating insurgency and terrorism than are the country's regular army. The report found that Pakistan's police forces are "incapable of combating crime, upholding the law, or protecting citizens and the state against militant violence," and placed the bulk of responsibility on the politicization of the police forces. The report recommended sweeping reforms to address corruption and human rights abuses. P.L. 111-8 : The Omnibus Appropriations Act, 2009 (became Public Law on March 11, 2009): Limits FY2009 Foreign Military Financing for Pakistan to "border security, counterterrorism, and law enforcement activities directed against Al Qaeda, the Taliban, and associated groups." Bars the use of such funds for any program initially funded under the authority of Section 1206 of the 2006 defense authorization ( P.L. 109-163 ), which pertains to Pentagon programs for training and equipping foreign military forces. P.L. 111-32 : The Supplemental Appropriations Act, 2009 (became Public Law on June 24, 2009): Appropriates $672 million in supplemental FY2009 assistance funds for Pakistan. Appropriates $1 billion for continuing coalition support reimbursements to key cooperating nations (Pakistan typically receives roughly 80% of such funds). Establishes new U.S. Treasury funds providing a total of $1.1 billion for strengthening Pakistani counterinsurgency capabilities through FY2011. Requires the President to report to Congress an assessment of the extent to which the Afghan and Pakistani governments are demonstrating the necessary commitment, capability, conduct and unity of purpose to warrant the continuation of the President's policy announced in March 2009. Requires the President to report to Congress a clear statement of the objectives of United States policy with respect to Afghanistan and Pakistan, and the metrics to be used to assess progress toward achieving such objectives. P.L.-111-73 : The Enhanced Partnership With Pakistan Act of 2009 (became Public Law on October 15, 2009): Authorizes $1.5 billion per fiscal year for nonmilitary assistance to Pakistan for FY2010-FY2014, and establishes a sense of Congress that, subject to an improving political and economic climate in Pakistan, such aid levels should continue through FY2019. Prohibits military assistance and arms transfers to Pakistan during FY2010-FY2014 unless the Secretary of State annually certifies for Congress that (1) Pakistan is continuing to cooperate with the United States to dismantle illicit nuclear proliferation networks; (2) Pakistan's government is making significant efforts to combat terrorist groups; and (3) Pakistan's security forces are not subverting Pakistan's political or judicial processes. Directs the Secretary of State to submit a Pakistan Assistance Strategy Report to Congress containing descriptions of objectives, and monitoring and accountability mechanisms. P.L. 111-84 : The National Defense Authorization Act for FY2010 (became Public Law on October 28, 2009): Directs the Secretary of State to carry out a program to provide for the registration and end-use monitoring of defense articles and services transferred to Pakistan (and Afghanistan), and to prohibit the retransfer of such articles and services without U.S. consent. Requires the Secretary to (1) assess possible alternatives to reimbursements to Pakistan for logistical, military, or other support provided to or in connection with U.S. military operations; and (2) report assessment results to the defense, appropriations, and foreign relations committees. Directs the Secretary to report semiannually to Congress on progress toward long-term security and stability in Pakistan. P.L. 111-118 : The Department of Defense Appropriations Act, 2010 (became Public Law on December 19, 2009) Requires the Director of the Office of Management and Budget, in consultation with the Secretary of Defense and other defense officials, to submit to Congress a quarterly report on the proposed use of all Pakistan Counterinsurgency Fund (PCF) spending on a project-by-project basis. Requires the Secretary of Defense to notify Congress of any new PCF projects or fund transfers in excess of $20 million. H.R. 1463 : To restrict U.S. military assistance to Pakistan (referred to House committee on March 12, 2009): Would have prohibited U.S. military assistance to Pakistan unless the President certified for Congress that the Islamabad government was making A.Q. Khan available for questioning by U.S. officials and that it was adequately monitoring Khan's activities so as to prevent his participation in any further nuclear proliferation. S. 496 : Afghanistan and Pakistan Reconstruction Opportunity Zones Act of 2009 (referred to Senate committee on February 26, 2009; a related bill, H.R. 1318 , was passed by the House as part of H.R. 1886 on June 11, 2009): Would have provided duty-free treatment for certain goods from designated Reconstruction Opportunity Zones in Afghanistan and Pakistan.
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A stable, democratic, prosperous Pakistan actively combating religious militancy is considered vital to U.S. interests. U.S. concerns regarding Pakistan include regional and global terrorism; efforts to stabilize neighboring Afghanistan; nuclear weapons proliferation; the Kashmir problem and Pakistan-India tensions; democratization and human rights protection; and economic development. Pakistan is praised by U.S. leaders for its ongoing cooperation with U.S.-led counterterrorism and counterinsurgency efforts, although long-held doubts exist about Islamabad's commitment to some core U.S. interests. A mixed record on battling Islamist extremism includes ongoing apparent tolerance of Taliban elements operating from its territory. Pakistan's troubled economic conditions and political setting combine with perilous security circumstances and a history of troubled relations with neighbors to present serious challenges to U.S. decision makers. Islamist extremism and militancy in Pakistan is a central U.S. foreign policy concern. The development hinders progress toward key U.S. goals, including the defeat of Al Qaeda and other anti-U.S. terrorist groups, Afghan stabilization, and resolution of the historic Pakistan-India rivalry that threatens the entire region's stability and that has a nuclear dimension. Long-standing worries that American citizens have been recruited and employed in Islamist terrorism by Pakistan-based elements have become more acute in the past year, especially following a failed May 2010 bombing attempt in New York City that was linked to the "Pakistani Taliban." A bilateral Pakistan-India peace process was halted after a November 2008 terrorist attack on Mumbai was traced to a Pakistan-based terrorist group. This process, strongly supported by the United States, remains moribund, and serious mutual animosities persist. Pakistan is wary of India's presence in Afghanistan, where Islamabad seeks a friendly and perhaps malleable neighbor, and has had troubled relations with the Kabul government. A perceived Pakistan-India nuclear arms race has been the focus of U.S. nonproliferation efforts in South Asia. Pakistan's political setting remains fluid, with a weak ruling coalition struggling to stay in power. While the most recent iteration of direct military rule ended in 2008, Pakistan's military and intelligence institutions are seen to possess inordinate political power. Rampant inflation and unemployment, along with serious food and energy shortages, elicit considerable economic anxiety in Pakistan. These pressures were hugely exacerbated by unprecedented devastation resulting from mid-2010 flooding. The U.S. government and international financial institutions are among those strongly urging Islamabad to more quickly institute economic reform. The Obama Administration continues to pursue close and mutually beneficial relations with Islamabad. As part of its strategy for stabilizing Afghanistan, the Administration's Pakistan policy includes a tripling of nonmilitary aid to improve the lives of the Pakistani people, as well as the conditioning of U.S. military aid to Islamabad on that government's progress in combating militancy and in further fostering democratic institutions. A Special Representative was appointed to coordinate U.S. government efforts with both Pakistan and Afghanistan. Pakistan is among the world's leading recipients of U.S. aid and by the end of FY2010 had obtained about $10.7 billion in overt assistance since 2001, including more than $6 billion in development and humanitarian aid. Pakistan also has received more than $8 billion in military reimbursements for its support of and engagement in counterterrorism and counterinsurgency efforts against Islamist militants. This report reviews key current issues and developments in Pakistan and in U.S.-Pakistan relations. It will be updated periodically.
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Twenty-four years ago, the broad tax revisions implemented by the Tax Reform Act of 1986 ( P.L. 99-514 ) were based on tax "neutrality"—the idea that economic efficiency and economic welfare are promoted if the distorting impact of taxes on business and other economic decisions is minimized. To this end, the 1986 act broadened the tax base for both businesses and individuals, scaling back various narrowly-applicable tax preferences and benefits, and reduced the statutory tax rate. In time, however, the general thrust of business-tax policy began to change, and in recent years policy has been guided more by a concern for the level of investment and capital formation, as well as the perceived impact of taxes on U.S. competitiveness. Thus, measures designed to promote tax-consistency across investments and activities have been supplanted by provisions designed to stimulate investment and assist in the ability of U.S. firms to compete with foreign companies. Cases in point are the temporary "bonus depreciation" provisions enacted in 2002 and 2003 and the broad tax deduction for domestic production included in the omnibus business-tax bill passed in 2004. At the same time, there has recently been renewed congressional and public interest in broad reform of the U.S. tax system. In contrast to 1986, however, much of the recent interest in reform has centered on a shift in the tax base to consumption rather than a comprehensive measure of income—a change in focus that is based, in part, on the same concerns for capital formation and competitiveness that underlie much of recent business-tax legislation. Twenty-four years after the 1986 act, business taxation is thus potentially at a crossroads. Will the thrust of tax policy continue to shift away from the principles of efficiency and neutrality that guided tax reform two decades in the past? If fundamental tax reform is adopted in the near future, would it include a revamped system of business taxation? If so, what would business taxation look like? Regardless of the outcome, it is useful at this point to take stock, to pause and review the current system and its effects. The charts and discussions on the following pages are intended to assist in that exercise. The report begins with a discussion of the principal economic effects of business taxation. Its concluding sections review the various theoretical principles on which fundamental reform of business taxation might be based. Businesses can take a variety of forms, ranging from large, publicly held corporations, to more closely held corporations, to partnerships (large and small), to firms that are run by only a single self-employed owner. With some exceptions, the rules for determining taxable income—for example, how to calculate depreciation and other deductions—are the same, regardless of the type of business. The particular manner in which that income is taxed, however, does vary, depending on the type of business. Income earned by large, publicly held corporations ("C" corporations, in tax parlance) is generally subject to the corporate income tax—one of the principal structural components of the federal tax system, along with the individual income tax, the estate and gift tax, excise taxes, and social security taxes. In conceptual terms, the present U.S. corporate income tax is sometimes described as a "classical" system that applies as though corporations were entities with an existence separate from their owners, the stockholders. The tax applies to taxable corporate income, corporate profits (after deducting interest) as defined by the tax code. It applies separately and in addition to the individual income tax's applicability to shareholder's dividends and capital gains. As discussed in more detail below (see the section on the economic effects of the tax), this means that income subject to the corporate income tax is generally taxed twice—once under the corporate income tax in the hands of corporations, and once under the individual income tax when stockholders receive dividends or realize capital gains. The double taxation does not occur, however, in the case of corporate income generated by debt-financed investment, since the return to such investment is paid to creditors as interest and is tax-deductible. Double taxation also does not apply in the case of income paid to tax-exempt stockholders—for example, pension funds. Income earned by relatively closely held corporations—termed "S corporations" by the tax code—is not subject to the corporate income tax and so also is not taxed twice. Instead, an S corporation's income is "passed through" to the firm's stockholders and taxed to them under the individual income tax, regardless of whether the income is actually distributed. To qualify as an S corporation, a firm can have no more than 100 shareholders and must meet certain other requirements. As with S-corporation profits, partnership taxable income is not subject to an entity-level tax such as the corporate income tax. Instead, each partner is taxed under the individual income tax on his or her share of the partnership's profit. Individual income taxes also apply to business income earned by self-employed persons who operate sole proprietorships. As with partnerships and S corporations, no separate tax is applied at the entity (i.e., business) level. According to estimates by the Congressional Budget Office, 62% of tangible business assets are owned by C corporations; the remainder (38%) is owned by other business entities (i.e., partnerships, sole proprietorships, and S corporations). As noted above, rules for determining taxable income are generally the same, regardless of the form of business organization. The base of federal business income taxes is generally profits, net of interest payments. Profits, in turn, are gross receipts—for example, sales—minus deductible costs. Important categories of deductible costs include interest payments, wages, purchased materials and other inputs, and a depreciation allowance for the decline in value of tangible capital. Importantly, the tax code's definition of these elements frequently differs from how an economist or accountant might define them. For example, the tax code may fully or partly exempt certain types of income from inclusion in taxable income—a specific example is the partial deduction the tax code permits for income from domestic production activities. Or, the tax code may require the recognition of income at a different point in time than when economic theory indicates it is actually earned or permit a deduction to be claimed at a different time from when the cost is actually incurred. Regardless of the underlying provision, instances where taxable income differs from economic income can provide either a tax benefit or tax penalty and (as described more fully below) influence how the economy's capital resources are allocated. U.S. firms increasingly participate in international markets, and so an overview of the U.S. structure would be incomplete without including its international dimension. In the international context, the U.S. applies what is sometimes termed a "residence" based tax system, but with important exceptions. The United States generally applies its corporate income to the worldwide income of corporations chartered in (i.e., "resident" in) the United States. At the same time, however, U.S. firms can generally indefinitely postpone (defer) U.S. tax on foreign-source income as long as the income is earned by foreign-chartered subsidiary corporations and reinvested abroad. To alleviate double taxation, the United States permits its taxpayers to credit foreign taxes they pay against U.S. taxes they would otherwise owe, subject to the limitation that foreign taxes can only be credited against U.S. foreign- (and not U.S.-) source income. Foreign businesses in the United States are generally subject to U.S. business taxes on their U.S.-source income. If a foreign firm operates in the United States through a U.S.-chartered subsidiary corporation, the subsidiary is generally subject to U.S. tax in its role as a resident U.S. corporation; like other U.S.-chartered corporations, it is subject to U.S. tax on its worldwide income, regardless of the nationality of its owner(s). If, on the other hand, the foreign firm operates in the United States through a branch of the foreign-chartered parent corporation, the foreign firm is subject to U.S. tax on its income from U.S., but not foreign, sources; the United States taxes foreign persons and corporations on their income from the active conduct of a U.S. trade or business. (The economic effects of international aspects of the federal tax system are discussed below.) Another structural component of the system is the alternative minimum tax (AMT). The tax code provides both a corporate AMT and an individual AMT; a business may be subject to either, depending on whether it pays the corporate income tax or is taxed under the individual income tax as a sole proprietorship or passthrough entity. Both AMTs essentially require a taxpayer to pay either the regular tax or the AMT, whichever is higher. The two liabilities will ordinarily differ for a business because they are computed differently. The AMT is imposed at a lower statutory rate than the regular tax, and the base of the AMT is more inclusive than that of the regular tax, permitting fewer omissions and tax benefits. The purpose of the AMT is to ensure that few truly profitable corporations escape paying at least some tax. The importance of the AMT in the structure is difficult to quantify. Recent data on the share of corporate investment subject to the tax are not available. The numbers that are available show that prior to 1999, the AMT was important: in 1998, more than one-quarter of corporate assets were held by firms paying the AMT, and within the manufacturing sector over one-half of firms were AMT firms. Beginning in 1999, however, new, more generous AMT depreciation rules likely reduced the portion of investment affected by the AMT. The level of corporate tax receipts has fluctuated over time. This review of the data focuses primarily on the corporate income tax; there are a variety of ways to gauge its size. First, the general importance of the tax in terms of any economic effects it has can be assessed by looking at the level of the tax compared to the size of the economy—that is, by assessing corporate tax revenue as a percent of gross domestic product (GDP). Figure 1 , below, presents such data for fiscal years 1934 to 2009, thus showing the position of corporate revenues from well before World War II to the latest year available. Clearly, the chart shows that corporate tax revenues have declined from their peak during World War II (7% in FY1945) and from another peak that coincided with the Korean War (6.1% in FY1952). The chart also shows that they have declined from what might be termed an intermediate level of between 2% and 4% in the 1960s and 1970s to a level between 1% and 2% in recent years, but with an "uptick" beginning in 2005 before falling dramatically in 2009. While corporate taxes have declined as a percentage of GDP, Figure 2 , below, shows that corporate income-tax revenue likewise declined as a share of total federal revenue, and in roughly the same pattern. Corporate tax revenue's share of total federal revenue declined from a peak of 40% during World War II (FY1943), and a somewhat lower peak of 32% during the Korean War (FY1952), to levels of slightly above and below 10% after the late 1980s. Again, there was a surge beginning in 2005 before falling dramatically in 2009. These broad measures of corporate taxes are useful as rough indicators of how the level of corporate taxes in the economy has changed, but lack precision in showing the burden of corporate taxes and the causes of the taxes' fluctuations. For example, a decline in the share of national income comprising corporate profits is partly responsible for the reductions shown in Figures 1 and 2 . Figure 3 corrects for this with a series that holds profits constant. It shows average effective corporate tax rates (AETRs), which are the ratio of federal corporate income taxes to before-tax corporate profits. According to the AETRs, the aggregate burden of corporate taxes steadily declined during the 1960s and 1970s, reaching a low of about 20% of corporate profits during the early 1980s before rising to a plateau of around 25% that has generally prevailed from 1986 to the present. The anomalous year in the last two decades was 2000, which registered a spike in the AETR to 34%. Since AETRs hold the level of corporate profits constant, a principal determinant of variations in the rates is legislated changes, and several can be linked to the fluctuations in the AETRS. At least three factors are likely responsible for the decline in rates during the 1960s, 1970s, and early 1980s. First, during the 1970s and 1980s, several reductions in the statutory corporate tax rate that applies to taxable income were enacted. Second, while taxable corporate profits were artificially inflated during the 1970s by a rising price level, firms were also permitted to claim investment tax credits. Third, the Economic Recovery Tax Act of 1981 provided accelerated depreciation deductions, which likely played a prominent role in the sharp drop in tax rates in the early 1980s. Following the reduction, rates increased again in the mid-1980s. Part of the increase was likely due to timing results from the 1981 act, but the Tax Reform Act of 1986 was also likely responsible for part of the increase. The act reduced statutory tax rates, but also repealed the investment credit and scaled back depreciation allowances. AETRs have their own shortcoming as a gauge of the corporate tax burden. They provide only one-year snapshots of a firm's tax burden, while according to economic theory, taxes impose a burden on capital income by reducing the expected rate of return over the life of new investment. For example, the tax burden on an investment consists not only of taxes paid in its first year, but also those paid in, say, the fifth year of its life. In addition, because of discounting, the tax burden on investment depends partly on how taxes are distributed over an investment's life; a given amount of taxes matters more to a firm the sooner it is paid. The same is true of deductions, but in reverse; a given deduction is more valuable the sooner it is claimed. "Marginal" effective tax rates (METRs) take these factors into account, measuring the impact of taxes over a representative investment's entire lifetime as well as the timing of payments and deductions. Unlike AETRs, METRs can thus accurately register the impact of provisions such as accelerated depreciation, whose value depends crucially on timing. METRs also take into account the interaction of inflation and tax rules, statutory tax rates, and investment subsidies such as the investment tax credit. In general, a marginal effective tax rate is the difference between the pre-tax and after-tax return on prospective investment, divided by the pre-tax return. Figure 4 , below, presents a set of METRs for the period 1953 through 2005. The top line in the figure shows METRs for corporate investment. The second line is rates for non-corporate business and moves in tandem with corporate rates, but at a lower level. (The third line is the METR for the remaining broad category of capital investment: owner-occupied housing.) The series shows a decline in rates from the early 1950s to the mid-1960s—the result of accelerated depreciation, introduction of an investment tax credit, and reduced statutory tax rates. Rates then rose in the late 1960s and varied during the 1970s, a consequence of repeal and reintroduction of the investment tax credit as well as inflation. Rates declined sharply in 1981, reflecting the Economic Recovery Tax Act's accelerated depreciation provisions. METRs then remained relatively stable until 2001 to 2003, when reductions in shareholder-level taxes (including reduced tax rates on capital gains and dividends) as well as bonus depreciation caused a reduction in effective rates. Rates picked up again in 2005, with the expiration of bonus depreciation. The preceding charts show four different measures of corporate taxes: taxes as a share of GDP, corporate tax revenues as a percentage of federal revenue, average effective corporate tax rates, and marginal effective tax rates. Each series shows the same general pattern in the period after World War II: a general decline in the level of corporate taxes. But before accepting this broad pattern as the conclusion of this look at corporate tax data, note the relative position of the three lines in Figure 4 , denoting METRs for corporate investment, for non-corporate business, and for owner-occupied housing. In contrast to the general direction of each set of METRs—they have all declined, showing a decline in capital taxes in general—their relative position has remained the same. And importantly, it is the relative tax treatment of investment that affects the allocation of investment among different uses, and differences in the treatment of different investments that distort the allocation of capital. Thus, to the conclusion that business taxes have generally declined in the post-World War II period, there is an additional important result: corporate investment remains relatively heavily taxed compared to non-corporate business and (especially) owner-occupied housing. The report's next section explores the implications of this result by discussing the economic effects of business taxes. The base of the corporate income tax and of business taxes in general is income from capital investment. It is thus not surprising that business taxes exert their most direct effects through their impact on the return to new investment. By reducing the return to capital investment, business taxes—at least in principle—can affect the economy's commitment of resources to capital formation in general, although this effect may be muted. Business taxes can also affect the allocation of investment funds among different sectors, as suggested at the end of the preceding section. And while businesses are not people, the burden of business taxes is ultimately borne by individuals; business taxes thus have an impact on the fairness of the tax system. Because they apply to the return on investment, business taxes can potentially reduce the economy's overall level of investment and its stock of capital. There are indeed some who advocate cutting business taxes as a means of boosting capital formation: according to economic theory, an increase in the capital stock boosts long run growth, which, in turn, increases living standards and per capita income in the future. Yet business taxes do not necessarily have a pronounced effect on the aggregate level of capital in the economy. A key element is the economy's supply of saving, and there are indications that individual savers may not respond robustly to tax cuts by increasing their saving. Note first, however, that business taxes do likely have an impact on firms' investment demand. Taxes on business profits increase the rate of return a given asset must earn, before taxes, in order to generate the rate of return required to attract funds from savers. A tax on business investment thus encourages firms to forgo a range of less profitable investments they might otherwise undertake. And indeed, as described below, uneven application of business taxes results in less investment in heavily taxed areas and more investment in lightly taxed projects. But investment demand is just one side of the market for capital; the other side is household saving. And if individual saving is unresponsive to changes in the after-tax rate of return, then changes in investment demand will have little impact on the overall stock of capital: boosts in demand will principally serve to increase the economy's real interest rate. For example, provision of a tax credit for businesses to undertake investment may indeed boost business demand for the particular type of investment in question, and firms may boost the rate of return they are willing to pay savers for each quantity of investment. But unless savers are willing to increase the quantity of funds they supply in response to the higher return, there will be no increase in the capital stock. Economic theory provides no unambiguous answer on how saving responds to its rate of return, after taxes, and is subject to countervailing effects. In isolation, a tax on investment income—that is, on saving—reduces the price of current consumption compared to future consumption, and may thus reduce saving. On the other hand, a tax on saving increases the amount of saving an individual must undertake before taxes in order to achieve a particular dollar amount, after taxes, and may thus increase saving. The answer to the question therefore depends on the empirical evidence. And while there have been numerous econometric studies of saving, their results differ. This has led some to suggest that instead of providing tax incentives for saving and investment, a more certain approach to boosting aggregate national saving would be reducing government dis-saving by reducing the government's budget deficit. Not only does the amount of capital matter for economic performance, but so too does how that capital is employed. And while business taxes likely have little impact on long-run growth and capital formation, they do affect the allocation of investment among different uses and thus affect economic efficiency. Because taxes affect investment demand, they distort the allocation of investment where they apply unevenly, channeling funds to tax-favored assets and away from more heavily taxed assets. The results for economic efficiency follow: economic theory indicates that undistorted market prices and investment returns generally allocate resources to their most productive use so that capital and other resources produce the mix of output that consumers value most, and economic welfare is maximized. To the extent business taxes distort the allocation of resources, they reduce economic welfare. One prominent distortion posed by the U.S. tax system results from the double-taxation of corporate-source equity income—its taxation under both the corporate income tax and the individual income tax. As a result, investment is channeled away from the corporate sector into less heavily taxed areas such as owner-occupied housing and non-corporate business (see the effective tax rates in Figure 4 , above). A second distortion posed by the corporate income tax is its favoring of debt over equity in the financing of investment. The return to debt-financed investment consists of corporate interest payments to creditors; the return to equity consists of dividends and capital gains. Since interest is tax-deductible at the corporate level but dividends and capital gains are not, firms are encouraged to use higher levels of debt than they otherwise would, increasing the risk of bankruptcy to an inefficiently high level. Different types of business assets are also taxed at different rates, encouraging firms to invest more heavily in favored assets than they otherwise would. The depreciation allowances that apply to machines and equipment are relatively generous compared to depreciation allowances for structures and capital-recovery methods for inventory, leading to a relatively light tax burden for machines and equipment. Thus, firms' asset choices are distorted, encouraging more investment in machines and equipment and less in structures and inventory than is economically efficient. Prior to the Tax Reform of Act of 1986, the differential tax burdens among assets were substantial—a consequence of a relatively high statutory tax rate, relatively high inflation, uneven depreciation rules, and the availability of an investment tax credit for equipment, but not other assets. The 1986 act altered depreciation rules, repealed the investment credit, and reduced the statutory corporate tax rate, thereby greatly diminishing inter-asset distortions. In recent years, however, both legislation and economic developments have reintroduced differential tax burdens, though not to the extent existent before 1986. Legislative changes included introduction of less-favorable depreciation for structures, bonus depreciation for equipment, and an increased statutory tax rate. As noted above, the corporate income tax distorts corporate financial policy, favoring debt finance. Another distortion of corporate financial policy results from individual rather than corporate income taxation, and the preferential treatment of capital gains. Specifically, since capital gains are not subject to individual income taxes until a stockholder sells stock and the gains are realized, taxes favor the corporate retention of earnings—which increases the value of corporate stock—over payout of dividends. Recent legislation has reduced the statutory tax rate on dividends to the same rate applicable to realized capital gains, which has reduced the difference between the effective tax rates of retentions and payouts. Nonetheless, a difference remains because capital gains are not taxed until realized while dividends are taxed on a current basis. Corporations are not people: they are economic entities (firms) taking a particular legal form (incorporation). Thus, corporations cannot bear the burden of the corporate income tax in any real sense: it ultimately is borne by individuals. In the short run—that is, before economic actors have had a chance to adjust to the tax—the tax is thought to be borne by corporate stockholders The long-run burden of the tax is more uncertain. The standard and most resilient economic model of the corporate income tax is that developed by Arnold Harberger in 1962. While a number of challenges have been made to the model since its inception, its results have generally proved resilient. The model concludes that if capital investment funds and labor are free to flow from one economic sector (e.g., the corporate sector) to another (and given certain other conditions), then wages, prices, rates of return, and the allocation of capital and labor adjust, in the long run, to the corporate income tax. Given the ability of economic actors to adjust, the burden of the corporate income tax spreads beyond corporate shareholders' sector to all owners of capital, including owners of corporate debt, non-corporate business, and owner-occupied housing. This picture of the long-run burden of the corporate tax has implications for the vertical equity of the tax system—that is, its distribution across income classes. Because capital ownership is greater at upper-income levels, the corporate income tax is itself progressive and makes the overall tax system more progressive than it would otherwise be. A widely cited reason for reforming U.S. business taxation is to improve U.S. "competitiveness," where competitiveness is usually a loosely defined term generally meaning the ability of U.S. firms to compete with foreign businesses, whether by means of export sales or sales by U.S. firms who have invested abroad. Yet there are few areas in which economic theory and popular beliefs diverge more widely than in international economics and notions of "competitiveness." Given the prominence of competitiveness in the public debate, it is thus useful to examine the international dimension of business taxes' effects in some detail. Contrary to popular arguments that are sometimes made, economic theory indicates that business taxes do not affect the nation's balance of trade—that is, the imposition of federal taxes on business profits does not increase the U.S. trade deficit by reducing U.S. exports or increasing imports. This conclusion may counter intuition at first—surely the imposition of a tax on the profits of a U.S. exporting firm will reduce its sales to foreigners and thus reduce aggregate U.S. exports. But economic theory's rebuttal is equally intuitive: just as an individual cannot consume more than he earns unless he borrows, a country cannot use more than it produces—cannot import more than it exports—unless it borrows to finance the difference by importing foreign investment. Thus, a country can only increase its trade deficit if it imports some additional amount of foreign investment; a country's net exports only increase if its net overseas investment also increases. In slightly more technical terms, a country's balance of trade (its balance on goods and services) mirrors its balance on capital account; the balance of trade changes only if the balance on capital account likewise changes. This relationship is an identity that holds whether or not the international economy is in equilibrium. The particular economic mechanism that enforces the identity under the current regime of flexible exchange rates is exchange rate adjustments. Even if a change in an exogenous variable (e.g., taxes) would otherwise increase net exports, exchange rates adjust to offset any change that would otherwise occur. The implication of this analysis is that business taxes alter the balance of trade only if they also alter net flows of international investment (the balance on capital account). As an illustration, the United States repealed a tax benefit for exporting known as the extraterritorial income (ETI) benefit in 2004. Some observers feared that ETI's repeal would harm U.S. competitiveness. Economic theory, however, suggests that ETI's repeal would have no direct impact on the balance of trade. While some reduction of exports may initially occur, that reduction will stimulate a fall in the price of the dollar in currency markets below what would otherwise occur. The dollar's depreciation will mitigate the initial decline in exports and will also reduce imports. There will be no change in the trade balance (exports minus imports). While business taxes do not affect the trade balance, they can affect the composition of its trade. This outcome follows from one of the foundations of economic trade theory—the theory of comparative advantage. According to this theory, the composition of a country's exports and imports is determined not by how the costs of domestic goods compare to those of foreign goods, but rather by how the costs of domestic goods compare to each other. Under comparative advantage, a country exports what it can produce at lowest cost. The particular composition of its exports and imports thus depends on the particular pattern of costs across all of its products and potential products. Business taxes can alter this pattern of costs and thus alter the content of trade. For example, if taxes apply heavily to one item and fall lightly on another, they encourage the import of the first product and the export of the second. But if business taxes cannot increase net exports and can only change the pattern of trade, this is not necessarily bad news. Standard economic trade theory indicates that countries gain economic welfare by exchanging exports for imports; the exchange enables each trading country to specialize in producing what it produces most efficiently while not sacrificing its use of the higher-cost goods that it imports. In short, a country's economic welfare is not enhanced by the mere act of exporting; it is the ability to exchange exports for imports that makes a country better off (that produces "gains from trade," in economic parlance). Taxes can reduce economic welfare through their impact on trade in a number of ways. One is a reduction in economic efficiency similar to those described in preceding section, but translated to the international economy. If taxes apply unevenly, they may distort the pattern of costs within the economy and distort the composition of trade, thus encouraging a country to specialize in activities at which it is relatively inefficient. A second way taxes can reduce a country's economic welfare is to worsen its "terms of trade," or the quantity (in real terms) of exports it must give up to obtain a given quantity of imports. For example, if part of the benefit of an export subsidy (e.g., ETI) is passed on to foreign consumers in the form of lower prices, the subsidy worsens the subsidizing country's terms of trade; its exports are cheaper for foreign consumers. The subsidizing country's economic welfare is reduced because its own taxpayers are underwriting the price reduction for foreign consumers. Business taxes can have a direct impact on the extent to which U.S. firms invest abroad, and also the extent to which foreign firms invest in the United States. Here, the crucial factor is how taxes (both U.S. and foreign) on an investment in a foreign location compare to taxes on an identical investment undertaken in the United States. To the extent taxes in the foreign location are lower than those on the U.S. project, taxes encourage overseas investment; to the extent U.S. taxes are low relative to taxes on the overseas investment, they encourage domestic, over foreign, investment. If taxes are the same in either location, they have no impact (are "neutral") on location choice. According to traditional economic theory, taxes best promote economic efficiency by not distorting the location of investment; neutrality between overseas and domestic investment best promotes efficiency. But the overall impact of the U.S. system is uncertain. As described above, the United States in some situations taxes the overseas income of its firms on a current basis, while in other instances it permits an indefinite deferral of taxes on foreign-source income; foreign tax credits are provided to alleviate double taxation. The net result of this system for the relative tax burden on foreign and domestic investment is mixed; the system produces a patchwork of incentives, disincentives, and neutrality towards overseas investment that varies, depending on factors such as the level of foreign taxes applied to the investment, the legal form of the investment, and the location and nature of a firm's other foreign investments. The efficiency effect of the system is thus not clear. The first section of this report outlined the current structure of federal business taxation—a separate tax on corporate profits imposed in addition to the individual income tax and net of interest; and taxation of unincorporated business on a current basis under the individual income tax. The report's section on business tax data indicated that while the level of business taxes has generally declined since World War II, important divergences remain in the way different types of investment are taxed. The section on economic effects indicated that these effects can impair economic efficiency, although they likely do not hinder U.S. competitiveness. With these pictures in mind, the report now turns to the principal options for reform that have been developed for business tax policy. Since corporations are economic and legal entities and not people, the question might be raised: why impose a separate corporate income tax at all? The question is made more pointed when the detrimental efficiency effects of a separate tax on corporate income are considered—effects such as the diversion of investment away from equity investment in the corporate sector. A number of arguments, however, can be mounted in favor of a separate tax on corporate income. First, since stock ownership in particular, and ownership of capital in general, is more prevalent among upper-income individuals, the corporate income tax adds an element of progressivity to the tax system; its repeal—absent compensating changes elsewhere in the system—would be, in isolation, a regressive policy change. Second, corporate managers may be able to exercise considerable independence from stockholders in their decisions about corporate investment. To the extent this occurs, corporations do have some existence separate from their stockholders. Third, without a corporate income tax (or tax integration plan, as outlined below), retained corporate earnings would receive favorable tax treatment. And finally, even if corporations are not people and have no existence separate from their stockholders, many individual taxpayers nonetheless compare the taxes they pay with those paid by large corporations and draw conclusions about fairness from that comparison. And even if such comparisons, from an economic standpoint, are not appropriate, they do affect perceptions about the fairness of the tax system—perceptions that are important to the acceptance of the tax system by the public at large. While the current system does tax corporations as though they were separate entities, it does not do so on a comprehensive basis. Numerous important omissions from the tax base would exist if all corporate profits were taxed on the same basis. Thus, if the validity of a separate corporate income tax is accepted, one hypothetical direction that tax reform might take is to move in the direction of a more pure version of the "classical" system of taxing corporate income—to eliminate the various omissions in the tax base and non-neutralities embedded in the current system. Setting aside the distortions that result from the existence of the corporate income tax in the first place, such a reform would likely minimize the inefficiencies and distortions that exist within the classical system. As noted at the outset of the report, such was a guiding principle of the Tax Reform Act of 1986. How much does the current system depart from a comprehensive tax on corporate income? One considerable departure is the omission of income from debt-financed investment from the tax base—an omission that occurs when interest payments are deducted. Income generated by debt-financed investment is income from capital just as surely as is income from equity investment. Debt's omission from the tax base distorts firms' financing choices, favoring debt over equity and enticing firms to accept a higher risk of bankruptcy than is economically efficient. Nonetheless, simple elimination of interest deductibility has rarely been proposed outside of a movement away from the classical system by adoption, for example, of tax integration (discussed below). Another important determinant of the corporate tax base is depreciation. One important element of the 1986 act's reform was its evening-out of depreciation allowances across assets. The act implemented depreciation allowances that were more closely aligned with actual economic depreciation. Together with the act's repeal of the investment tax credit, the depreciation revisions reduced prior law's general preference for equipment and relatively short-lived assets over structures. Since 1986, however, a wedge has reemerged between equipment and structures, although—setting aside the temporary bonus depreciation for equipment—this has been more a consequence of changed economic conditions (reduced inflation) and a lengthening of depreciation allowances for structures than reintroduction of accelerated depreciation. Nonetheless, a likely ingredient of tax reform based on comprehensive income taxation would be a realignment of depreciation allowances with economic depreciation. Another prominent departure from comprehensive taxation is the deduction for domestic production that was enacted by the American Jobs Creation Act of 2004 ( P.L. 108-357 ). The deduction is 9% of income from domestic production activities; it cannot be applied to income from overseas investment. Other omissions from the tax base are more narrowly targeted tax benefits—for example, the section 179 expensing allowance from equipment investment of small businesses, the tax credit for research and experimentation, and various provisions applicable to the oil and gas industry. The Joint Committee on Taxation (JCT) maintains a list of "tax expenditures" or provisions that carve out special tax treatment for particular activities, income, or investments; a relatively comprehensive list of omissions from the corporate tax base can be obtained by consulting the JCT list. A tax reform that moves in the direction of comprehensive income taxation would presumably scale back items included in the list of tax expenditures. As described above in the section on the economic effects of business taxation, the current "classical" system of taxing corporate income results in a number of distortions in the allocation of investment, thus reducing economic efficiency and causing a concomitant reduction in economic welfare. For this reason, economists have long advocated some form of tax "integration"—a term that refers to eliminating double taxation of corporate income by altering the general system of taxing corporate-source income. Integration proposals vary, but fall into two broad categories: those that apply to both retained earnings and dividends and thus all corporate profits ("full integration"), and those that change the treatment only of earnings that are distributed ("partial integration"). There are three basic approaches to full integration, which differ in whether double taxation is removed at the corporate level or at the individual level. The "shareholder allocation" method is similar to partnership taxation. The corporate income tax would be repealed, and corporate profits—whether retained or distributed—would be allocated among the firm's owners, who would pay individual income taxes on the corporate income. Thus, corporate income would be taxed once, in the hands of individuals. A second approach is "shareholder credit" integration, under which the corporate income tax would be retained, but corporate stockholders would receive a tax credit for the corporate-level taxes paid by the paying corporation. An adjustment to the capital gains portion of the credit would be made to account for the capital gains resulting from both retained earnings (that have been subject to the corporate income tax) and other price appreciation. Under this approach, while relief would be provided at the individual level, taxes would be paid on the corporate income tax at individual income tax rates. Thus, the corporate income tax would function much like a withholding tax. A third approach is to retain the corporate income tax, but exclude corporate-source income from individual income taxes—a relatively simple method to implement for distributed earnings, but difficult to administer for the portion of capital gains attributable to reinvested earnings. In the latter case, stockholders' basis in stock would have to be adjusted to reflect retained earnings, so as to exclude only gains attributable to retained earnings. In 1992, a U.S. Treasury report outlined a variant of this method, termed a "comprehensive business income tax" (CBIT), under which corporate-source income would not be taxed at the individual level. The corporate income tax would be retained, and interest deductions would not be permitted. Partial integration by means of an exclusion for dividends received by stockholders would thus be relatively straightforward. Indeed, the reduced individual income tax rate that the Jobs and Growth Tax Relief Act of 2003 (JGTRRA) applied to dividend income can be viewed as a form of shareholder-level partial integration, akin to a shareholder exclusion that applies to only part of received dividends. Similarly, a shareholder-credit version of integration that would be restricted to dividends paid would be more straightforward than the full-integration version of a credit system. A partial-integration form of the shareholder credit method is the system used most frequently by European and other foreign countries that have adopted integration. Each method of integration has its particular advantages and disadvantages. As suggested in the preceding discussion, partial integration is simpler and easier to administer than full integration; on the other hand, it does not achieve all the efficiency gains under full integration, since a part of corporate income would still be taxed twice. Also, the different plans differ in their revenue cost, with the full-integration methods generally losing more revenue than partial integration plans, and shareholder allocation methods reducing revenue more than other methods. Either tax integration or a tax based on a comprehensive measure of income would qualify as fundamental tax reform. Each would entail substantial changes to the current system and would use a tax base supported by a relatively consistent concept of income. In popular discussions, however, the term "fundamental tax reform" has frequently referred to a different type of tax change: replacing the current federal individual and corporate income taxes with a system that taxes consumption but exempts saving. Most taxonomies list three basic types of national-level consumption taxes: value-added taxes; a national sales tax; and a tax on individuals' consumed income. In addition, a prominent "flat tax" proposal would consist of a form of value-added tax imposed at the corporate level and a wage tax at the individual level. The different forms of consumption taxes differ chiefly in their methods of collection and, as a result, their ease of administration and compliance costs. Their general effect on business taxes, however, would be the same: income from new business investment would be exempt from tax under each form. In the near term, however, income from investment in place at the time of transition would generally be taxed. Turning to specifics, a national retail sales tax would operate much as do the sales taxes imposed by most states: the tax would be imposed on final sales from businesses to consumers; businesses would collect the tax and remit it to the government. In general, business-to-business sales (sales of intermediate goods) would be exempt from the tax; the levy would be applied to imports, but exported goods would be exempt. To the extent that business inputs are included in the base of a national sales tax, the product to which they contribute would be subject to multiple layers of tax; such cascading would carry the potential of inefficient distortions, diverting resources away from the heavily taxed products. Accordingly, an important task under a national sales tax would be distinguishing between business and non-business uses of purchased items, so as to exempt the former and tax the latter. One possible method of doing so would be to issue exemption certificates to businesses so as to remove their purchases from the tax base. Nonetheless, making the distinction would likely present significant administrative and compliance problems, particularly in the case of items that lend themselves to both business and personal use (e.g., many services). Compliance might also present a problem, given the high tax rate that would likely be necessary to avoid a revenue loss if income taxes were abolished. As the term implies, value-added taxes (VAT) are levied on the value added by each firm in a good's production process. VATs thus differ in their point of collection from retail sales taxes, but by the final stage of production the cumulative rate of the VAT on an item is the same as that of a sales tax (assuming each is applied uniformly). There are two general methods by which VATs are administered: credit-invoice and subtraction. Under a credit-invoice method, a business is assessed VAT on its gross receipts, regardless of whether its sales are made to another business or to a final consumer. At the same time, the firms from which it has purchased its inputs provide it with invoices showing the VAT the suppliers have already paid with respect to the inputs. The purchasing firm claims the VAT shown on the invoice as a credit against the VAT on its own sales. As a result, for each firm, the VAT applies only to value added. Under a subtraction-method VAT, tax is levied on a firm's gross receipts after subtracting purchases from other firms. What is left, then, as the base of the tax is the return to capital (profits) and the return to labor (wages)—the value added by the taxed firm. Despite the difference in administration, a subtraction-method VAT and a credit-invoice VAT produce the same tax, assuming they are levied at the same rate. It should also be noted that, as with a sales tax, each is levied on imports, but exports are not included in taxable gross receipts. In the case of the credit-invoice method, an exporting firm receives a tax rebate for taxes paid with respect to its inputs. A variation on the subtraction-method VAT is the so-called "flat tax"—sometimes termed the Hall-Rabushka proposal after its designers. Under the flat tax, a subtraction-method VAT would be imposed on business—that is, firms would pay a tax on gross receipts minus items purchased from other firms. In contrast to a pure VAT, however, firms would also be permitted to subtract wages from gross income, thus removing from the business-level tax base that portion of the firm's value-added contributed by labor. Individuals, however, would be assessed a tax on wages received, thus bringing the value added by labor back into the tax base, albeit at the individual level. By the final stage of production, the cumulative rate of a VAT on an item is the same as that of a sales tax, assuming neither contains special allowances and benefits. Thus, their broad economic effects are the same. But since the two types of tax differ in how they are collected, there are differences in compliance and ease of administration. A VAT would impose a higher compliance burden on businesses in general than a retail sales tax; under a VAT, every business would be required to file a tax return, not just businesses in the retail sector. At the same time, a VAT avoids the administrative problem of distinguishing business use of items from personal use. Further, some analysts have argued that small businesses would likely encounter high compliance costs under a national sales tax, and small businesses are relatively numerous in the retail sector. Thus, compliance rates may be higher under a VAT. A third type of consumption tax is a tax on consumed income imposed at the individual rather than business level. Individual income consists of consumption plus saving. Thus, individuals would calculate their tax by subtracting saving from their income and paying tax on the residual. Business investments made by individuals would be characterized as saving, and thus an exempt use of income. Thus, for example, an individual's purchases of stock would be deducted from taxable income, as would, say, the purchase of a new machine by a small business owner. Note that an individual consumption tax is defined in terms of the uses of income rather than its source. Thus, it is business investment that is deductible rather than income generated by businesses. However, arithmetic dictates that deducting the cost of a capital investment at the time it is made ("expensing" the investment) produces a tax saving that is identical in present-value terms to exempting the net income the investment produces as it is generated over the investment's lifetime. Thus, deducting business investment on the uses side of the income ledger is the same as exempting income from new investment on the sources side. New business investment bears no burden under an individual consumption tax. A consumption tax exempts from its coverage income that is saved, which is the equivalent of exempting investment income. In short, under any form of pure consumption tax—be it a sales tax, a VAT, or an individual consumption tax—business profits are ultimately exempt from tax. As a result, if it is assumed that a consumption tax would not contain its own preferences for special goods or services (an assumption that is perhaps heroic), the various non-neutralities existing under the current system of business taxation would be eliminated. As described in the preceding section on economic efficiency, these include current law's preference of non-corporate investment over the corporate sector, of corporate debt over equity, and of machines and equipment over inventory and structures. If these non-neutralities were eliminated under a consumption tax, business investment—especially corporate investment—could be expected to increase under a consumption tax, as well as equity finance and investment in assets other than equipment. Economic efficiency could potentially increase. It is worth underlining, however, that it is not the taxation of capital per se that produces these non-neutralities, but the particular shape of capital income taxation that has gradually come into being in the current system. Under a consumption tax, non-neutralities affecting business might be implemented in a different way, but the result might still be distortions in the allocation in business investment. For example, a sales tax or VAT might exempt a particular type of good from taxation, which would favor investment in the sector producing that type of good. The transition to a consumption tax would likely include significant effects in the short and medium term. Perhaps most importantly, a consumption tax would exempt the return to new investment, but would still apply to income produced by investment in place at the time of the tax's implementation. Note that under none of the types of consumption taxes outlined above would a firm be able to continue to recover the cost of capital in place at the time of transition, either through depreciation or other deductions. At the same time, revenue produced by old investments would be included in the tax base, producing a windfall loss for owners of existing capital. Firms affected most heavily by the taxation of old capital would be older, slow-growing firms. Also, if a uniform consumption tax were adopted and existing business distortions were consequently eliminated, as described above, transition effects would include a shift of resources away from previously favored investment. For example, business sectors where corporate production is intensive would benefit, as would firms with low debt-to-equity ratios and production processes favoring machines and equipment over structures. A frequently made popular argument for a consumption tax relates to its purported beneficial effects on competitiveness. As described above under the heading " Taxes and Trade ," economic theory indicates taxes have little impact on competitiveness as it is popularly understood. However, a specific argument relating to "border tax adjustments" is frequently made in support of consumption taxes, so the argument is worth describing here. The argument—frequently made by businesses—focuses on the fact that foreign firms in VAT countries receive a rebate of the VAT on exports to the United States and elsewhere. Thus, it is argued, foreign firms from VAT countries have a cost advantage over competing U.S. firms. As described in the section on competitiveness, however, taxes or tax-related mechanisms such as VAT rebates do not directly alter the balance of trade. In the particular case of VAT rebates, exchange rate adjustments in response to the rebates act to eliminate any impact on the balance of trade or "competitiveness." While the charts presented earlier in this report show that the level of the corporate tax has generally fallen in the decades since World War II, the basic structure has remained the same: a "classical" system under which the corporate income tax is superimposed on the individual income tax. In 1986, the far-reaching Tax Reform Act implemented reforms within the context of the existing system, broadening its base and reducing rates. In recent years, however, concern about the impact of the system on capital formation and U.S. performance in international markets has stimulated interest in a more substantial structural change, either by adopting tax integration or moving towards a consumption tax.
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A foundation of the broad tax revisions implemented 24 years ago by the Tax Reform Act of 1986 was tax "neutrality"—the idea that economic efficiency and economic welfare are promoted if the distorting impact of taxes on business and other economic decisions is minimized. Based on this principle, the 1986 act broadened the tax base and reduced statutory tax rates set forth by the tax code. In time, however, the underlying thrust of tax policy has changed. Rather than neutrality and efficiency, recent business tax legislation has been guided more by a concern for promoting investment and capital formation, and by attention to the perceived impact of taxes on the ability of U.S. firms to compete with foreign companies. Further, recent interest in fundamental tax reform has been partly stimulated by these same concerns for capital formation and competitiveness. Twenty-four years after the 1986 act, business tax policy is thus potentially at a crossroads, and it is useful to take stock of where the system stands, the economic effects it is known to have, and the principal options for reform. Several data series show a similar pattern in the level of corporate taxes: corporate income taxes have generally declined over the post-World War II period. At the same time, however, significant disparities in the structure of business taxes have remained, suggesting a persistence of distortions caused by the tax system: corporate-sector investment remains heavily taxed compared to non-corporate business and owner-occupied housing; debt is favored over equity; and equipment is favored over structures. The base of business taxation is the return to business investment; business taxes thus influence the economy through their impact on investment. In broad terms, business taxes can, at least in principle, reduce capital formation and thus impair long-term economic growth by making saving and investment less attractive. This effect, however, depends on a robust saving response to taxes, the presence of which is uncertain. Another impact is on the allocation of investment among different sectors and asset types. Here, business taxes likely distort investment decisions, reducing economic efficiency and economic welfare. In the case of equity, economic theory suggests that in the long run, the burden of business taxation is shared among all owners of capital and has a progressive effect on the tax system. Various hypothetical alternatives exist for reforming the business tax system. One possibility is to move in the direction of the 1986 Tax Reform Act by broadening the existing tax base—that is, by eliminating tax benefits and preferences. Another possibility—and one that is favored by many economists—is to adopt some form of tax integration that would eliminate the double taxation of corporate income. A third option is to adopt a form of consumption tax, under which new business investment would be exempt from tax. Either corporate tax integration or a consumption tax could improve economic efficiency, but only if the design were to avoid the types of distortions present in the current system. This report will be updated in the event of major changes in the business tax system.
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Al-Jazeera (which means "the peninsula," or "the island") was founded in 1996 in Qatar after the new Emir of Qatar, Shaykh Hamad bin Khalifa Al-Thani, purchased the rights to the Arabic TVdivision of the British Broadcasting Corporation (BBC) News Service. The BBC had been trying todevelop an all-Arabic television station in conjunction with the Saudi-owned Orbit Radio andTelevision Service. The joint venture failed after the two parties could not agree on issues relatingto the new station's editorial independence. (1) TheQatari monarchy, which also has closely aligneditself with U.S. policy in the Persian Gulf region, was embarking upon a limited course of politicalliberalization and believed that modernizing Arab media was central to its reform effort. The Emirof Qatar provided Al-Jazeera with an initial grant of $137 million, (2) allowing the station to retainmany of the BBC's recently hired Arab correspondents, many of whom are prominent Egyptian andLebanese journalists with western training. Prior to Al-Jazeera, Arab audiences could receive their news from either state-owned media or from several Arab satellite variety channels that broadcast both entertainment and newsprogramming. The news on all of these channels was, and still is, to some degree censored andcontrolled by state authorities. Even transnational, subscription-based Arab satellite channels tendto reflect the viewpoints of the governments of the countries in which they are located. (3) Therefore,many analysts considered Al-Jazeera to be a novelty in the Arab world, not only because it was thefirst 24 hour, all-news Arabic television station, but also because it allowed its commentators andguests more latitude in expressing their opinions (including criticisms of Arab governments) thanhad been previously regarded as the norm in the Arab media. In fact, the creators of Al-Jazeeramodeled the station's format after western news services such as the Cable News Network (CNN)and the BBC, professing admiration for western stations' roundtable discussion programs,one-on-one interviews, and documentaries. Although Al-Jazeera borrowed the format of CNN, its creators set out to differentiate Al-Jazeera from its western counterparts. Many of Al-Jazeera's correspondents were drawn to workfor the station because they felt that American and British coverage of the 1991 Gulf War was noteven-handed in that it paid insufficient attention to topics of interest to Arab audiences, such as theplight of Iraqi civilians during the conflict. Thus, Al-Jazeera believes that it provides an alternativeperspective, particularly to the American and British news media. Al-Jazeera's motto, "The Viewand the Other Point of View," reflects its desire to be an uncensored, authentically Arab news sourcefor Arabs. Although Al-Jazeera, like most 24-hour news networks, intersperses news updates with headlines, sports, and financial news broadcasts throughout the day, its regularly scheduledprogramming is unconventional when compared to other Arab networks. Al-Jazeera has programssuch as "The Opposite Direction," "Without Borders," "The Other Opinion," and "Open Dialogue,"each of which features a well-known host who facilitates a lively discussion with some call-inquestions and comments. Viewers of Al-Jazeera have noted that the station's staff often try toencourage confrontation by pitting guests with opposite viewpoints against one another in debate.This approach has proven to be informative and entertaining for many viewers; however, some Arabintellectuals have criticized the approach as being too sensationalistic and heated. Beyond Al-Jazeera's programming, many western critics have accused the station of creating inflammatory lead-in segments to news reports, which often feature montages of violence in theWest Bank and Gaza Strip, Afghanistan, or Iraq. These short snippets contain flashes of provocativepictures, usually of human suffering, accompanied by dramatic background music. Al-Jazeera calledits coverage of Operation Iraqi Freedom, "The War Against Iraq," and used lead-ins that showedcivilian casualties in Iraqi hospitals, exploding bombs in Baghdad, and U.S. soldiers on patrol incivilian areas. Some suggest that Al-Jazeera is merely following a Middle Eastern tradition ofdramatizing news events by appealing emotionally to the viewer. According to Al-Jazeera'sWashington Bureau Chief, Hafez Al-Mirazi, "there is a feeling in our newsroom that you need to beas realistic as possible and carry the images of war and the effect that war has on people ... yourpopulation shouldn't just eat their dinner and watch sanitized images on TV and video gamesproduced by the technological whizzes in the Pentagon and say this is war." (4) Since its inception, Al-Jazeera has received an enormous amount of publicity for breaking many of the taboos of self-censorship in the Arab media. New York Times columnist Tom Friedman wrotethat Al-Jazeera is "not only the biggest media phenomenon to hit the Arab world since the adventof television, it also is the biggest political phenomenon." (5) Indeed, many Middle Eastern expertshave praised Al-Jazeera for creating a forum in which Arab opposition movements can freelycriticize their host governments without fear of retribution. According to Edmund Ghareeb, an experton Middle Eastern affairs, "it has raised the level of debate and opened the door for freer and moreaccurate news in the Arab world ... Al-Jazeera has helped satisfy a hunger in the Arab world. Itsdebates and discussion programs are tumultuous even by western standards." (6) However, for all of the praise Al-Jazeera has received, there has been an equal amount of criticism regarding the network's perceived lack of objectivity. Many western media analysts haveasserted that Al-Jazeera's western-style format is merely a cover for a reporting style that is slantedtoward a popular pan-Arab, pan-Islamist viewpoint. According to critic Fouad Ajami of JohnsHopkins University, "no matter how many Americans show up on Al-Jazeera, the station will pursueits own oppositional agenda. Al-Jazeera's reporters see themselves as anti-imperialists. These menand women are convinced that the rulers of the Arab world have given in to American might; theseare broadcasters who play to an Arab gallery whose political bitterness they share -- and feed." (7) Moafac Harb, director of network news for the U.S. government's Middle East Radio Network,known as Radio Sawa, has argued that Al-Jazeera feigns its objectivity by inviting U.S. and Israeliofficials to present their views, while carrying provocative analysis in the studio, or one-sided newsstories lacking neutrality prior to or following these same interviews. (8) U.S. Ambassador Chris Ross,a fluent Arabic-speaker who has appeared on Al-Jazeera several times, commented that "it[Al-Jazeera] has a clear point of view on the events it is presenting for analysis and discussion ...with Al-Jazeera what you often get is several people, but all at one end of the spectrum. So there'swork to be done to induce more balance. But on the whole the advent of Al-Jazeera and other Arabsatellite stations has been a great step forward in opening up the intellectual and cultural life of theArab world." (9) In May 2003, Britain's Sunday Times reported that Iraqi intelligence files uncovered after the Iraq war revealed that Iraqi intelligence had penetrated Al-Jazeera and had agents working there. (10) Shortly after this revelation, Al-Jazeera replaced its Chief Executive Officer, Mohammed JasimAl-Ali, who had been CEO of Al-Jazeera since its inception. According to press reports, thedocuments, which were obtained in Baghdad by the Iraqi National Congress, indicated that Al-Alimade clear to Iraqi agents that coverage would favor the Saddam Hussein regime. Al-Ali willcontinue to serve on Al-Jazeera's board of directors. Defenders of Al-Jazeera have decried criticism of the station, noting that all newspapers and television stations have some degree of bias and that Al-Jazeera has at least given air time todissenting opinions. According to the Beirut-based Daily Star , "in its coverage of the Intifada (Palestinian uprising), and the war in Afghanistan, Al-Jazeera has actually given a voice to every sidein the conflict, and done nothing more than televise the images its reporters are seeing." (11) In aninterview with the Christian Science Monitor , the chair of the department of journalism and masscommunication at the American University of Cairo remarked that "sure, the news we get in theArab world is slanted ... in the same way the news received in the U.S. is biased." (12) There has been considerable speculation as to why the station has been able to report the news freely, given the restrictive media environment in neighboring Arab states. Many commentators haveattempted to answer this question by pointing to the nature of the Qatari state, as well as to the effortsof the Emir of Qatar to liberalize Qatari society, while using these political and social reforms topromote Qatar itself and increase its regional and global influence. Qatar is one of the most stablecountries in the Middle East, with a per capita income of over $25,000 for a population of 800,000people, only 170,000 of whom have citizenship (the majority of the rest are foreign workers fromSouth East Asia and the Phillippines). Analysts have pointed out that Al-Jazeera's openness andits"maverick" reporting style serves to promote Qatar as a progressive, modern state in the MiddleEast. Indeed, although the Qatari government has publicly sought to distance itself from Al-Jazeera,in terms of ownership, organization, and editorial output, both the state and the station enjoy amutually beneficial relationship, in which the visibility of Al-Jazeera has led to an increase in theprominence of Qatar. Thus, Al-Jazeera, although functionally independent, (13) could be said toindirectly serve the foreign policy goals of Qatar. Some experts question whether, in the long term, Al-Jazeera can maintain independence if it is unable to wean itself off of Qatari state financing. Originally, Al-Jazeera executives believed thatAl-Jazeera would be profitable by 2001. Two factors have prevented the station from generatingmore revenue: First, general market conditions in the Middle East advertising industry have not beenfavorable. There are already several Arab satellite television channels and as more stations comeonline and the situation in Iraq remains uncertain, advertising revenue will remain uneven. Second,there is a hesitation on the part of Arab conglomerates to advertise on Al-Jazeera, as they are fearfulthat Al-Jazeera's shaky relationships with Arab governments could harm their business interests.Because of these obstacles, the station is still running annual deficits, despite its rather leanworkforce of 775 employees worldwide (CNN has 4,000 and BBC has 3,300). Several U.S.companies have run advertisements on Al-Jazeera, including General Motors, Gillette, and Procterand Gamble. (14) Al-Jazeera's continued dependence on Qatar's financial backing has blurred the line between its status as a private or public news organization. Al-Jazeera has demonstrated characteristics ofboth a privatized and a state-run news network, as Qatar exerts little editorial control over day-to-daynews reporting while subsidizing Al-Jazeera's annual budget. Although Al-Jazeera may subtlypromote Qatar's political outlook, it does so under the umbrella of a regional news provider, makingit appear less tied to any one Arab government. Nevertheless, Al-Jazeera's executives have promotedtheir channel's independent image, which raises the following questions: As Al-Jazeera remains inan ambiguous position regarding its private or public status, will some analysts start to overlook thatstatus and treat Al-Jazeera as just another state-run media outlet, albeit one more sophisticated andpopular than the rest? Or, will Al-Jazeera secure the necessary advertising revenue to cover costs,perhaps leading to a looser arrangement with the Qatari government? Although Al-Jazeera has drawn praise for its willingness to discuss aspects of Arab politics previously considered off limits in Arab discourse, (15) critics continue to point out that Al-Jazeera doesnot treat Qatar with the same degree of scrutiny as it does other Arab governments. Al-Jazeeraexecutives have countered that Qatar is relatively free of political strife and therefore does notrequire much attention. However, according to the Asian Times , "it (Al-Jazeera) soft-peddles itsdomestic critique. Al-Jazeera has been dogged in its coverage of financial and political deals cutbetween Arab governments and Israel, but when allegations came out that Qatar had opened a tradeoffice in Tel Aviv, the station did not go after the story." (16) Other commentators have asked why thestation has not fully explored Qatar's friendly relationship with the U.S. military. AlthoughAl-Jazeera's website did cover a December 2002 U.S. war game in Qatar, dubbed "OperationInternal Look," there have been few attempts to examine the U.S. military presence in Qatar. Al-Jazeera's coverage of Iraq has drawn both praise and criticism. Al-Jazeera's first foray into the Iraq-U.S. confrontation came in 1998, when Iraq and the United States were in a standoff overthe removal of U.N. weapons inspectors from Iraq. Al-Jazeera outmaneuvered other networks, mostnotably CNN, by having correspondents in Iraq once the United States and Britain launched air andmissile strikes as part of Operation Desert Fox. Al-Jazeera also obtained an exclusive interview withSaddam Hussein, who reportedly wanted to deal with a station that could reach a wide Arabaudience. Some observers have contended that Al-Jazeera's popularity and credibility in the MiddleEast was established at that time. On the other hand, Al-Jazeera's detractors accused the network ofportraying Iraq as a victim during the standoff, focusing more on the detrimental effects of economicsanctions than on Saddam Hussein's disregard of United Nations' resolutions. Al-Jazeera's coverage of the 2003 war in Iraq has become a story within the wider story of the war. Following previous patterns, Al-Jazeera has been recognized for its access inside Iraq, (17) whilebeing criticized for being sensationalistic and slanted in its coverage of the U.S. military operation.Some observers have praised Al-Jazeera for keeping several reporters and camera crews on theground in Baghdad, Mosul, and Basra and delivering live feeds of wartime footage, to which severalU.S. news networks, including CNN, have access through partnership agreements. (18) According to BusinessWeek , during the Iraq war, Al-Jazeera had more reporters in Iraq than any other major newsstation. (19) Al-Jazeera also is one of the few stations that has aired press briefings from Iraqi officials, as well as video footage whose authenticity has been disputed of Saddam Hussein in meetings withother senior Iraqi leaders. Several U.S. officials and independent analysts have appeared on thestation to give commentary on the U.S. war effort. Prior to the start of the war, the Pentagon grantedAl-Jazeera four "embedded" slots with the U.S. military. However, most of Al-Jazeera's reporterson the ground have remained independent of the U.S. military. According to Georgetown UniversityProfessor Samer Shehata, "the war coverage on Al-Jazeera compares favorably with the warcoverage on American networks ... they have a perspective. It's from a perspective of what the waris like for the Iraqi people ... but I've never seen anything favorable to the Iraqi regime onAl-Jazeera." (20) Negative reaction to Al-Jazeera's coverage of Operation Iraqi Freedom has come from many fronts. U.S. Administration officials, Members of Congress, and some independent analysts wereangered that U.S. prisoners of war and several dead U.S. soldiers were displayed on Iraqi TV andon an Al-Jazeera broadcast in late March 2003. U.S. officials accused Al-Jazeera of providing avehicle for Iraqi propaganda and for actions that violated international rules on handling of prisonersof war. In testimony before the House Armed Service Committee on April 4, 2003, W. Hays Parks,special assistant to the Judge Advocate General of the Army, stated that "Iraqi Television andal-Jazeera have aired a tape of U.S. soldiers answering questions in humiliating and insultingcircumstances designed to make them objects of public curiosity, in violation of the GPW (1949Geneva Convention Relative to the Protection of Prisoners of War)." (21) Others have pointed to the overall tone of Al-Jazeera's broadcasts, labeling them inflammatory, emotional, and slanted toward covering the suffering of the Iraqi people, rather than Iraqiscelebrating the demise of the Hussein regime. In one broadcast from a Baghdad hospital wherewounded children were shown, an Al-Jazeera correspondent commented with distress that "they saidit would be a clean war, they said they wouldn't hit civilians, they said they wouldn't hitinfrastructure, they said, and said, and said." (22) Inaddition, Al-Jazeera has come under fire for itschoice of terminology, which many commentators have suggested is heavily weighed against theUnited States. For example, coalition troops are sometimes called "invading forces"and suicideattacks are called "martyrdom operations," terms that Arab governments and the Arab media oftenuse to describe the Israeli army and Palestinians. In the United States, the New York Stock Exchange revoked the credentials of Al-Jazeera, saying its credentials were only for news that provided "responsible" coverage. (23) In addition,Akamai Technologies, an Internet Developer based in Cambridge, MA, cancelled a contract toprovide web services for Al-Jazeera's new English language website. On the other hand, Iraqiofficials demanded that several Al-Jazeera correspondents leave Iraq, accusing the station of beingan extension of U.S. propaganda after Al-Jazeera broadcasted images of Iraqis trampling on picturesof Saddam Hussein. In response, Al-Jazeera suspended coverage by its correspondents in northernand southern Iraq. Nevertheless, Al-Jazeera reportedly has substantially increased its subscriber base since the start of the war and has received much media attention. An Al-Jazeera correspondent, Tariq Ayoub, waskilled in Iraq after U.S. missiles struck a hotel in downtown Baghdad. The hotel has been a base forforeign reporters. Al-Jazeera accused the United States of deliberately targeting its journalists, anaccusation the United States denied vehemently. During the war in Afghanistan in 2001,Al-Jazeera's Kabul office was accidently struck by U.S. fire. Despite Ayoub's death, a recent articlein The NewYorker noted a marked improvement in relations between Al-Jazeera and the U.S.military. According to Al-Jazeera producer and reporter Omar al-Issawi, "slowly, people atCENTCOM are starting to realize that we're not the enemy ... we're not some insensitive monsterbent on bashing America." (24) In postwar Iraq, Al-Jazeera has continued to slant its coverage against the United States, labeling Iraqi attacks against U.S. forces as "resistance" to the "occupation." (25) Although many ofAl-Jazeera's reports from Iraq are factual accounts of the latest events, reports are often followed bycritical statements of local Iraqis without providing the perspective of coalition forces. Al-Jazeera'sIraq coverage is often introduced by a short series of images, depicting U.S. soldiers in a negativelight. Although Al-Jazeera's coverage of Operation Desert Fox brought the station much notoriety in 1998, it was its proximity to Osama Bin Laden and the Al Qaeda terrorist organization thatbrought the news network into the global mainstream. When the United States began OperationEnduring Freedom in Afghanistan on October 7, 2001, Al-Jazeera was the only major news networkwith a field office in Kabul. As was the case in Iraq, many observers were impressed with thestation's ability to "get the scoop," as western networks were forced to rebroadcast Al-Jazeeratransmissions with their now identifiable gold logo in the corner of the screen. However, Al-Jazeera's considerable access to the Taliban and Al Qaeda also brought it a high degree of scrutiny from western governments, particularly after it aired taped speeches of Osama BinLaden. Al-Jazeera had been airing taped interviews and footage of Osama Bin Laden since 1998, aspart of its regular coverage of the region. (26) However, after the attacks of September 11, 2001 andAl-Jazeera's airing of a Bin Laden tape only hours after the start of Operation Enduring Freedom,some western media outlets began to accuse Al-Jazeera of being a mouthpiece for Al Qaeda; (27) otherobservers even accused the station of collaborating with Al Qaeda. Bush Administration officials were displeased with the station's decision to air the tapes, as Secretary of State Colin Powell criticized Al-Jazeera for carrying "fierce" and "irresponsible"statements from Osama Bin Laden and other Al Qaeda spokesmen. (28) Other officials, includingNational Security Director, Condoleezza Rice, held meetings with the major U.S. news networks toformulate a common policy toward future broadcasts of any new Bin Laden tape. Al-Jazeera staffersand others criticized the U.S. government for trying to censor free speech. U.S. officials respondedby asserting that the broadcasting of Bin Laden's tapes could pose a threat to national security andsuggesting that his speeches might contain hidden messages to followers around the world. Since the initial controversy over the Bin Laden tapes, there have been a number of reports as to why Al Qaeda chose Al-Jazeera as a conduit for its messages. Many analysts believe that AlQaeda was attracted to Al-Jazeera's large Arabic-speaking audience. Observers also speculated thatAl-Jazeera, eager to make headlines and without rigorous governmental scrutiny, was in a positionto broadcast the Bin Laden tapes, as opposed to the more cautious Arab state media. Some analystsconsidered that Al Qaeda would have found Al-Jazeera to be sympathetic to its cause based on thenetwork's past coverage of Iraq in 1998. One theory explaining the Al-Jazeera - Bin Ladenconnection comes from Al-Jazeera's London Bureau Chief, Yosri Fouda, who interviewed two ofAl Qaeda's top leaders, Khalid Sheikh Mohammed and Ramzi bin Al-Sheeba (both are now in U.S.custody). Fouda had been chosen by Al Qaeda's leaders to tell their story. According to Fouda: I asked them [Al Qaeda], first of all, why me? And they said that there are other journalists both inside and outside of Al-Jazeera who are thought of ashaving some sort of degree of sympathy with their cause. So for that very reason, they said theywanted to have this story done by someone "more secular in his professional approach"so that theirmessage would carry more credibility ... it confirmed my initial impression that there is someonewho understands media, and particularly television, inside Al Qaeda." (29) Al Qaeda may have been looking for an outlet like Al-Jazeera, knowing that the station was eager to break a big story and would be willing to present their point of view without editorializing itscontent. In a New York Times Magazine feature on Fouda, author Peter Maass noted that "Fouda isa chameleon ... he mixes easily at both mosques and pubs. He is, in this way, an excellent journalist,because he can pretend to be all things to all people, including a friend to terrorists." (30) Some commentators have pointed out that Al-Jazeera's coverage of U.S. operations in Afghanistan in 2001 was similar in focus to its coverage of Iraq a year and a half later. Again, criticshave noted that the station aired Taliban claims of military successes on the battlefield with little orno response from U.S. officials. Al-Jazeera also was criticized as placing virtually exclusiveemphasis on the plight of Afghan civilians and the destruction caused by American bombing, airinggruesome images of wounded Afghan women and children. Whereas in U.S. government parlance,the war in Afghanistan was part of a larger "war on terrorism," Al-Jazeera's method for describingthe war came with the preface of "the war on what it calls terror." (31) Analysts further criticizedAl-Jazeera's alleged overemphasis on covering civil liberties violations of American Muslims,asserting that such violations were the acts of individuals and contrary to U.S. policy. As one of the most politically divisive conflicts in the world, the Israeli-Palestinian conflict has been a source of contention for the world's media, challenging the objectivity of western andnon-western media outlets alike. Within this context, many observers believe that Al-Jazeera is nodifferent. Like other Arab networks and newspapers, it has covered the conflict from a distinctlyArab perspective. According to one Al-Jazeera correspondent based in the West Bank, "to beobjective in this area is not easy because we live here. We are part of the people of here. And thissituation belongs to us also, and we have our opinions." (32) In contrast to state-controlled Arab media, Al-Jazeera has taken the controversial step of broadcasting interviews with and statements by Israeli officials, a practice shunned by many Arabchannels. Al-Jazeera has invited Israeli leaders such as Shimon Peres and Ehud Barak on air for TVinterviews. Israel also has sent officials, some of whom are fluent in Arabic, from its ForeignMinistry to appear on Al-Jazeera. Indeed, some Arab governments, newspapers, and even Palestinianhard-liners have accused Al-Jazeera of being in league with Israel and acting as an extension ofIsraeli intelligence. Al-Jazeera has noted that Arab governments tend to vocalize accusations ofAl-Jazeera's collaboration with Israel during times of tension between the station and foreign Arabgovernments. (33) Despite the novelty of Israeli officials on Arab television, some analysts have pointed out that, in covering the Israeli-Palestinian conflict, Al-Jazeera follows a similar approach to its coverage ofthe war in Iraq and the war on terrorism in Afghanistan: it uses vivid, violent montages of Palestiniansuffering to introduce news segments; it employs language which describes suicide bombings as"martyrdom operations;" and it calls the Israeli army an "occupation force." This approach hascaused some experts to suggest that Al-Jazeera's personalization of the news, in which it emphasizesArab and Muslim victimization, is a template which has been applied in its coverage of Iraq,Afghanistan, and the Israeli-Palestinian conflict. Mamoun Fandy, a Middle East expert and mediaanalyst, asserted that in one Al-Jazeera anchor's description of the U.S. capture of the Baghdadairport during the recent Iraq war, the anchor mistakenly replaced the United States with the wordIsrael. According to Fandy, "you take the Americans, put the Israelis; you take the Palestinians, putthe Iraqis; and the same script goes on." (34) Al-Jazeera's detractors also have accused it of propagating anti-Semitic and anti-Israeli viewpoints, in an attempt to sensationalize its programming and boost its ratings. In the fall of 2002,David Duke, a former leader of the Klu Klux Klan, appeared on the Al-Jazeera talk show "WithoutBorders," claiming that Israeli intelligence knew in advance that the World Trade Center was aboutto be destroyed and that it had warned Israelis to evacuate the towers before they were hit. (35) Dukemade the same argument in a Palestinian paper in January 2002. Al-Jazeera also has been attackedfor broadcasting a talk show with the title "Is Zionism Worse Than Nazism?," in addition to hostinga call-in show which discussed the validity of the Protocols of the Elders of Zion . Both shows didpresent different viewpoints unlike other Arab media outlets; however, some observers claim thatthe anti-Semitic viewpoint was given an unfair amount of attention. Supporters of Al-Jazeera believe that the station's coverage is not biased, but merely reflects a different perspective of the conflict, in which Palestinians are locked into a war of independencewith the Israeli military. According to Al-Jazeera's Washington Bureau Chief, Hafez Al-Mirazi,"The first Palestinian Intifada ( uprising) was covered by CNN, which directed its coverage to aWestern public, and ended up de-humanizing the Palestinian struggle and cause. But because of ourcoverage, and that of other Arab satellite television channels, the second Intifada influenced Arabpublic opinion more." (36) Al-Jazeera also has drawnpraise for its strong presence in the West Bankand Gaza Strip, as the station has been able to broadcast real-time coverage of Israeli-Palestinianviolence. Although the images of Al-Jazeera broadcasts are often disturbing and beyond the normsfound on U.S. television, proponents of Al-Jazeera claim that they present a more realistic pictureof the day-to-day hardships of life in the West Bank and Gaza Strip during the present conflict. Othercommentators have noted that even the Palestinian Authority, like other Arab governments, hastemporarily shutdown Al-Jazeera's Ramallah office when it disapproved of its broadcasts. (37) Although Al-Jazeera has received much attention for its coverage of the war in Iraq, someobservers suggest that, despite its popularity, it should not be treated as a barometer for measuringthe Arab media as a whole. Currently, there are other television stations, like the new 24-hour newsnetwork Al-Arabiya, and many pan-Arab newspapers, some of which are published in westerncapitals, which reach a wide audience on a daily basis. According to media analyst David Hoffman,"most Americans have heard of only Al-Jazeera," (38) but in reality, Arabs get their news from a varietyof sources, many of which are "far worse" than Al-Jazeera. Indeed, in November 2002, an Egyptiantelevision station, which is partially government-owned, broadcast a series entitled "HorsemanWithout a Horse." The story was a chronicle of the Arab struggle against colonial rule and againstthe establishment of the state of Israel; however, it included a sub-plot involving a forged document- the Protocols of the Elders of Zion - describing an alleged Jewish plot for world domination, whichwas used by the Nazis as a pretext for the Holocaust. (39) Al-Jazeera's impact on the Middle Eastern media as a whole remains unclear. Some variety satellite networks have slightly altered their formats to include more debate-style talk shows. Aspreviously mentioned, a new competitor news network, Al-Arabiya, has started operating in Dubai'smedia city in the United Arab Emirates. Al-Arabiya reportedly has received a great deal of financialbacking from more conservative sources, which may be reflected in its reporting style. Arab Mediawatchers have observed that, as popular as Al-Jazeera has become, many viewers still desire localnews coverage, making Al-Jazeera only one of several news sources for the average viewer in theMiddle East. (40) Some suggest that Al-Jazeera,because of its high subscription cost, is equally aspopular outside of the Middle East as within. In the United States, subscribers can order Al-Jazeerathrough satellite dish companies, which package Al-Jazeera with several other channels at a priceof several hundred dollars a year. Al-Jazeera's ability to cover breaking news, to promote its slick, entertaining format, and toproject subtly its pan-Arab, pan-Islamist approach to covering the news has sparked some U.S.officials and analysts to suggest ways of promoting a response to its distinctive influence. Othershave dismissed calls for policy responses. Some experts warn that any overt U.S. action could beviewed as heavy handed in a region which has traditionally been sensitive to outside involvementin regional or local affairs. Al-Jazeera claims that U.S. steps intended to promote a more balancedmedia in the Arab world will backfire, because Arabs will consider it a propaganda effort of the U.S.government. A range of possible actions has been proposed. In one category are actions that activelypromote U.S. policy. They include: Create an alternative Arabic Language Television Network . In the emergency supplemental appropriations bill of April 16, 2003 ( P.L. 108-11 ), Congress designated $30.5 millionfor the Middle East Television Network (METN). (41) According to Norman Pattiz, the founder andchairman of Westwood One Radio Network and a member of the U.S. Broadcasting Board ofGovernors (BBG), "as most people in the region get their news and information from TV, we needto be on TV so we can explain America and its policies, its people, and its culture from our own lipsrather than have it described by the indigenous media." (42) The exact scope and style of METN hasyet to be determined. The BBG already sponsors Radio Sawa, an Arabic radio station, whichcombines popular music with news headlines. Tie foreign aid to media reform . Some analysts contend that this technique, which has worked for some human rights cases, might be applied to the media as well. Buy commercial air time on Arab networks . During the last two years, the State Department Office of Public Diplomacy has been implementing the "Shared Values Program," a $15million effort to promote positive images of Muslim life in America. TV advertisements depictingAmerican Muslims ran for 5 weeks in late 2003 in Pakistan, Kuwait, Malaysia, and on somepan-Arab channels, but not Al-Jazeera. (43) Althoughthe overall campaign continues, the StateDepartment stopped running the commercials after the governments of Jordan, Egypt, and Lebanonrefused to carry them on state-run television. Other policy experts have suggested more indirect ways of influencing the Arab media, including the following actions: Have U.S. officials engage the Arab media more actively . As previously mentioned, top United States cabinet officials have appeared on Al-Jazeera television for interviews.Proponents of this strategy believe that more appearances by U.S. officials, particularly those fluentin Arabic, would convey confidence in U.S. foreign policy. Skeptics of this strategy believe thatAl-Jazeera and other channels could skew the pre and post-interview analysis against the U.S.position. Favor the more moderate Arab satellite networks . With almost a dozen different Arab satellite channels, some analysts believe that U.S. interests would be better served ifU.S. officials appeared on less sensationalist Arab networks in order to foster competitors toAl-Jazeera. Some even suggest encouraging U.S. companies to advertise on these types of stations. Encourage more privatization of media . Under the auspices of the State Department's Middle East Partnership Initiative (MEPI), there have been plans to fund media reformprograms in some Arab states. As MEPI is just starting to take shape, the initiative could fund mediatraining for aspiring journalists, as well as programs that promote freedom of thepress. (44) One argument, which is widely circulated in Arab intellectual circles, is that the best way to combat the coverage of channels such as Al-Jazeera would be to focus U.S. foreign policy on solvingthe Arab-Israeli conflict. Others argue that biased coverage will continue no matter what directionthe United States takes its policy in the Middle East. With the United States heavily engaged in Iraq,Afghanistan, and elsewhere, Al-Jazeera will continue to play a role in reporting and interpreting U.S.foreign policy to the Arab world.
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Al-Jazeera, the Arab world's first all-news network was started by the Persian Gulf monarchy of Qatar. It has come to be recognized as a key player in covering issues of central importance toU.S. foreign policy in the Middle East: the conflict in Iraq, the war on terrorism, and theIsraeli-Palestinian conflict. Al-Jazeera has become so publicly influential that U.S. officials nowregularly appear on the network. Although Al-Jazeera has received praise for its uncensored formatand for airing interviews with U.S. and Israeli officials, as well as Arab critics of the policies of Arabgovernments, it has drawn criticism from many observers in the United States and elsewhere for aperceived lack of objectivity in covering these conflicts, including the activities of Al Qaeda. Fortheir part, officials from Al-Jazeera have claimed that they merely reflect Arab popular resentmentof U.S. policy in the Middle East. This paper provides an overview of Al-Jazeera and explores the debate surrounding its objectivity. This report also analyzes Al-Jazeera's coverage of events in the Middle East,specifically, its coverage of events in Iraq, Afghanistan, and Israel and the West Bank and GazaStrip. The final section of this report discusses policy options regarding U.S. public diplomacyefforts in the Middle East region. This paper will be updated periodically.
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The Obama Administration has pursued the proposed 12-nation Trans-Pacific Partnership (TPP) free trade agreement (FTA) negotiations as the primary economic component of its "strategic rebalance" of U.S. foreign policy priorities to the Asia-Pacific region. The 12 participating countries announced the conclusion of negotiations and released the text of the agreement in late 2015, and signed the proposed FTA on February 4, 2016. The TPP aims to liberalize and establish rules and disciplines governing trade and investment among its 12 members, and has broad implications for U.S. relations in the region. Congress had an active role in the TPP negotiations through oversight, consultations with the Administration, and formal negotiating objectives established in Trade Promotion Authority (TPA) legislation. Ultimately, Congress would need to pass implementing legislation before the TPP could take effect in the United States. The potential impacts of the agreement may be an active area of debate during the second session of the 114 th Congress. According to TPP proponents, including U.S. Trade Representative Michael Froman, "the TPP's significance is not just economic, it's strategic." The term strategic has been used in the context of the TPP debate to capture a range of arguments encompassing both geo-political and geo-economic aspects of U.S. policy, making it difficult to define precisely. In broad terms, however, arguments about the TPP's strategic importance relate to the United States using the agreement as a tool to exert influence in the region and beyond, in both economic and broader political and security spheres, and creating conditions that facilitate other U.S. policy tools. Such arguments maintain that through the TPP, the United States can strengthen regional alliances and partnerships; maintain U.S. leadership and influence in the Asia-Pacific region; enhance U.S. national security; liberalize trade, encourage market-oriented reforms, and drive economic growth; strengthen regional and potentially global trade architecture; and establish and update regional trade rules and disciplines consistent with U.S. interests and modern commercial realities. China is not a TPP member, but features prominently in analysis of U.S. influence in the region. Beijing's economic rise and active trade and investment initiatives in the region form an important backdrop to the strategic aspects of the TPP negotiations. Now the world's second largest economy, China has grown much faster than the United States over the past decade as a trade partner for most Asian countries. Over the past several years, Beijing has initiated or supported a broad set of trade and investment initiatives to spur development in the region. Some analysts argue that through these initiatives China is attempting to create a regional order that seeks to minimize U.S. presence and power. (See " China's Regional "Vision" section below.) As a result, those championing the agreement, including the President, often cast TPP as a vehicle for maintaining U.S. leadership in Asia and establishing trade and investment rules and norms with an eye towards China. Others contend that casting the TPP as an effort to "counter" Chinese initiatives is unproductive, and could create negative perceptions of U.S. intentions, both in China and elsewhere in the region. Some also argue that in many ways U.S. and Chinese goals for trade liberalization and rules and norms in the region may be mutually reinforcing rather than competing. Trade agreements inevitably exist at the intersection of domestic and foreign policy and include both economic and political elements. This can create a tension in balancing various policy priorities, particularly for those policymakers who may support the TPP on some grounds but not others. Some opponents of the agreement argue that focusing on the strategic elements of the TPP distracts the debate from what they view should be its main criteria: the agreement's potential impact on the U.S. economy. While both TPP critics and supporters cite different estimates of economic outcomes to support their positions, the broader strategic implications tend to be highlighted by proponents, and can be difficult to quantify despite their potential significance. This report will examine selected strategic arguments presented by the Administration, as well as by TPP proponents and opponents. Other CRS reports address the specific trade negotiations and economic effects. This report focuses generally on the Asia-Pacific region, with particular emphasis on implications for Asia. The report also raises strategic issues Congress may consider as it examines a final TPP agreement and potentially debates future legislation to approve and implement it. Since the end of World War II, the United States has advanced trade agreements and institutions such as FTAs to promote its broader foreign policy goals. The United States signed its first FTA with Israel in 1985, and many observers argue that political solidarity with Israel weighed more heavily than its economic value at the time. In the 2000s, many observers saw U.S. FTAs with Bahrain, Morocco, and Oman as based not just on economic, but also on security and foreign policy objectives—primarily helping forge closer cooperation on efforts to combat terrorism. The first U.S. FTA in Asia entered into force in 2004 with Singapore, a close U.S. security partner with enormous strategic interests in liberalizing trade. Obama Administration officials and many of the TPP's proponents argue that U.S. trade policy initiatives in Asia, particularly the TPP, have considerable geostrategic importance. The Administration's 2015 National Security Strategy stated: Sustaining our leadership depends on shaping an emerging global economic order that continues to reflect our interests and values. Despite its success, our rules-based system is now competing against alternative, less-open models.... To meet this challenge, we must be strategic in the use of our economic strength to set new rules of the road, strengthen our partnerships, and promote inclusive development. To some observers, TPP is an important test of U.S. credibility as a regional leader. The proposed agreement is the Obama Administration's signature economic initiative in the Asia-Pacific region. Some observers have argued that if the agreement is not approved by Congress, the entire rebalancing strategy could be seen as relatively weak and the United States will be seen as divided on how important it considers its leadership role in Asia. Administration officials argue that the agreement is a key signal that the United States is actively integrated into Asia's economic and diplomatic structures. In a 2014 article in Foreign Affairs , U.S. Trade Representative Froman argued, "For many of the countries that would be party to the TPP, the economic benefits of the agreement are further sweetened by expectations that the United States will become more deeply embedded in the region." These arguments are echoed by many in the Asia-Pacific region, particularly among TPP negotiating partners. At a regional security conference in Singapore in May 2015, Singapore Prime Minister Lee Hsien Loong said, "... whatever the merits or demerits of individual line items of trade covered in the TPP, the agreement has a wider strategic significance. Getting the TPP done will deepen links on both sides of the Pacific. Failing to get the TPP done will hurt the credibility and standing of the U.S. not just in Asia, but worldwide." Some proponents also argue that concluding the TPP would be an important aspect of a broader U.S. strategy to develop and strengthen regional institutions in ways that foster cooperation and the peaceful resolution of differences through respect for rules and norms. In 2013, then National Security Advisor Tom Donilon wrote: "Just as our security alliances across two oceans have brought stability that extends far beyond our treaty partners, U.S. economic diplomacy today can advance global prosperity by strengthening the international rules and norms that make trade and growth possible." Linkages between the TPP and the promotion of broader diplomatic and security interests have become a strong part of the Administration's arguments for TPP. In an April 2015 speech providing a status report on the "rebalancing," Secretary of Defense Ashton Carter stated that "passing TPP is as important to me as another aircraft carrier." Other TPP proponents have said that the agreement will reinforce U.S. alliances and partnerships in East Asia. However, when elaborating on security rationales for supporting passage of TPP, many of the agreement's backers do not identify specific, concrete ways that a successful deal would invigorate U.S. security partnerships in the region. Some critics of TPP assert that the strength or weakness of broader bilateral political and security relationships depend more upon countries' assessment of their security interests than on whether they have a trade agreement with the United States. For instance, they contend, it arguably is difficult to pinpoint how, if at all, the South Korea-United States Free Trade Agreement (KORUS FTA), which went into effect in 2012, by itself has altered either South Korea's or the United States' fundamental interests on the Korean Peninsula or in Northeast Asia. Put another way, the short-term strength of the U.S.-South Korea alliance likely is determined by factors such as the two countries' perception of threats from China or North Korea, rather than by the presence of the KORUS FTA. Likewise, few observers believe the future of the U.S.-Japan alliance depends heavily on the TPP's success or failure. In recent years, Japan's own strategic and political calculations appear to have been the primary drivers behind its moves to deepen strategic cooperation with the United States. TPP may have a larger impact on countries with which the U.S. relationship is not as close. In Vietnam's case, for instance, some argue that a successful outcome in the TPP negotiations would support reform-oriented decisionmakers by requiring the government to enact deeper market-oriented institutional changes that may be required to implement their commitments under TPP provisions. In some cases, these same individuals may also support deepening relations with the United States. Many Vietnamese leaders would see TPP approval as a sign that the United States welcomes closer ties and more normal relations with the country. Failure to approve the agreement, some argue, could negatively affect Vietnam's perception of the United States as a reliable partner, at least in the economic realm. Some TPP proponents contend that the agreement will help the United States, as Defense Secretary Carter has said, "promote a global order that reflects both our interests and our values." Historically, U.S. interests have included the establishment of a rules-based trading system founded on principles of transparency, openness, and non-discrimination, but less clear, and less often specified by proponents is the link between the TPP's trade rules and the security realm. One indirect way that economically large trade agreements such as TPP may affect U.S. security relationships is by altering countries' perception of where their strategic interests lie. Each major agreement, the argument runs, signals that the participating countries are key partners, and merit treatment as such. By this line of reasoning, approving and implementing TPP would help to "lock-in" the United States' Pacific presence, keeping the United States closely connected to developments in the Pacific as countries in the region become wealthier and more powerful. Similarly, implementing the TPP could send the message to other countries that the Pacific Rim is a priority of U.S. policymakers. The flip side of this argument is that many Asian policymakers—correctly or not—could interpret a failure of TPP in the United States as a symbol of the United States' declining interest in the region and inability to assert leadership. A former U.S. ambassador to China was quoted in June 2015 saying: "Domestically we tend to view trade through a political prism by way of winners and losers ... In Asia, it's seen as directly tied to our leadership and commitment to the region. A failed TPP would create an influence vacuum that others, primarily China, would fill." Many argue that U.S. credibility in Asia currently is in question, during a time when China's rise and North Korea's growing nuclear and missile capabilities are testing the U.S.-based rules system and challenging U.S. influence. Some TPP backers take this a step further, arguing that relationships such as that between the United States and Japan "would suffer from a period of mutual recriminations and loss of trust and cooperation." In a scenario where a TPP agreement is rejected by Congress, thus negating any politically challenging concessions that others made through negotiation, the loss of trust and cooperation could be particularly pronounced. The TPP may also have implications for U.S. influence on regional and global efforts to shape trade and investment. Proponents argue that the rules established in the TPP will promote economic growth and advance U.S. interests by influencing trade regimes at several levels: encouraging market opening and economic reforms among TPP's current members, particularly in emerging markets such as Malaysia and Vietnam; creating incentives for other Asia-Pacific nations to follow suit, to match the preferential access that TPP member countries would gain in major markets such as the United States and Japan; and addressing new trade barriers through new trade rules and disciplines, laying groundwork to influence and potentially spur future multilateral or plurilateral negotiations at the WTO or future FTA negotiations, and update critical gaps in existing trade rules. Central to U.S. negotiating objectives in the TPP is the goal to update the rules-based trading system. Since World War II, the United States, primarily through multilateral fora, has sought to expand economic engagement through trade as a mechanism for generating broader economic growth and prosperity. Through "rounds" of trade liberalization negotiations under the General Agreement on Tariffs and Trade (GATT), the United States led in liberalizing tariff and non-tariff barriers, setting rules and norms based on transparency, non-discrimination, and most-favored nation treatment. This led eventually to the establishment of the international rules-based trade architecture of the World Trade Organization (WTO), the successor to the GATT. Launched in 2001, the current WTO multilateral trade negotiations—the WTO Doha Development Agenda (Doha Round)—has largely stalled due to persistent differences among its members . In the meantime, global commerce has adapted to rapid advances in technology, such that current multilateral trade rules do not address some critical aspects of today's trading environment, including issues related to digital trade and the role of state-owned enterprises. This has led some countries, including the United States, to pursue new or advanced trade rules and further liberalization through bilateral and regional agreements, such as the TPP. TPP proponents argue that the agreement's scale gives it considerable strategic heft, by creating an economically significant bloc of nations that has agreed to its broad disciplines. The 11 other TPP countries account for 37% of U.S. trade, and together the 12 economies account for 37% of global GDP. The TPP's economic significance could grow, as the TPP members have negotiated an agreement open to new countries willing to adhere to its provisions and make satisfactory market access commitments. In some emerging economies, the TPP could give domestic reformers the political cover necessary to push forward with their own reform agendas, citing such reforms as necessary to gain greater access to the U.S. market. Arguably, these incentives could also help promote U.S. goals such as respect for internationally recognized worker rights and practices aimed at protecting the environment, such as curbing trade in endangered species. Beyond these effects, proponents argue that an implemented TPP will draw interest from other countries, as those not party to the agreement may begin to face competitive disadvantages. Such competitive pressure, they argue, could expand the reach of the TPP's rules, driving further trade and investment liberalization in the region. One could look to Japan's involvement in the TPP negotiations—reportedly in part a response to the completion of the U.S. FTA with South Korea—as evidence of such a dynamic. Others, however, note that the TPP as presently constituted does not include some of Asia's largest economies, including China, India, and Indonesia, so even if it is ratified and implemented, they say it will not create a comprehensive set of "rules of the road" for trade and investment in the Asia-Pacific. Some experts argue that the influence of TPP's trade rules may depend on whether new members seek to join it in the future. Several large Asian countries, including Indonesia, the Philippines, South Korea, and Thailand, have publicly expressed interest in joining a "second round" of TPP members once the agreement is implemented, giving weight to the Administration's argument that the domain of TPP's influence may grow. Taiwan has also expressed interest in membership. Many Asian nations, however, face considerable current domestic opposition to joining TPP, as do some of the current TPP parties now debating ratification. Many analysts argue that U.S. FTA partners in Asia and Latin America, particularly South Korea and Colombia, may be among the most likely countries to seek entry in the TPP in the near future. Beyond regional implications, TPP proponents also argue that the size and economic significance of "mega-regionals," such as the TPP and the U.S.-EU Trans-Atlantic Trade and Investment Partnership (T-TIP), may help spur long-stalled negotiations at the multilateral level and influence their direction. They argue that the rules established in the TPP that go beyond existing WTO commitments and address new trade barriers could become the basis for future negotiations at the WTO, including on a plurilateral basis. Critics argue, however, that these bilateral and regional trade negotiations may draw resources and attention from and thereby impede multilateral initiatives. If the locus of trade negotiations shifts away from the WTO and the rules of the body no longer reflect global standards of trade policy, it could undermine the legitimacy of the organization in other aspects of its work, such as dispute settlement. The WTO's role as a force for future trade liberalization could be dampened. Mega-regionals could also add to the complexity of the trading system by creating overlapping and differing rules and commitments, instead of operating through multilateral rules established at the WTO that are applicable to nearly all world trading partners. TPP negotiations are one of a number of ongoing trade negotiations in the Asia-Pacific region, many of which do not include the United States and may differ in their structure and aims. Perhaps the most significant negotiation outside the TPP, particularly in terms of its membership, is the Regional Comprehensive Economic Partnership (RCEP), which would join the 10 ASEAN members and six nations with which ASEAN has trade agreements—Australia, China, India, Japan, New Zealand, and South Korea—in one collective FTA. The United States does not have an FTA with ASEAN and has not expressed an interest in joining the RCEP negotiations. Though RCEP's final provisions have yet to be determined, a comparison of the ASEAN trade agreements on which it is being built and the components of the finalized TPP provides some indication of potential differences. A 2013 examination of ASEAN trade agreements shows that they have been less comprehensive in terms of trade liberalization than the proposed TPP. In addition, the existing ASEAN FTAs often do not include or have less extensive intellectual property rights, investment, and labor and environmental provisions than the TPP. The TPP also includes disciplines on state-owned enterprises (SOEs), a topic unlikely to be addressed in RCEP. Due in part to these potential differences, some argue that RCEP presents an alternative, and possibly a challenge, to U.S. efforts to craft trade rules through the TPP. Others believe the proposed agreements can be complementary and both will lead to economic growth benefitting the region as a whole. Notably, seven countries are in both RCEP and the TPP, and presumably have an interest in ensuring some degree of compatibility and synergy between the two agreements ( Figure 1 ). At this point, it is unclear how these two regional undertakings may affect one another and how they would affect the existing trade architecture in the region. This will depend in part on their timing. With negotiations concluded, the TPP is at a more advanced stage than RCEP, whose members agreed in November 2015 that negotiations would continue into 2016. A delay in the ratification and implementation process for TPP, however, could alter that sequencing. All 12 TPP countries, and 11 RCEP countries are also members of the 21-member Asia-Pacific Economic Cooperation (APEC) forum, a body for dialogue on and establishing nonbinding commitments toward the goals of open and free trade and investment within the region. APEC members have discussed the possible creation of a broad Free Trade Area of the Asia-Pacific (FTAAP) since 2006—a goal that both China and the United States have supported. In the statement issued at APEC's annual Leaders Meeting in 2014, the group's leaders recognized both TPP and RCEP as "possible pathways" to the FTAAP. China has figured prominently in debates about the TPP and broader U.S. policy in Asia. As the world's second largest economy (on a nominal dollar basis) and largest trading economy, China's inclusion in, or exclusion from, the TPP in the future may have important implications for the United States, as well as the Asia-Pacific region. President Obama and other TPP proponents also argue that China's growing international influence increases the strategic importance of completing the proposed TPP. Some analysts go further, arguing that China is attempting to create a regional order that seeks to minimize U.S. presence and power and that TPP is a necessary means of countering this effort. Many analysts argue that decades of expanding Chinese trade and investment, as well as new Chinese trade and investment initiatives around the region, have created a vision of regional economic development that is different from that advocated by the United States, and potentially not in the U.S. interest. The proposed TPP, its proponents argue, would allow the United States to help shape a model in line with U.S. interests by creating rules and norms that other regional nations may ultimately opt to join. Due to the TPP's size and economic importance, the argument runs, it would help to influence China's economic—and potentially diplomatic—decisions in ways that are more favorable to U.S. economic, diplomatic, and security interests. As President Obama stated in a June 2015 interview: the fact is that if we have 11 of the leading economies in the Asia-Pacific region, who have agreed to enforceable labor standards, enforceable environmental standards, strong IP protections, non-discrimination against foreign firms that are operating, access to those markets, reduce tariffs, then China is going to have to at least take those international norms into account. A completed TPP could also encourage China to further liberalize its economic and trade regime in order to eventually join the agreement. It might also give some reformers in China a measure of political cover to press for deeper reform, beyond Beijing's WTO commitments. To others, such arguments unnecessarily cast Asia's largest economy as an outlier in regional economic development and may overstate the degree to which Chinese initiatives are likely to influence regional trade and investment rules. Such arguments stress several points. First, they note that if China's leaders perceive that TPP is being used as a tool to constrain Chinese interests, they could respond in ways that are inimical to U.S. interests. Second, they stress that China is proceeding with economic initiatives that others in Asia may see as helpful to their own economic development, given the region's extensive needs for infrastructure and other investment; they argue, therefore, that if countries in the region see the United States as opposing these initiatives, the United States may risk being seen as obstructionist, which could lead some in Asia to question U.S. commitments to regional development. Third, they stress that other Asian nations have their own trade policies and are unlikely to adopt policies they see as not in their interest—whether they are part of "models" that are American, Chinese or otherwise. China's leaders are striving to continue the transformation of their nation into a prosperous and respected major power, and the fulfillment of these goals they see as predicated on three conditions: 1) a strong economy; 2) a strong defense; and 3) a respected role on the global stage. The Chinese government is currently pursuing a number of policies designed to strengthen its economy and increase China's role in the overall global economic system. China's plans to construct a land-based Silk Road Economic Belt and the Maritime Silk Road (jointly known as the "One Belt, One Road") to create new linkages to Europe, the Middle East, central Asia, and Southeast Asia. In doing so, they seek to facilitate trade and foster greater economic development and integration. New financial institutions—such as the newly-created Asian Infrastructure Investment Bank (AIIB) and the Silk Road Fund—are aimed at providing the capital to finance the "One Belt, One Road" initiative and other major economic development projects. China's efforts to gradually increase the overseas use of its currency, the renminbi, are intended to simplify the transactions Chinese financial institutions use to support Chinese assistance programs, reduce the commercial risk for Chinese companies engaged in international trade and investment, and enhance China's global economic stature. Finally, Chinese leaders see the establishment of RCEP as laying the foundations for a broader FTAAP, which could be seen as a set of regional rules and norms inspired, at least in part, by Chinese leadership. China's leaders also seek to reform existing multilateral institutions to reflect what they see as the geopolitical situation of today, rather than that of the post-World War II era. China is taking an active role in promoting reforms of the United Nations, the International Monetary Fund, and the World Bank. The establishment of the AIIB in part is an attempt to offer an alternative model for the various multilateral development banks, such as the Asian Development Bank (ADB), to adopt. However, it is unclear at this early stage of its development whether the AIIB will be more distinct from or more in line with these international institutions. China's efforts to reshape or create new economic institutions are matched by its actions in the diplomatic and security spheres, where Beijing appears to be attempting to reduce or counter U.S. influence. For instance, according to many analysts, China has attempted to refashion the Conference on Interaction and Confidence Building Measures in Asia (CICA), a 26-member group that spans the Eurasian continent and does not include the United States, into a new Asian continental security system to counter the U.S. alliance network. China also has undertaken extensive reclamation and construction on several disputed reefs in the South China Sea, moves that many see as laying the groundwork for countering U.S. naval power in the Western Pacific. China's publicly-stated views of the TPP have varied and appear to have changed over time, especially as more countries have joined the TPP negotiations. After the United States joined the TPP talks in 2008, China's media portrayed the TPP as a U.S.-dominated process that was largely aimed at advancing U.S. economic interests over the rest of Asia and isolating China by excluding it from the talks. U.S. officials have countered such portrayals. In December 2014, for instance, President Obama said: "... there's been some suggestion that by doing TPP we're trying to contain or disadvantage China. We're actually not.... [W]e hope that ... China actually joins us in not necessarily formally being a member of TPP but in adopting some of the best practices that ensure fairness in operations." China's publicly-stated criticisms of the U.S. role in the TPP process appear to have softened somewhat shortly after Japan joined the TPP talks in April 2013. In October 2014, China's Vice Finance Minister Zhu Guangyao stated that a TPP agreement was "incomplete without China." In November 2014, Chinese Premier Li Keqiang in a speech before the East Asia Summit, stated: "China is open to negotiations on the TPP. In our view, various FTA arrangements can play a positive role in fostering a just and free international and regional trade order." U.S. officials have said China is welcome to join the TPP, although Chinese officials often state that many of the standards and provisions of the proposed agreement would be difficult for China to implement. President Obama said in June 2015 that China had "already started putting out feelers about the possibilities of them participating at some point" in the TPP. Several analysts contend that the ultimate aim of the United States is to integrate China more fully into deeper and greater commitments to further liberalize trade and establish new trade rules and disciplines addressing issues not currently, or inadequately, addressed in the WTO multilateral trading system. For example, one former Obama Administration official argues that "an agreement with high standards like the TPP could subject China to new, higher-standard rules, and discourage China from trying to weaken or soften the existing trade rules through other channels." In addition, the United States is currently negotiating a bilateral investment treaty (BIT) with China that could boost bilateral investment flows and facilitate its future potential participation in TPP. Since the United States joined the TPP in 2008, Congress has played a direct role in guiding and overseeing the negotiations. Congress approved legislation to renew U.S. Trade Promotion Authority (TPA) in 2015 to establish U.S. trade negotiating objectives and provide for the expedited consideration of legislation to implement U.S. trade agreements concluded by the President, among other provisions. Congress will have a direct role in considering TPP and implementing legislation. As Congress considers the TPP agreement and its strategic elements, it might consider examining a number of issues, including the following: Whether TPP Furthers a Broader Foreign Policy Strategy . TPP proponents argue that the proposed agreement is part of a broad foreign policy strategy to promote greater respect for international rules and norms in the Asia-Pacific region. If it is approved, they argue, the implications could further other U.S. diplomatic and security goals, beyond the trade realm. By encouraging a diverse group of nations to accept the rules and disciplines contained in the TPP, the argument holds, the United States will have reinforced U.S. leadership in the region, given space to Asia-Pacific leaders who seek greater economic and (perhaps) political reform, and encouraged a group of nations to adopt a more U.S.-supportive foreign policy outlook. Congress may wish to consider how deeply it accepts these arguments, and whether it sees the proposed agreement as part of a well-considered and broader foreign policy strategy. H ow Deeply to Weigh These Strategic Arguments . In considering an agreement as broad as the TPP, Congress may weigh trade-offs among the agreement's many potential implications. Are the TPP's strategic implications a critical consideration for Congress, or do they distract the debate from the TPP's more direct impact on the U.S. economy? How do these different arguments relate? Are the potential strategic benefits of the agreement contingent on its ability to drive economic growth and prosperity? For those who support the TPP on some grounds but not others, what rank should be given to various aspects of the agreement? Does the argument that the TPP is an important measure of U.S. leadership in Asia outweigh potential concerns arising from individual terms of the agreement? Membership Expansion. Some argue that the TPP's ultimate strategic impact will depend on whether a broader group of nations ultimately decides to join it. To other observers, the proposed TPP, established by like-minded countries, represents the best opportunity for the United States to pursue regional and broader multilateral trade policy goals currently unattainable in the WTO and other fora. Has the agreement struck the right balance between trade liberalization and establishing rules that are most beneficial for U.S. economic interests, while at the same time remaining attractive to a broader set of regional actors that could enhance the agreement's strategic value? Implications of Failed Ratif ication . From the standpoint of promoting greater U.S. leadership and influence in the region, Congress may wish to consider whether delays or failure to ratify and implement the agreement would set back these goals. The TPP took more than five years to conclude, and if rejected by Congress, it could take several years for an alternative, U.S.-led agreement, if any, to take shape. Meanwhile, other countries in the region continue to pursue their own trade arrangements. Would a failure to ratify the TPP impact foreign governments' views on U.S. leadership and credibility in the region, or do other foreign policies, including U.S. military presence, ultimately shape such views? Implications for Countries Outside the TPP . The TPP's 12 participating countries do not include several in the Asia-Pacific region that are strategically and economically important. Some observers urge the United States to enunciate strategies that reinforce U.S. economic engagement more broadly across the region, beyond the current TPP membership, in part so that countries that currently are not in the TPP do not conclude that Washington is neglecting or ignoring them. Congress may wish to consider whether existing U.S. economic initiatives in Asia are sufficient to achieve broad goals of furthering U.S. influence across the region, or whether other economic initiatives are advisable as an assurance of U.S. commitment to the region. If other initiatives are advisable, which nations or multilateral groups should be targeted? Congress also may wish to consider whether it is strategically important that TPP expand to include other countries outside the region. Implications for the Multilateral Trading System. Analysts hold mixed views as to how "mega-regional" negotiations may impact the multilateral trading system as represented by the WTO. While some see such agreements as an opportunity for the United States to advance new trade rules and disciplines that may eventually be incorporated in multilateral initiatives, others worry they may usurp legitimacy from the WTO and may negatively impact countries not involved in their negotiation. From a strategic standpoint, Congress may wish to consider whether the proposed TPP will further eventual WTO multilateral trade liberalization or lead to greater fragmentation of the global trading system. Congress also may wish to consider whether to seek new trade initiatives at the global level, either to assure that the TPP has the effect of spurring momentum at the global level or to address potential concerns that the TPP shifts the center of trade discussions away from the WTO.
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On February 4, 2016, Ministers of the 12 countries participating in the Trans Pacific Partnership (TPP) negotiations signed the proposed free trade agreement (FTA). TPP is one of the Obama Administration's signature trade policy initiatives, an effort to reduce and eliminate trade and investment barriers and establish new rules and disciplines to govern trade and investment among the 12 countries. TPP proponents, including Administration officials, argue that the proposed TPP would have substantial strategic benefits for the United States in addition to its direct economic impact. They argue that the agreement would enhance overall U.S. influence in the economically dynamic Asia-Pacific region and advance U.S. leadership in setting and modernizing the rules of commerce in the region and potentially in the multilateral trading system under the World Trade Organization (WTO). Congress plays a key role in the TPP. Through U.S. trade negotiating objectives established in Trade Promotion Authority (TPA) legislation and informal consultations and oversight, Congress has guided the Administration's negotiations. Ultimately, Congress would need to pass implementing legislation if the concluded agreement is to take effect in the United States. The geo-political arguments surrounding TPP are widely debated, as are the arguments about its potential economic impact. To some, the TPP is an important litmus test of U.S. credibility in the Asia-Pacific region. As the leading economic component of the Administration's "strategic rebalancing" to the region, the TPP, proponents argue, would allow the United States to reaffirm existing alliances, expand U.S. soft power, spur countries to adopt a more U.S.-friendly foreign policy outlook, and enhance broader diplomatic and security relations. Many Asian policymakers—correctly or not—could interpret a failure of TPP in the United States as a symbol of the United States' declining interest in the region and inability to assert leadership. Some critics argue that TPP backers often do not identify specific, concrete ways that a successful deal would invigorate U.S. security partnerships in the region, and that an agreement should be considered solely for its economic impact. They maintain that past trade pacts have had a limited impact on broad foreign policy dynamics and that U.S. bilateral relations are based on each country's broader national interests. The Administration is also pursuing strategic economic goals in the TPP. Through the agreement, proponents argue, the United States can play a leading role in "writing the rules" for commerce with key trading partners, addressing gaps in current multilateral trade rules, and setting a precedent for future regional and bilateral FTA negotiations or multilateral trade talks at the World Trade Organization (WTO). The core of this argument is the assertion that the TPP's potential components—including tariff and non-tariff liberalization, strong intellectual property rights and investment protections, and labor and environmental provisions—would build upon the U.S.-led economic system that has expanded world trade and investment enormously since the end of World War II. Although most U.S. observers agree it is in the U.S. interest to lead in establishing global and regional trade rules, less consensus exists on what those rules should be, yielding some criticism on the strength and breadth of various TPP provisions. In addition, some argue that crafting new rules through "mega-regional" agreements rather than the WTO could undermine the multilateral trading system, create competing trading blocs, lead to trade diversion, and marginalize the countries not participating in regional initiatives. China is not a TPP member, but features prominently in discussion of the agreement's potential strategic effects. Some argue that China is attempting to create a regional order that seeks to minimize U.S. presence and power. In this line of reasoning, the TPP serves as a counter to growing Chinese economic and political influence, implying that failure to conclude TPP could, in effect, allow China to shape regional rules of commerce and diplomacy through its own trade and investment initiatives. Others, however, argue that TPP is complementary to other FTAs and trade agreements throughout the region, including those championed by China, and that new members—possibly including China—will be critical for the TPP to influence regional norms. Trade agreements occur at the intersection of foreign and domestic policy, which can create tensions in balancing competing policy priorities. Key issues Congress faces as it continues its role regarding TPP include (1) how strongly to weigh geo-political implications of TPP; (2) the potential impact of the TPP on the multilateral trading system and other trade and economic institutions; and (3) the possible expansion of the agreement to include additional members.
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U.S. importers, usually manufacturers or representatives of industry associations, will sometimes ask Members to introduce legislation seeking to reduce, repeal, or temporarily suspend duties on certain imports. Since the early 1980s, the House Ways and Means and Senate Finance Committees, the primary committees of jurisdiction on trade matters, have tended to incorporate these duty suspension requests into omnibus legislation known as miscellaneous tariff and technical corrections bills (MTBs). MTBs may also include minor technical corrections to U.S. trade laws and specific instructions to U.S. Customs and Border Protection (CBP) regarding shipments of certain imported products. In order to be included in an MTB, duty suspensions must be noncontroversial (no domestic producer, federal agency, or Member objects), revenue-neutral (defined as revenue loss of no more than $500,000 in foregone tariffs per item), and able to be administered by CBP and other agencies. The previous process for assembling MTBs, which involved Members introducing individual duty suspension bills at the request of constituents, has been controversial in recent Congresses due to the assertions of some Members that the process violated House and Senate rules banning earmarks, or congressionally directed spending. Thus, the last MTB to be enacted was the United States Manufacturing Enhancement Act of 2010 ( P.L. 111-227 ), and efforts since then to pass subsequent MTB legislation have stalled. This report, first, discusses recent developments on new legislation proposing a revised process for vetting duty suspension bills. Second, the previous MTB process that involved Member introduction and vetting by House Ways and Means and Senate Finance Committee staff, the U.S. International Trade Commission (ITC), and other relevant agencies is described. Third, the report tracks MTB legislation introduced from the 109th to the 114th Congresses. Legislation and House and Senate rules covering "earmarks" and "limited tariff benefits" that may have impact on the current MTB debate are also highlighted. Finally, MTB legislation in Congress from 1983 to the present is summarized. This report will be updated as events warrant. Congress may presently consider a bill to legislatively establish a process to facilitate consideration of MTBs. On April 13, House Ways and Means Chairman Kevin Brady introduced H.R. 4923 , the American Manufacturing Competitiveness Act of 2016. The Ways and Means Trade Subcommittee held hearings on H.R. 4923 on April 14, and a full committee markup of the bill was held on April 20. The committee passed the bill, as amended, on the same date. During the markup, Chairman Brady asserted that "our bipartisan bill creates an open and transparent process that allows the American people to see every part of this process. Our bill upholds our earmark rules because Members of Congress will no longer introduce bills to begin the MTB process." The legislation could reportedly come to the House floor as early as the last week in April. The Trade Facilitation and Enforcement Act of 2015, P.L. 114-125 , enacted on February 24, 2016, included a sense of Congress that urged the House Ways and Means and Senate Finance Committees to "advance, as soon as possible, after consultation with the public and Members of the Senate and House of Representatives, a regular and predictable legislative process for the temporary suspension and reduction of duties that is consistent with the rules of the Senate and of the House." The MTB consideration process proposed by H.R. 4923 and S. 2794 is different than the previous process for vetting MTBs primarily because (1) an independent agency, the U.S. International Trade Commission (ITC), will directly receive duty suspension petitions from the public; and (2) the process would be subject to certain time and reporting requirements. As in the previous MTB process (1) the ITC—in consultation with the Department of Commerce, U.S. Customs and Border Protection, the U.S. Trade Representative, and other relevant agencies—would consider the duty suspension requests; (2) the conditions that applied to prior duty suspensions (i.e., they must be noncontroversial, revenue-neutral, administrable) would apply; and (3) the final MTB would be drafted through the committee, which would retain authority to exclude duty suspensions to which a Member objected or if there were domestic production. When considering previous MTB legislation, the process was begun by the House Ways and Means and Senate Finance Committee chairs (the committees of jurisdiction) sending out Dear Colleague letters inviting Members to introduce stand-alone legislation on proposed duty suspensions. Members were required to file disclosure forms affirming that neither the Member nor spouse had any financial interest in the entity supporting the duty suspension. The deadline for introduction was usually several months before an MTB was expected to be reported out of committee. The MTB, when introduced, included all committee-approved measures, including duty suspensions. The legislative goal of the committees was for an MTB to be "non-controversial"—meaning that the measure was able to pass both houses by unanimous consent or under suspension of the rules. In recent Congresses, due to the large number of bills submitted, the committees of jurisdiction have tended to request comments from interested parties at the subcommittee level, rather than holding hearings on these bills. The subcommittee considers duty suspensions for inclusion in the MTB only if the corresponding goods or materials are deemed "noncontroversial" or "noncompetitive," meaning that (1) there is no domestic producer objecting to the duty suspension, and (2) the suspension or reduction of the tariff is seen to be in the interest of U.S. "downstream" manufacturers and consumers. Furthermore, the volume of imports and corresponding revenue loss must be "revenue neutral" or generally not more than $500,000 per product per year. For example, the Congressional Budget Office estimated that all duty suspensions and extensions to suspensions in House-passed H.R. 4380 ( P.L. 111-227 ) would cost the government about $286 million in foregone revenue on about 650 products over 10 years, out of about approximately $29 billion collected in tariffs per year. In accordance with the Statutory Pay-As-You-Go Act of 2010, potential revenue loss was offset by an extension of customs user fees, as well as a small penalty increase for untimely filing of corporate estimated tax payments. After duty suspension bills were introduced and referred to the relevant committees, the bills were reviewed by trade subcommittee staff and several federal agencies, including the United States Trade Representative (USTR), CBP, the Department of Commerce, and the ITC. Committee staff may solicit comments from the public directly, but may also do so through Administration channels or the ITC. All bills, disclosure forms, ITC reports, and relevant information released by other federal agencies are also posted on committee websites for public comment. The ITC was the first agency that examined the duty suspensions and responded to the committees, and is the only agency expressly required to do so by statute. The ITC also contacted U.S. manufacturers or industry groups through its Office of Industries, especially looking for U.S. producers of similar goods as those targeted for duty suspensions. If domestic manufacturers existed, ITC staffers sought to determine their approval or disapproval of the duty suspension. If a U.S. manufacturer objected, the duty suspension proposal was dropped. The overall Administration response to an MTB was coordinated by the Department of Commerce (Commerce). Analysts at Commerce also researched the targeted products, either independently or in conjunction with the ITC, depending on the timeframe. With regard to comments on duty suspensions, Commerce generally did not object unless a U.S. producer was found. In most cases, intra-company transfers (instances in which a multinational with a subsidiary in the United States imports a product manufactured in a plant owned by the same company overseas) were also not opposed by Commerce, even if a like product was manufactured in the United States. CBP also commented on duty suspensions, largely by recommending reclassifications or changes in nomenclature for ease in administering the proposed tariff changes. CBP had a formal agreement to share this information with the ITC, and also provided information to other agencies. However, if certain measures affected CBP more directly (e.g., issues regarding duty drawback, legislative responses to CBP rulings, liquidations and reliquidations, or permanent duty suspensions), CBP also communicated directly to the committees on a confidential basis. The USTR also commented occasionally on individual duty suspension bills, but generally focused on larger issues in the legislation that could more permanently affect U.S. trade policy. USTR officials also indicated that the Administration usually prefers that the unilateral tariff modifications in MTBs are temporary, so that more permanent revisions/reductions of duties can continue to be used in trade negotiations to seek reciprocal tariff benefits for U.S. exports. From the 109 th to the 112 th Congresses, the number of individual duty suspension bills introduced increased significantly. For example, in the 109 th Congress, duty suspensions were granted for about 680 products, out of more than 1,000 proposed in bills introduced in the House and Senate. During the MTB process in the 112 th Congress, about 1,800 individual duty suspension bills were introduced. MTB legislation introduced in Congress since the 97 th Congress is listed in Table A-1 . Congress did not pass stand-alone MTB legislation during the 109 th Congress. Instead, almost 700 MTB provisions were attached to other legislation before the House Ways and Means and Senate Finance Committees. First, about 300 duty suspensions were attached to H.R. 4 , the "Pension Protection Act of 2006" ( P.L. 109-280 ), signed by the President on August 6, 2006. Second, On December 7, 2006, the House and Senate reached an agreement on trade legislation to be included in a larger legislative package of tax break extensions. As part of the House-Senate compromise, H.R. 6406 proposed to suspend or reduce tariffs on about 380 additional products. H.R. 6406 passed the House on December 8, 2006, by a vote of 212-184. H.R. 6406 was ultimately appended to a previously House-passed tax extension package ( H.R. 6111 ) that subsequently passed the Senate on December 9. The President signed H.R. 6111 on December 20, 2006 ( P.L. 109-432 ). Both P.L. 109-280 and P.L. 109-432 suspended tariffs until December 31, 2009. In the 110 th Congress, no MTB legislation was introduced in either house. Although a November 2007 Ways and Means advisory press release called for House Members to submit duty suspension bills for a proposed MTB by December 14, 2007, no omnibus bill was introduced. However, the bills introduced continued to be vetted by the trade subcommittee, agency input was submitted, and proposed duty suspensions were posted on the Ways and Means Committee website for public comment. Since most of the duty suspensions passed in 2006 would not expire until the end of 2009, many lawmakers reportedly regarded the end of 2009 as the "real deadline" for passage of MTB legislation—which they indicated would make consideration of MTB legislation in the 111 th Congress more likely. In the 110 th Congress, the House and Senate adopted procedures that were primarily aimed at increasing transparency in congressionally directed spending, also known as "earmarks." These procedures also extended to "limited tariff benefits," defined in House and Senate rules as "a provision modifying the Harmonized Tariff Schedule of the United States in a manner that benefits 10 or fewer entities." House rules (see House Rule XXI, clause 9) provide that in order to be considered on the House floor, a bill or joint resolution reported by a committee must include in the report a list of congressional earmarks, limited tax benefits, and limited tariff benefits in the bill or the report, along with the name of the Member, Delegate, or Resident Commissioner requesting them, or a statement certifying that the proposal does not contain them. Depending on the type of measure, the list or statement should be included in the measure's accompanying report, or published in the Congressional Record . House Rule XXIII, clause 17(a), requires any Member, Delegate, or Resident Commissioner requesting a limited tariff benefit to provide a written disclosure to the chairman and ranking minority Member of the committee of jurisdiction including (1) the name of the sponsor; (2) identification of the individual or entities "reasonably anticipated to benefit" from the measure; (3) the purpose of the limited tariff benefit; and (4) a certification that the sponsoring Member or spouse has no financial interest in the benefit. The committees of jurisdiction are directed to maintain the disclosures and make the statements regarding limited tariff benefits included in a committee-reported bill or conference report to regular appropriations bills "open for public inspection." Committees may also have their own administrative requirements beyond those required by House rules, such as requiring the posting of disclosure forms online. In the 110 th Congress, the Senate addressed rule changes through legislation. In Title I of S. 1 , the Legislative Transparency and Accountability Act of 2007, the Senate also included disclosure requirements for congressionally directed spending similar to those passed in the House. An amended version of S. 1 was considered in the House and passed on July 31, 2007. The Senate then passed an identical version on August 2, 2007. The President signed the legislation on September 14, 2007 ( P.L. 110-81 ). Section 521 (Senate Rule XLIV) amended the standing rules of the Senate to provide that it will not be in order to consider a bill or joint resolution reported by any committee, a bill or joint resolution not reported by a committee, or the adoption of a conference committee report, unless the chairman of the committee of jurisdiction, the majority leader, or his or her designee, certifies that any congressionally directed spending items, limited tariff benefits, or limited tax benefits (1) have been identified ("through lists, charts, or other similar means including the name of each Senator who submitted the request"); and (2) are searchable "on a publicly accessible congressional website" at least 48 hours (or "as soon as practicable" in the case of spending items proposed in floor amendments) prior to the vote. If the disclosure is not completed, the measure is subject to a point of order. Any Senator who requests a limited tariff benefit (or any directed spending item mentioned in the law) must now submit disclosure forms including (1) the name of the sponsor; (2) the name and location of the intended recipient; (3) any individual or entities reasonably anticipated to benefit; (4) the purpose of the benefit; and (5) a certification that neither the Senator nor their immediate families have a financial interest. House Ways and Means Trade Subcommittee Chairman Sander M. Levin and Ranking Member Kevin Brady introduced H.R. 4380 , the Miscellaneous Tariff and Technical Corrections Act of 2009, on December 15, 2009. The bill sought to renew many of the duty suspensions that were in place prior to January 1, 2009. The bill covered more than 600 products, most of which were manufacturing inputs for finished goods made in the United States. On October 1, 2009, the Senate Finance Committee announced that it would also move forward on an MTB, and laid out the process for Senators to introduce individual bills for consideration in a final omnibus package by October 30, 2009. This announcement came after a bipartisan agreement between the House and Senate was reached involving additional disclosure requirements for lobbyists. The agreement required lobbyists to register under a separate issue code ("TAR", an abbreviation for tariff) when engaging in lobbying activities associated with the MTB process. Senate Finance Committee Ranking Member Chuck Grassley sought this requirement so that the process "would benefit from improved transparency in the disclosure of lobbying activities associated with individual miscellaneous tariff bills." On June 7, 2010, House Ways and Means Committee Chairman Levin and Trade Subcommittee Chairman Tanner issued a "Dear Colleague" letter urging Members to support passage of the MTB legislation ( H.R. 4380 ) and attempting to differentiate MTB legislation from earmarks. The letter mentioned that "some have attempted to characterize MTB provisions as 'congressional earmarks,'" and enclosed a copy of the House Rules pointing out the definitions of "earmark" and "limited tariff benefit" as discussed in the previous section (see "Limited Tariff Benefit" Disclosure Rules ," above). The letter also mentioned the vetting process (discussed in more detail above) and suggested that the MTB legislation could generate an increase in U.S. production and support U.S. jobs. The House passed H.R. 4380 on July 21, 2010, under suspension of the rules by a vote of 378-43. The Senate subsequently passed the bill by unanimous consent on July 27, 2010, and it was signed by the President on August 11, 2010 ( P.L. 111-227 ). On November 24, 2010, the House Ways and Means Committee posted a discussion draft of a second MTB package, along with an updated matrix (listing bill sponsors, bill beneficiaries, and government agency comments, among other things) combining all bills introduced in the MTB process during the 111 th Congress. H.R. 6517 , the Omnibus Trade Act of 2010, was subsequently introduced on December 15. The bill sought, in part, duty suspensions for about 290 additional products. The House approved H.R. 6517 on the same date. On December 22, 2010, the Senate by unanimous consent passed an amendment in the nature of a substitute to H.R. 6517 that did not contain the duty suspension measures. The House also passed the amended version of H.R. 6517 without objection on December 22 ( P.L. 111-344 ). The MTB process in the 112 th Congress began on March 30, 2012. Chairman Camp and Ranking Member Levin of the House Ways and Means Committee and Chairman Brady and Ranking Member McDermott of the Ways and Means Trade Subcommittee announced the beginning of the MTB process in the House, and invited Members to submit duty suspension bills by April 30, 2012. Senate Finance Committee Chairman Baucus also announced on March 30 that duty suspension bills were due in the Senate on the same date. On January 1, 2012, H.R. 6727 , the U.S. Job Creation and Manufacturing Competitiveness Act of 2013, was introduced, but ultimately did not receive House or Senate floor consideration. In the 113 th Congress, the House Ways and Means Committee announced plans to move forward with the MTB legislation introduced in the previous Congress, pending re-submission of Members' disclosure forms. H.R. 2708 , the United States Job Creation and Manufacturing Competiveness Act of 2013, introduced on July 17, 2013, saw no floor action. Since the 111 th Congress, several Members have introduced legislation seeking to change the MTB process, primarily by authorizing the ITC to receive duty suspensions and develop draft MTB legislation to be submitted to Congress for additional action. Some Members assert that modifying the process by having an agency, rather than Members of Congress, receive duty suspension requests would ensure that the MTB package does not violate the earmark ban. Other Members contend that by changing the MTB process Congress is "giving away" or "surrendering" constitutional prerogatives and responsibilities over foreign trade and appropriations. MTB reform legislation has pointed to the ITC as a possible agency with a lead role, presumably because of its independent status, and because it already performs the initial task of researching and reporting on duty suspensions. In addition, one of the statutory roles of the ITC is to "put at the disposal of the President of the United States, the Committee on Ways and Means of the House of Representatives, and the Committee on Finance of the Senate, whenever requested, all information at its command, and ... make such investigations and reports as may be requested by the President or by either of said committees or by either branch of the Congress." Thus, if Congress were to reform the means by which duty suspensions are received, the ITC might be a good alternative. A primary issue of the MTB debate in Congress centers on whether or not duty suspensions are "limited tariff benefits" and thus fall under a moratorium on congressionally directed spending, including tariff- and tax-related benefits. Supporters of duty suspensions assert that since duty suspensions appear in the Harmonized Tariff Schedule, the tariff savings are freely available to any importer. They also argue that an MTB offers "broad benefits across our economy" because duty suspensions lower production costs for American manufacturers, and are job-creating. These lower production costs, in turn, may be passed on to American consumers. They also assert that rather than being congressionally directed spending, MTBs result in temporary suspensions of tariffs that are potentially "distortive taxes on consumption and production." Opponents argue that duty suspensions are limited tariff benefits because only the companies that request duty suspensions actually take advantage of them. In addition, some maintain that since businesses often hire lobbyists to petition their Members to introduce duty suspension legislation, the process provides some opportunity for undue influence. Opponents also assert that MTBs do not provide sufficient economic benefits because they are temporary, the qualifications for relief are too narrow, and they distract Congress from broader trade legislation that could permanently lower tariffs through multilateral negotiations. MTB supporters assert that, unlike most earmarks, MTB provisions go through an intensive and transparent vetting process that includes posting prospective duty suspensions on committee websites for public comment, review by the ITC and executive branch agencies, and scoring by the Congressional Budget Office. Disclosure forms are also required of Members that identify the origin of the request and certify that the Member does not financially benefit from the provision. Many MTB opponents assert that the current process is not transparent enough. Some in Congress, although critical of the current system, have suggested changing the process by having an outside agency review duty suspensions and present an MTB package to Congress prior to any congressional action. Legislation introduced in the 112 th ( S. 3292 ) and 113 th ( S. 790 ) Congresses would have authorized the ITC to oversee the MTB process, collect petitions from the private sector, vet the bills, and provide a completed MTB package to Congress for consideration. Supporters of the current process say that this approach would not eliminate lobbying for MTB legislation, but rather shift it to the ITC. They assert that this could make the MTB process less transparent than the current system because lobbyists would not be subject to the same disclosure rules when interacting with the ITC and other federal agencies as they are when dealing with Congress. Another argument made by supporters of the existing process is that shifting the duty suspension process diminishes the constitutional power of Congress as enumerated in Article I, Section 8 to levy tariffs, and by extension, suspend them. Despite the efforts of House and Senate committees to ensure the neutrality of MTB legislation, insertion of non-MTB measures has held up floor consideration of the legislation in the past, especially in the Senate. These measures largely dealt with broader trade policy issues rather than with duty suspensions. For example, the last omnibus MTB reported out of the Senate—first introduced in 2002—reportedly faced opposition from one Senator because it did not include a provision to roll back preferential access previously given to beneficiaries of the Caribbean Basin Trade Partnership Act in the Trade Act of 2002 ( P.L. 107-210 ). Other provisions, including one that would to grant normal trade relations status to Laos, and another providing a trust fund for U.S. wool producers, also met with objections. Ultimately, the bill passed in late 2004 ( P.L. 108-429 ).
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U.S. importers often request that Members of Congress introduce bills seeking to temporarily suspend or reduce tariffs on certain imports. The rationale for these requests is that they cut costs for U.S manufacturers, thus enabling them to hire more workers, invest in research and development, and reduce costs for consumers. In recent congressional practice, the House Ways and Means and Senate Finance Committees, the committees of jurisdiction over tariffs, have combined individual duty suspension bills and other technical trade provisions into larger pieces of legislation known as miscellaneous tariff (or trade) bills (MTBs). When Members introduce bills, they must also file disclosure forms indicating that they have no economic interest in the entity requesting the suspension. Before inclusion in an MTB, the individual bills are reviewed by the trade subcommittee staff in each of the relevant committees, the U.S. International Trade Commission (ITC), and executive branch agencies to ensure that they are noncontroversial (generally, that no domestic producer, Member, or government agency objects), relatively revenue-neutral (revenue loss due to the duty suspension of no more than $500,000 per product), and are able to be administered by U.S. Customs and Border Protection (CBP). All bills, bill reports, and disclosure forms are also placed on committee websites for public comment. Duty suspensions in MTBs are only available for a limited time (generally, three years from the date of enactment), and if no subsequent MTB legislation is passed, the duty-free or reduced duty status of the products expires. Expired duty suspensions must be re-introduced to be included in new MTB legislation, and in most cases, the favorable duty status is not retroactively renewed. The last enacted MTB expired on December 31, 2012. This MTB, the United States Manufacturing Enhancement Act of 2010 (P.L. 111-227), suspended entirely or reduced duties on over 600 products. Since legislative attempts to pass an additional MTB extending the duty suspension on these products were not successful, currently, duties must be paid on these products, most of which are inputs in various U.S. manufactured products. Additional MTB legislation was introduced in the 112th Congress (H.R. 6727) and 113th Congress (H.R. 2708), but neither bill was taken up in either the House or the Senate, possibly due to controversy over whether MTB legislation violated House and Senate rules on congressionally directed spending. The Trade Facilitation and Enforcement Act of 2015, P.L. 114-125, enacted on February 24, 2016, included a sense of Congress that urged the House Ways and Means and Senate Finance Committees to "advance, as soon as possible, after consultation with the public and Members of the Senate and House of Representatives, a regular and predictable legislative process for the temporary suspension and reduction of duties that is consistent with the rules of the Senate and of the House." Some in Congress propose changing the MTB process by requiring an agency outside Congress, such as the ITC, to receive petitions and vet products for duty suspensions. Bills supporting this approach have been introduced in 114th Congress (S. 2794, H.R. 4923). Thus, Congress may discuss a procedure to change the MTB process in the second session of the 114th Congress. This report provides recent developments regarding the proposed MTB process, and compares this proposal for vetting MTBs with the existing review process. It also tracks the current proposal and provides information on MTB legislation introduced from the 109th to the 113th Congresses. Legislation and House and Senate rules covering "earmarks" and "limited tariff benefits" that may affect the current MTB debate are also discussed. The report also presents issues for Congress.
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This report examines China's "economic assistance"—a term that encompasses a mix of development aid, loans, technical assistance, and state-sponsored investments—in Africa, Latin America, and Southeast Asia. In recent years, the People's Republic of China (PRC) has bolstered its diplomatic presence and economic influence, often referred to as "soft power," in the developing world. China has garnered considerable international goodwill through financing infrastructure and natural resource development projects, assisting in the execution of such projects, and backing PRC state enterprise ventures in many developing countries. Many observers have praised Chinese assistance and investment as filling unmet development needs, particularly in countries that have been relatively neglected by major bilateral and multilateral aid providers. Others have criticized China for not promoting democracy, equitable and sustainable development, and environmental preservation in these countries. Some U.S. policy-makers and others have expressed frustration that China's policy of providing economic assistance "without conditions" has undermined the ability of other aid donors to influence the behaviors of aid recipients in such areas as democracy, human rights, and economic reforms. Some observers have argued that Chinese financing has burdened some developing countries with too much debt. PRC officials have responded that they are contributing to basic development and suggest that they are taking a flexible, "long-term view" of recipient countries' abilities to repay loans. PRC foreign assistance is difficult to quantify. Still a developing country itself, China appears to administer foreign aid in an ad hoc fashion, without a centralized system, foreign aid agency and mission, or regularized funding schedule. Nor does Beijing publicly release foreign aid data. Some analysts surmise that the Chinese leadership is reluctant to be perceived as a major aid donor, since the PRC itself continues to be a recipient of foreign assistance and because the government fears that its citizens may object to lavish spending on economic projects abroad. Estimates of China's foreign aid vary widely due to the lack of official data and to disparate definitions of aid. Broad characterizations, such as the one adopted in this report and referred to as "economic assistance," often include low-interest loans and PRC government-backed investments as well as grant-based development aid. A relatively small portion of Chinese economic assistance includes what typically is characterized as "official development assistance" (ODA) as provided by the world's major aid donors, such as development grants, poverty-reduction programs, humanitarian assistance, and food aid. China also provides relatively little military and security-related assistance. Another important difference between China and major OECD aid donors is the level to which PRC economic assistance serves China's development needs, by facilitating the export of raw materials to China and often requiring that a significant portion of project materials and services are to be sourced in China. By contrast, the foreign aid programs of the United States and other OECD members, with some exceptions, involve fewer direct economic linkages. Beijing reportedly has taken some tentative steps toward making its foreign aid process more centralized and transparent, coordinating its programs with other aid providers, and offering more development-oriented assistance, while continuing to eschew the label of major ODA donor. The PRC has begun sending abroad "youth volunteers," similar to U.S. Peace Corps volunteers, engaged in teaching and training in such subjects as Chinese language and medicine, computer skills, agricultural technologies, and sports. Some analysts regard many of China's economic activities and investments abroad as "foreign aid" because they are sponsored, financed, or carried out by PRC government agencies or state enterprises on favorable terms and promote economic development in recipient countries. Other analysts do not consider such activities as foreign direct investment (FDI), because they are secured by diplomatic agreements, do not impose real financial risks upon the PRC companies involved, or do not result in Chinese ownership of foreign assets. (See Table 1 .) Some analysts suggest that many estimates of China's foreign aid, in both PRC official publications and the scholarly literature in the West, do not capture the full extent of PRC economic assistance and related activities. The China Statistical Yearbook 2003-06 released an annual aid figure of $970 million. According to other sources, annual PRC foreign aid ranges from $1.5 billion to $2 billion. These figures would place China's aid levels alongside those of Australia, Belgium, or Denmark. In terms of official development assistance as measured by the OECD, U.S. ODA is the largest among OECD member countries, followed by Japan, the United Kingdom, France, and Germany. The United States' foreign operations budget (bilateral development; economic, security, and military assistance; multilateral assistance; and food aid) was estimated at $24 billion in FY2008. However, other analysts, applying broader definitions of foreign aid, consider PRC economic assistance activities and their impact to be far greater than that suggested by conventional measurements. According to their measurements, PRC development financing, technical assistance, and state-sponsored investments in Africa, Latin America, and Southeast Asia exceed officially reported ODA and FDI totals combined, suggesting that much of Chinese foreign economic activity is not accounted for in either conventional measurements of ODA or foreign investment. In 2006 and 2007, according to various sources citing PRC official statistics, China's annual FDI outflows totaled roughly $21 billion annually, compared to $216 billion for the United States. The NYU Wagner School research team tabulated PRC economic assistance— p romises of financing, assistance, and government-sponsored investment projects—that had been reported in 62 African, Latin American, and Southeast Asian countries between 2001 and 2008. In 2007, the last full year for which such activities were examined, the students found that 66% of Chinese economic assistance was provided in the form of loans (concessional loans or credit lines), 29% represented state-sponsored investment, and the remaining 5% included grants, debt cancellation or debt relief, and in-kind aid. Although the Wagner School findings strongly indicate that China has been providing significant and growing amounts of economic assistance, if not ODA, to developing countries, the estimated totals should be interpreted with caution. Some reported values may be inflated: some loans represent offers or pledges that may not have been fulfilled; some projects may have been cancelled, while others involving several parts or taking several years to complete may have been counted more than once. Furthermore, some PRC investments included in the study may also qualify as FDI. In other ways, however, the findings may underestimate the value of PRC economic assistance, such as when projects or data have not been reported or when Chinese materials and labor have not been included. In addition to their actual monetary value, Chinese assistance and related economic activities often garner appreciation disproportionate to their size, for several reasons, including loans and investments often are made available relatively quickly and easily—without the political, economic, social, and environmental conditions and safeguards and bureaucratic procedures that major OECD aid donors, multilateral financial institutions, and multinational corporations typically impose; China often promotes economic projects in countries, geographic areas, and sectors that developed-country governments and multinational corporations have avoided because they have determined them to be unfriendly, too arduous, or infeasible; many PRC-funded or -built public works in developing countries, such as national cultural centers, stadiums, and highways, are highly visible and provide tangible, short-term benefits; and Chinese economic and investment activities are often announced at bilateral summit meetings with great fanfare and are referred to by Chinese officials as "assistance," powerfully symbolizing the friendship between China and other countries. The NYU Wagner School findings that this report draws upon may serve as a basis for conducting further research and thinking about U.S. policy responses to China's growing foreign assistance and investment. They are not meant to be exhaustive; rather, they may suggest the broad contours and trajectory of Chinese economic assistance and related activities in Africa, Latin America, and Southeast Asia. The Wagner study suggests that: China's economic assistance and related investments are driven primarily by the PRC's need for natural resources and secondarily by diplomatic objectives, such as isolating Taiwan and garnering support in international organizations such as the United Nations. Beijing also aims to open up foreign markets for Chinese goods and help PRC companies invest, set up manufacturing plants, and develop markets overseas. Unlike major OECD aid donors, China lacks a centralized aid agency affiliated with its foreign affairs ministry. PRC economic assistance consists largely of concessional loans administered by the Ministry of Commerce through its Department of Aid to Foreign Countries. To lesser extents, the Export-Import Bank of China (Eximbank), the Ministry of Finance, and the Ministry of Foreign Affairs also play roles. Although Chinese economic assistance to all three regions grew significantly during the 2002-2007 period, Africa received the largest year-on-year increases and showed the clearest growth trend. (See Figure 1 and Table 2 .) In terms of financing, PRC government-backed investments made up 53% of reported economic assistance activity, concessional loans constituted 42%, and grants and debt cancellations accounted for the remaining 5% during the 2002-2007 period. (See Figure 2 and Table 3 .) Of the loans, infrastructure projects, and other economic assistance provided by China to the three regions between 2002 and 2007, 44% was allocated to Africa, 36% to Latin America, and 20% to Southeast Asia. (See Table 4 .) During the same period (2002-2007), 44.5% of economic assistance and investment was directed at the natural resources and agricultural sectors, while 43% supported infrastructure development. (See Table 5 .) In the past several years, China's economic assistance to countries in Africa has grown dramatically. During the 1970s and 1980s, China provided aid to the region in the form of infrastructure projects, public works, technical and public health assistance, and scholarships to study in China. Its motivations were largely diplomatic: to forge friendships among "non-aligned" nations and to compete with Taiwan (the Republic of China) for recognition. Only four of 48 Sub-Saharan African countries (Burkina Faso, Sao Tome, Gambia, and Swaziland) still maintain official relations with Taiwan. In 2007, China reportedly offered Malawi "aid and investment" worth $6 billion in major economic sectors. In January 2008, Malawi switched diplomatic relations to the PRC. However, in 2008, China reportedly promised Malawi only $287 million. While traditional types of PRC foreign assistance remain staples of Chinese engagement in the region, many of them now complement much larger development projects that directly serve China's economic interests. Estimates of China's foreign aid, development financing, and other economic activities in Africa give rise to varying sums. Some reports of China's annual aid to the continent suggest a range of $1-2.7 billion. The World Bank referred to PRC "infrastructure financing" in Africa (funding for roads, railways, and power projects) worth $7 billion in 2006. In 2007, the China Exim Bank stated that it had extended concessional loans to Africa with a total outstanding balance of approximately $8-9 billion, while the China Development Bank reportedly set up a $5 billion China-Africa Development Fund to finance infrastructure, industrial, and agricultural projects. The Wagner School research team found that PRC economic assistance and state-sponsored investment projects in Africa reported during the 2002-2007 period amounted to several billion dollars annually ($6.6 billion on average). These activities included financing, debt cancellations, grants, technical assistance, and state-sponsored investments. However, as previously stated, these totals may be inflated or represent the high end of a possible range of estimates. The following totals from OECD countries provide an indication of ODA levels to Africa. They are not meant to be directly compared to estimates of Chinese assistance to the region, which are based upon different definitions. U.S. assistance to Sub-Saharan Africa, the second-largest regional recipient of U.S. foreign assistance after the Near East and the largest recipient of U.S. development assistance, totaled an estimated $5.2 billion in 2008 and $4.7 billion in 2007. The United States, the United Kingdom, and France are the largest bilateral donors of ODA to Africa, having provided $5.8 billion, $5.4 billion, and $5.1 billion, respectively, in assistance in 2006. OECD countries reportedly pledged a total of $5 billion in ODA for infrastructure projects in Sub-Saharan Africa in 2006. Estimates of PRC direct investment in Africa range from under $500 million to roughly $1 billion annually. Historically, Europe (United Kingdom, France, and Germany), Japan, and the United States have been the principal sources of FDI on the continent. In 2006, the United States reportedly invested $1.5 billion in Africa out of a total of $36 billion in global FDI received by the region that year. Some studies indicate that India has more cumulative investment in Africa ($1.8 billion in 2004) than China ($1.3 billion in 2005) and is a major source of infrastructure financing. According to some estimates, in 2005, Chinese FDI flows to Africa totaled $392 million or 3% of PRC global outward investment. Other studies report that China had $2.6 billion in cumulative FDI and over $0.5 billion in annual investment in Africa in 2006. Higher estimates include figures of nearly $1 billion in PRC annual direct investment in Africa from 2000 to 2006. China has exerted growing influence as a trading partner. As part of its integrated approach, China's diplomatic outreach to the region is accompanied by aid, investment, and trade. China is Africa's third largest trading partner after the European Union (EU) and the United States. PRC-Africa trade reportedly was worth $106.6 billion in 2008, compared to U.S.-Africa trade of $142 billion. China's economic assistance and related investments in Africa are largely driven by its objective of securing access to oil and minerals for its growing economy. African oil reportedly accounts for 80% of China's trade in the region and about one-third of its oil imports. Nearly 70% of PRC infrastructure financing on the continent reportedly is concentrated in Angola, Nigeria, Ethiopia, and Sudan, all of which have major oil fields. Angola, the Democratic Republic of Congo (DRC), and Sudan pay for much of their assistance or loans from China with oil. However, Europe and the United States remain the largest buyers of African petroleum (33% and 36% of African oil exports, respectively). Estimates of China's share of the African oil market range from 10%-16%, although the PRC reportedly plays a larger role in the continent's minerals markets. (See Table 6 .) China's economic assistance to Africa is dominated by concessional loans and export credits provided through the Ministry of Commerce and Eximbank. PRC loans to Africa, which reportedly grew by 35% annually between 2001 and 2005, have been used chiefly to finance infrastructure projects in over 35 African countries (mainly hydropower and transportation). (See Table 7 .) The Wagner team compiled a list of PRC economic assistance and related investment projects or offers in Africa reported during the 2002-2007 period. The combined values amounted to $33 billion. In dollar terms, 54% was related to infrastructure and other public works projects, 28.5% to the extraction or production of natural resources, and 2.5% to humanitarian activities, technical assistance, and military assistance (15% was unspecified). In many cases, especially when the recipient country has poor credit, loans are to be repaid in kind (oil or commodities). In the case of an investment agreement between Congo and China purportedly worth $9 billion, PRC companies would invest in mining projects and aid in the construction of infrastructure and educational facilities in exchange for rights over copper and cobalt deposits. Examples of PRC development and humanitarian aid in Africa include the construction of schools and hospitals, medical training and equipment, agricultural technical assistance, food aid, and disaster assistance. China's growing engagement with Latin America and the Caribbean (the Western Hemisphere) lacks the deep historical ties of its relations with Southeast Asia and legacy of its cold war friendships in Africa. China's growing interest in the region appears to be principally linked to its objective of gaining broader access to natural resources and agricultural commodities, such as oil, ores, and soybeans. Beijing also aims to fully isolate Taiwan—12 Latin American and Caribbean nations still maintain diplomatic relations with Taiwan—and bolster China's diplomatic presence in the region. China's offers to Costa Rica reportedly were directly linked to the Central American country's establishment of diplomatic relations with the PRC (and termination of relations with Taiwan) in 2007. Other goals include opening up alternative markets and opportunities for Chinese goods and investment. According to many analysts, however, Beijing acknowledges that the United States remains the dominant economic and political influence in the Western Hemisphere. The PRC is not a major foreign investor in the region. The EU is the largest source of FDI in Latin America, with $620 billion invested in the region in 2006, followed by the United States with $350 billion. According to PRC official data, Latin America had received $22 billion in cumulative PRC investment at the end of 2006, about 25% of PRC total overseas investment. However, the vast majority of PRC FDI in the region reportedly goes to off-shore financial havens such as the Cayman Islands and the Virgin Islands, to be reinvested in China (thereby taking advantage of tax breaks for "foreign companies"). When these destinations are excluded, only about $1.9 billion remains. According to some sources, in 2006, PRC direct investment flows to the Western Hemisphere totaled roughly $100 million, less than its outbound investment to Africa ($500 million). Conversely, Latin American companies have made sizable investments in China with $20 billion in cumulative FDI. China's trade with Latin America grew tenfold between 2000 and 2007 and reached $142 billion in 2008. China's total trade with the region is only about one-fifth that of the United States ($664 billion in 2008), but is growing at a faster rate. The United States reportedly imports 12 times more oil from Venezuela than does China. Nonetheless, China has become an important trading partner to major countries in the region, and is second only to the United States as an importer of commodities and goods from Latin America. China's largest trading partners in the region are Brazil, Mexico, Chile, Argentina, and Peru. The Wagner students compiled a list of PRC economic assistance and related investment projects or offers in the Western Hemisphere reported during the 2002-2007 period. The combined values amounted to $26.7 billion. Over two-thirds of these activities were in natural resource sectors, while 28% were related to infrastructure and public works, 1% involved humanitarian activities and technical assistance, and 2% was unspecified. In the past several years, Chinese humanitarian assistance has included infrastructure repair in Costa Rica, hospitals in Cuba, funding to the Bolivian Red Cross for mudslide victims, and help to people affected by an earthquake in Peru and flood in Uruguay. In 2008, China joined the Inter American Development Bank and committed $350 million for public and private sector projects. The emphasis on natural resources implies a strongly commercial nature to China's economic activities in Latin America, less oriented toward infrastructure development than China's involvement in Africa and Southeast Asia. (See Table 8 and Table 9 .) In terms of official development assistance as measured by the OECD, the EU, the United States, and Japan are the largest providers in the region. U.S. foreign assistance to the Western Hemisphere totaled an estimated $1.46 billion in 2008 and $1.55 billion in 2007. China has become an important source of infrastructure financing in Southeast Asia. While China is not counted as a major regional provider of ODA as measured by the OECD, some reports and observations suggest that the PRC is one of the largest sources of economic assistance in Southeast Asia. Although access to natural resources plays a prominent role in China's engagement in the region, strategic objectives likely influence China's activities in Southeast Asia to a greater extent than they do in Africa and Latin America. Many of China's economic activities in the region appear to provide relatively greater long-term diplomatic benefits and comparatively few short-term economic benefits. China has a large economic presence in Southeast Asia, owing in part to its proximity and historical ties to the region. Southeast Asia's largest sources of FDI in 2006 (net inflow) were the EU ($13.3 billion), Japan ($10.8 billion), the United States ($3.8 billion), South Korea ($1 billion), and China ($900 million). Japan, the EU, China, and the United States are the largest trading partners in the region. In 2008, China's trade with the Association of Southeast Asian Nations (ASEAN) countries, at $230 billion, was larger than its trade with Africa ($106 billion) and Latin America ($142 billion). China and the least developed countries of mainland Southeast Asia are becoming increasingly integrated economically, although each of these countries has also sought to hedge against the PRC's rising influence. China is considered the "primary supplier of economic and military assistance" to Burma (Myanmar), Cambodia, and Laos and provides them with an "implicit security guarantee," according to some analysts. In recent years, PRC government entities have financed many infrastructure, energy-related (especially hydropower), agricultural, and other high profile development projects in these countries, which also rely upon Chinese construction materials, equipment, technical expertise, and labor. There are some indications that Chinese assistance in this part of the region is diversifying, including support for counter-trafficking in persons and counter-narcotics efforts, programs involving Chinese youth volunteers (Laos), elections (Cambodia), and historical preservation (Cambodia). The PRC also has financed railway construction, hydropower development, and ship building facilities in Vietnam. In the past few years, China has become a major financer and investor in infrastructure, energy, agriculture, and mining in the Philippines and supplier of preferential loans to Indonesia. According to one source, in 2006, China was the third largest source of bilateral development assistance to the Philippines after Japan and the United Kingdom. The Philippines reportedly is the largest recipient of PRC loans in Southeast Asia, which totaled $2 billion in 2007, of which about half has been disbursed. One of the largest PRC-funded projects in the country is the $1 billion North Rail line. In January 2008, the Indonesian state electricity company signed an agreement with China's Eximbank to borrow $615 million to build coal-fired plants. The Wagner School team compiled a list of PRC economic assistance and related investment projects or offers in Southeast Asia reported during the 2002-2007 period. The combined values amounted to $14.8 billion, largely consisting of PRC loans for and investments in infrastructure and natural resource development projects. (See Table 10 and Table 11 .) Of this amount, 43% was channeled toward infrastructure and public works projects; 32% to natural resource extraction or development; 3% to military, humanitarian, and technical assistance activities; and 22% for purposes not specified. In terms of official development assistance as measured by the OECD, Japan remains the largest bilateral aid donor in Southeast Asia, providing $2 billion in 2006. The United States funded an estimated $517 million in aid programs in Southeast Asian countries in 2008. U.S. foreign aid for several countries in the region increased significantly after 2001, including security assistance for the Philippines, health activities in Cambodia, and HIV/AIDS programs in Vietnam.
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In recent years, the People's Republic of China (PRC) has bolstered its diplomatic presence and garnered international goodwill in the developing world through financing infrastructure and natural resource development projects, assisting in the execution of such projects, and backing PRC state enterprises in many developing countries. This report examines China's foreign assistance and government-supported, often-preferential investment ventures in three regions: Africa, Latin America (Western Hemisphere), and Southeast Asia. These activities often are collectively referred to as "economic assistance" by some analysts and in this report. Much of China's "economic assistance" does not constitute "official development assistance" (ODA) as measured by the Organization for Economic Co-operation and Development (OECD) and as generally provided by members of the OECD. However, many activities have an aid component—they are secured through official bilateral agreements, promote development, and provide economic benefits to recipient countries that otherwise might not be made possible. Furthermore, they are not strictly commercial or do not result in foreign ownership of productive assets, and thus they do not qualify as foreign direct investment (FDI). In terms of development grants, the primary form of assistance provided by major aid donors, China is a relatively small source of global aid. However, when China's commercial and concessional loans, technical assistance, and state-sponsored or subsidized investments are included, the PRC becomes a major source of economic assistance. This report is largely based upon research conducted in 2007-2008 by graduate students at the New York University Robert F. Wagner Graduate School of Public Service under the supervision of Wagner School faculty and CRS specialists. The students' findings, while not comprehensive, suggest a dramatic increase in PRC economic assistance and state-sponsored investment from 2002 through 2007. The numbers provided in this report are not meant to be interpreted as reliable foreign aid totals. Furthermore, some PRC loans or aid pledges may not have been fulfilled and some aid pledges that include multiple projects or that span several years may have been counted more than once. According to the Wagner School research, during the 2002-2007 period, Africa received the greatest amount of loans and other economic assistance, followed by Latin America and Southeast Asia. The findings suggest that China's aid activities in Africa and Latin America serve the PRC's immediate economic interests, while those in Southeast Asia relate to longer term diplomatic or strategic objectives. In Africa and Southeast Asia, PRC-sponsored infrastructure and public works projects constitute the most common form of activity, while in Latin America, where some countries are more developed, Chinese natural resource development projects are more prominent. China is fast becoming a top trading partner with Africa and Southeast Asia, and it is second to the United States as a market for Latin American commodities and goods. Although the PRC's economic assistance activities are a highly visible reminder of China's growing diplomatic and economic influence, or "soft power," the European Union, the United States, and Japan continue to dominate foreign investment in Africa, Latin America, and Southeast Asia. This report will not be updated.
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Terrorists, drug traffickers, mafia members, and corrupt corporate executives have one thing in common: most are conspirators subject to federal prosecution. Federal conspiracy laws rest on the belief that criminal schemes are equally or more reprehensible than are the substantive offenses to which they are devoted. The Supreme Court has explained that a "collective criminal agreement—[a] partnership in crime—presents a greater potential threat to the public than individual delicts. Concerted action both increases the likelihood that the criminal object will be successfully attained and decreases the probability that the individuals involved will depart from their path of criminality." Moreover, observed the Court, "[g]roup association for criminal purposes often, if not normally, makes possible the attainment of ends more complex than those which one criminal could accomplish. Nor is the danger of a conspiratorial group limited to the particular end toward which it has embarked." Finally, "[c]ombination in crime makes more likely the commission of crimes unrelated to the original purpose for which the group was formed." In sum, "the danger which a conspiracy generates is not confined to the substantive offense which is the immediate aim of the enterprise." Congress and the courts have fashioned federal conspiracy law accordingly. The United States Code contains dozens of criminal conspiracy statutes. One, 18 U.S.C. 371, outlaws conspiracy to commit any other federal crime. The others outlaw conspiracy to commit some specific form of misconduct, ranging from civil rights violations to drug trafficking. Conspiracy is a separate offense under most of these statutes, regardless of whether conspiracy accomplishes its objective. The various conspiracy statutes, however, differ in several other respects. Section 371 and a few others require at least one conspirator to take some affirmative step in furtherance of the scheme. Most have no such explicit overt act requirement. Section 371 has two prongs. One outlaws conspiracy to commit a federal offense; a second, conspiracy to defraud the United States. Section 371 conspiracy to commit a federal crime requires that the underlying misconduct be a federal crime. Section 371 conspiracy to defraud the United States and a few others have no such prerequisite. Section 371 conspiracies are punishable by imprisonment for not more than five years. Elsewhere, conspirators often face more severe penalties. These differences aside, federal conspiracy statutes share much common ground because Congress decided they should. As the Court observed in Salinas , "When Congress uses well-settled terminology of criminal law, its words are presumed to have their ordinary meaning and definition. [When] [t]he relevant statutory phrase is 'to conspire,' [w]e presume Congress intended to use the term in its conventional sense, and certain well-established principles follow." These principles include the fact that regardless of its statutory setting, every conspiracy has at least two elements: (1) an agreement (2) between two or more persons. Members of the conspiracy are also liable for the foreseeable crimes of their fellows committed in furtherance of the common plot. Moreover, statements by one conspirator are admissible evidence against all. Conspiracies are considered continuing offenses for purposes of the statute of limitations and venue. They are also considered separate offenses for purposes of sentencing and of challenges under the Constitution's ex post facto and double jeopardy clauses. This is a brief discussion of the common features of federal conspiracy law that evolved over the years, with passing references to some of the distinctive features of some of the statutory provisions. There are no one-man conspiracies. At common law where husband and wife were considered one, this meant that the two could not be guilty of conspiracy without the participation of some third person. This is no longer the case. In like manner at common law, corporations could not be charged with a crime. This too is no longer the case. A corporation is criminally liable for the crimes, including conspiracy, committed at least in part for its benefit, by its officers, employees and agents. Moreover, a corporation may be criminally liable for intra-corporate conspiracies, as long as at least two of its officers, employees, or agents are parties to the plot. Notwithstanding the two-party requirement, no co-conspirator need have been tried or even identified, as long as the government produces evidence from which the conspiracy might be inferred. Even the acquittal of a co-conspirator is no defense, although no conviction is possible if all but one alleged conspirator are acquitted. Moreover, a person may conspire for the commission of a crime by a third person though he himself is legally incapable of committing the underlying offense. It is not enough, however, to show that the defendant agreed only with an undercover officer to commit the underlying offense, for there is no agreement on a common purpose in such cases. As has been said, the essence of conspiracy is an agreement, an agreement to commit some act condemned by law either as a separate federal offense or for purposes of the conspiracy statute. The agreement may be evidenced by word or action; that is, the government may prove the existence of the agreement either by direct evidence or by circumstantial evidence from which the agreement may be inferred. The task of sifting agreement from mere association becomes more difficult and more important with the suggestion of overlapping conspiracies. Criminal enterprises may involve one or many conspiracies. Some time ago, the Supreme Court noted that "[t]hieves who dispose of their loot to a single receiver—a single 'fence'—do not by that fact alone become confederates: They may, but it takes more than knowledge that he is a 'fence' to make them such." Whether it is a fence, or a drug dealer, or a money launderer, when several seemingly independent criminal groups share a common point of contact, the question becomes whether they present one overarching conspiracy or several separate conspiracies with a coincidental overlap. In the analogy suggested by the Court, spokes with a common hub need an encompassing rim to function as a wheel. When several criminal enterprises overlap, they are one overarching conspiracy or several overlapping conspiracies depending upon whether they share a single unifying purpose and understanding—one common agreement. In determining whether they are faced with a single conspiracy or a rimless collection of overlapping schemes, the courts will look for "the existence of a common purpose ... (2) interdependence of various elements of the overall play; and (3) overlap among the participants." "Interdependence is present if the activities of a defendant charged with conspiracy facilitated the endeavors of other alleged co-conspirators or facilitated the venture as a whole." If this common agreement exists, it is of no consequence that a particular conspirator joined the plot after its inception as long as he joined it knowingly and voluntarily. Nor does it matter that a defendant does not know all of the details of a scheme or all of its participants, or that his role is relatively minor. Conviction under 18 U.S.C. 371 for conspiracy to commit a substantive offense requires proof that one of the conspirators committed an overt act in furtherance of the conspiracy. More than a few federal statutes, however, have a conspiracy component that does not include an explicit overt act requirement. Whether these statutes have an implicit overt act requirement can be determined only on a statute-by-statute basis. Even there, however, the courts have sometimes reached different conclusions. In the case of prosecution under other federal conspiracy statutes that have no such requirement, the existence of an overt act may be important for evidentiary and procedural reasons. The overt act need not be the substantive crime which is the object of the conspiracy, an element of that offense, or even a crime in its own right. Moreover, a single overt act by any of the conspirators in furtherance of plot will suffice. Federal law contains several statutes that outlaw defrauding the United States. Two of the most commonly prosecuted are 18 U.S.C. 286, which outlaws conspiracy to defraud the United States through the submission of a false claim, and 18 U.S.C. 371, which in addition to conspiracies to violate federal law, outlaws conspiracies to defraud the United States of property or by obstructing the performance of its agencies. Section 371 has an overt act requirement. Section 286 does not. The general principles of federal conspiracy law apply to both. The elements of conspiracy to defraud the United States under 18 U.S.C. 371 are (1) an agreement of two or more persons; (2) to defraud the United States; and (3) an overt act in furtherance of the conspiracy committed by one of the conspirators. The "fraud covered by the statute reaches any conspiracy for the purpose of impairing, obstructing or defeating the lawful functions of any department of the Government" by "deceit, craft or trickery, or at least by means that are dishonest." The plot must be directed against the United States or some federal entity; a scheme to defraud the recipient of federal funds is not sufficient. The scheme may be designed to deprive the United States of money or property, but it need not be so; a plot calculated to frustrate the functions of an entity of the United States will suffice. In contrast, a second federal statute, 18 U.S.C. 286, condemns conspiracies to defraud the United States of money or property through submission of a false claim. The elements of a Section 286 violation are that "the defendant entered into a conspiracy to obtain payment or allowance of a claim against a department or agency of the United States; (2) the claim was false, fictitious, or fraudulent; (3) the defendant knew or was deliberately ignorant of the claim's falsity, fictitiousness, or fraudulence; (4) the defendant knew of the conspiracy and intended to join it; and (5) the defendant voluntarily participated in the conspiracy." Conviction does not require proof of an overt act in furtherance of the conspiracy. Conspiracy is a crime which begins with a scheme and may continue on until its objective is achieved or abandoned. A conspiracy is thought to continue as long as overt acts continue to be committed in furtherance. This will ordinarily include distribution of the conspiracy's spoils. As a general rule, however, overt acts of concealment do not extend the life of the conspiracy beyond the date of the accomplishment of its main objectives. The rule does not apply when concealment is one of the main objectives of the conspiracy. The liability of individual conspirators continues on from the time they joined the plot until it ends or until they withdraw. The want of an individual's continued active participation is no defense as long as the underlying conspiracy lives and he has not withdrawn. An individual who claims to have withdrawn must show either that he took some action to make his departure clear to his co-conspirators or that he disclosed the scheme to the authorities. The burden that he has withdrawn rests with the defendant. "Withdrawal terminates the defendant's liability for post withdrawal acts of his co-conspirators, but he remains guilty of conspiracy." Section 371 felony conspiracies are punishable by imprisonment for not more than five years and a fine of not more than $250,000 (not more than $500,000 for organizations). Most drug trafficking, terrorism, racketeering, and many white collar conspirators face the same penalties as those who committed the underlying substantive offense. A conspiracy conviction may result in a restitution order in a number of ways: as part of a plea bargain; as a condition of probation or supervised release; or by operation of a restitution statute. The federal criminal code features two general restitution statutes and a handful of others for restitution for specific offenses. Section 3663A calls for mandatory restitution following conviction for a federal crime of violence, fraud, or other crime against property. Section 3663 authorizes discretionary restitution following conviction for other offenses in federal criminal code or drug trafficking offenses. The individual restitution statutes sometimes make mandatory restitution that might otherwise be discretionary and sometimes make procedural adjustments that deviate from the norm. Section 3663A specifically requires restitution for any person directly harmed by a crime that involves "a scheme, conspiracy, or pattern of criminal activity." Whether property confiscation flows as a natural consequence of a conspiracy depends on the underlying substantive offense. The general civil forfeiture statute, 18 U.S.C. 981, lists a series of substantive offenses for which forfeiture is authorized. Some of the offenses bring conspiracy with them; others do not. The general criminal forfeiture statute, 18 U.S.C. 982, takes the same approach. Several criminal statutes feature their own forfeiture provisions; the Controlled Substances Act (CSA) and RICO are perhaps the most notable of these. Forfeiture follows as a consequence of conspiracy to violate either of these statutes. Other free-standing, conspiracy- enveloping statutes apply to human trafficking offenses, theft of trade secrets, child pornography, and interstate transportation of a child for unlawful sexual purposes, to name a few. Conspiracy is a completed crime upon agreement, or upon agreement and the commission of an overt act under statutes with an overt act requirement. Conviction does not require commission of the crime that is the object of the conspiracy. On the other hand, conspirators may be prosecuted for conspiracy, for any completed offense which is the object of the conspiracy, as well as for any foreseeable offense committed in furtherance of the conspiracy. Anyone who "aids, abets, counsels, commands, induces, or procures" the commission of a federal crime by another is punishable as a principal, that is, as though he had committed the offense himself. On the other hand, if the other agrees and an overt act is committed, they are conspirators, each liable for conspiracy and any criminal act committed to accomplish it. If the other commits the offense, they are equally punishable for the basic offense. "Typically, the same evidence will support both a conspiracy and an aiding and abetting conviction." Conspiracy and attempt are both inchoate offenses, unfinished crimes in a sense. They are forms of introductory misconduct that the law condemns lest they result in some completed form of misconduct. Federal law has no general attempt statute. Congress, however, has outlawed attempt to commit a number of specific federal offenses. Like conspiracy, a conviction for attempt does not require the commission of the underlying offense. Both require an intent to commit the contemplated substantive offense. Like conspiracy, the fact that it may be impossible to commit the target offense is no defense to a charge of attempt to commit it. Unlike conspiracy, attempt can be committed by a single individual. Attempt only becomes a crime when it closely approaches a substantive offense. Conspiracy becomes a crime far sooner. Mere acts of preparation will satisfy the most demanding conspiracy statute, not so with attempt. Conspiracy requires, at most, no more than an overt act in furtherance; attempt, a substantial step to completion. Moreover, unlike a conspirator, an accused may not be convicted of both attempt and the underlying substantive offense. An individual may be guilty of both conspiring with others to commit an offense and of attempting to commit the same offense, either himself or through his confederates. In some circumstances, he may be guilty of attempted conspiracy. Congress has outlawed at least one example of an attempt to conspire in the statute which prohibits certain invitations to conspire, that is, solicitation to commit a federal crime of violence, 18 U.S.C. 373. Section 373 prohibits efforts to induce another to commit a crime of violence "under circumstances strongly corroborative" of intent to see the crime committed. Section 373's crimes of violence are federal "felon[ies] that [have] as an element the use, attempted use, or threatened use of physical force against property or against the person of another." Examples of "strongly corroborative" circumstances include "the defendant offering or promising payment or another benefit in exchange for committing the offense; threatening harm or other detriment for refusing to commit the offense; repeatedly soliciting or discussing at length in soliciting the commission of the offense, or making explicit that the solicitation is serious; believing or knowing that the persons solicited had previously committed similar offenses; and acquiring weapons, tools, or information for use in committing the offense, or making other apparent preparations for its commission." As is the case of attempt, "[a]n individual cannot be guilty of both the solicitation of a crime and the substantive crime." Although the crime of solicitation is complete upon communication with the requisite intent, renunciation prior to commission of the substantive offense is a defense. The offender's legal incapacity to commit the solicited offense himself, however, is not a defense. The statute of limitations for most federal crimes is five years. The five-year limitation applies to the general conspiracy statute, 18 U.S.C. 371, and to the false claims conspiracy statute, 18 U.S.C. 286. Section 371 requires proof of an overt act; Section 286 does not. For conspiracy offenses with an overt act requirement, the statute of limitations begins with completion of the last overt act in furtherance of the conspiracy. For conspiracy offenses with no such requirement, the statute of limitations for an individual conspirator begins when he effectively withdraws from the scheme or when the conspiracy accomplishes the last of its objectives or is abandoned. The presence or absence of an overt act requirement makes a difference for statute of limitations purposes. For venue purposes, it does not. The Supreme Court has observed in passing that "this Court has long held that venue is proper in any district in which an overt act in furtherance of the conspiracy was committed, even where an overt act is not a required element of the conspiracy offense." The lower federal appellate courts are seemingly of the same view, for they have found venue proper for a conspiracy prosecution wherever an overt act occurs—under overt act statutes and non-overt act statutes alike. Three rules of the Federal Rules of Criminal Procedure govern joinder and severance for federal criminal trials. Rule 8 permits the joinder of common criminal charges and defendants. Rule 12 insists that a motion for severance be filed prior to trial. Rule 14 authorizes the court to grant severance for separate trials as a remedy for prejudicial joinder. The Supreme Court has pointed out that "[t]here is a preference in the federal system for joint trials of defendants who are indicted together. Joint trials play a vital role in the criminal justice system. They promote efficiency and serve the interests of justice by avoiding the scandal and inequity of inconsistent verdicts." In conspiracy cases, a "conspiracy charge combined with substantive counts arising out of that conspiracy is a proper basis for joinder under Rule 8(b)." Moreover, "the preference in a conspiracy trial is that persons charged together should be tried together." In fact, "it will be the rare case, if ever, where a district court should sever the trial of alleged co-conspirators." The Supreme Court has reminded the lower courts that "a district court should grant a severance under Rule 14 only if there is a serious risk that a joint trial would compromise a specific trial right of one of the defendants, or prevent the jury from making a reliable judgment about guilt or innocence." The Court noted that the risk may be more substantial in complex cases with multiple defendants, but that "less drastic measures, such as limiting instructions, often will suffice to cure any risk of prejudice." Subsequently lower federal appellate court opinions have emphasized the curative effect of appropriate jury instructions. Because conspiracy is a continuing offense, it stands as an exception to the usual ex post facto principles. Because it is a separate crime, it also stands as an exception to the usual double jeopardy principles. The ex post facto clauses of the Constitution forbid the application of criminal laws which punish conduct that was innocent when it was committed or punish more severely criminal conduct than when it was committed. Increasing the penalty for an ongoing conspiracy, however, does not offend ex post facto constraints as long as the conspiracy straddles the date of the legislative penalty enhancement. The double jeopardy clause of the Fifth Amendment declares that no person shall "be subject for the same offence to be twice put in jeopardy of life or limb." This prohibition condemns successive prosecutions, successive punishments, and successive use of charges rejected in acquittal. For successive prosecution or punishment, the critical factor is the presence or absence of the same offense. Offenses may overlap, but they are not the same crime as long as each requires proof of an element that the other does not. Since conspiracy and its attendant substantive offense are ordinarily separate crimes—one alone requiring agreement and the other alone requiring completion of the substantive offense—the double jeopardy clause poses no impediment to successive prosecution or to successive punishment of the two. Double jeopardy issues arise most often in a conspiracy context when a case presents the question of whether the activities of the accused conspirators constitute a single conspiracy or several sequential, overlapping conspiracies. Multiple conspiracies may be prosecuted sequentially and punished with multiple sanctions; single conspiracies must be tried and punished once. Asked to determine whether they are faced with one or more than one conspiracy, the courts have said they inquire whether: [1] the locus criminis [place] of the two alleged conspiracies is the same; [2] there is a significant degree of temporal overlap between the two conspiracies charged; [3] there is an overlap of personnel between the two conspiracies (including unindicted as well as indicted co-conspirators); [4] the overt acts charged [are related]; [5] the role played by the defendant [relates to both]; [6] there was a common goal among the conspirators; [7] whether the agreement contemplated bringing to pass a continuous result that will not continue without the continuous cooperation of the conspirators; and [8] the extent to which the participants overlap[ped] in [their] various dealings. At trial, the law favors the testimony of live witnesses—under oath, subject to cross examination, and in the presence of the accused and the jury—over the presentation of their evidence in writing or through the mouths of others. The hearsay rule is a product of this preference. Exceptions and definitions narrow the rule's reach. For example, hearsay is usually defined to include only those out-of-court statements which are offered in evidence "to prove the truth of the matter asserted." Although often referred to as the exception for co-conspirator declarations, the Federal Rules of Evidence treats the matter within its definition of hearsay. Thus, Rule 801(d)(2)(E) of the Federal Rules provides that an out-of-court "statement is not hearsay if ... (2) The statement is offered against a party and is ... (E) a statement by a coconspirator of a party during the course and in furtherance of the conspiracy." To admit a co-conspirator declaration into evidence under the Rule, a "court must find: (1) the conspiracy existed; (2) the defendant was a member of the conspiracy; and (3) the co-conspirator made the proffered statements in furtherance of the conspiracy." The court, however, may receive the statement preliminarily subject to the prosecution's subsequent demonstration of its admissibility by a preponderance of the evidence. As to the first two elements, a co-conspirator's statement without more is insufficient; there must be "some extrinsic evidence sufficient to delineate the conspiracy and corroborate the declarant's and the defendant's roles in it." As to the third element, "[a] statement is in furtherance of a conspiracy if it is intended to promote the objectives of the conspiracy." A statement is in furtherance, for instance, if it describes for the benefit of a co-conspirator the status of the scheme, its participants, or its methods. Bragging, or "mere idle chatter or casual conversation about past events," however, is not considered a statement in furtherance of a conspiracy. Under some circumstances, evidence admissible under the hearsay rule may nevertheless be inadmissible because of Sixth Amendment restrictions. The Sixth Amendment provides, among other things, that "[i]n all criminal prosecutions, the accused shall enjoy the right ... to be confronted with the witnesses against him." The provision was inspired in part by reactions to the trial of Sir Walter Raleigh, who argued in vain that he should be allowed to confront the alleged co-conspirator who had accused him of treason. Given its broadest possible construction, the confrontation clause would eliminate any hearsay exceptions or limitations. The Supreme Court in Crawford v. Washington explained, however, that the clause has a more precise reach. The clause uses the word "witnesses" to bring within its scope only those who testify or whose accusations are made in a testimonial context. In a testimonial context, the confrontation clause permits use at trial of prior testimonial accusations only if the witness is unavailable and only if the accused had the opportunity to cross examine him when the testimony was taken. The Court elected to "leave for another day any effort to spell out a comprehensive definition of 'testimonial,'" but has suggested that the term includes "affidavits, depositions, prior testimony, or confessions [, and other] statements that were made under circumstances which would lead an objective witness reasonably to believe that the statement would be available for use at a later trial." Since Crawford , the lower federal courts have generally held that the confrontation clause poses no obstacle to the admissibility of the co-conspirator statements at issue in the cases before them, either because the statements were not testimonial; were not offered to establish the truth of the asserted statement; or because the clause does not bar co-conspirator declarations generally.
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Zacarias Moussaoui, members of the Colombian drug cartels, members of organized crime, and some of the former Enron executives have at least one thing in common: they all have federal conspiracy convictions. The essence of conspiracy is an agreement of two or more persons to engage in some form of prohibited conduct. The crime is complete upon agreement, although some statutes require prosecutors to show that at least one of the conspirators has taken some concrete step or committed some overt act in furtherance of the scheme. There are dozens of federal conspiracy statutes. One, 18 U.S.C. 371, outlaws conspiracy to commit some other federal crime. The others outlaw conspiracy to engage in various specific forms of proscribed conduct. General Section 371 conspiracies are punishable by imprisonment for not more than five years; drug trafficking, terrorist, and racketeering conspiracies all carry the same penalties as their underlying substantive offenses, and thus are punished more severely than are Section 371 conspiracies. All are subject to fines of not more than $250,000 (not more than $500,000 for organizations); most may serve as the basis for a restitution order, and some for a forfeiture order. The law makes several exceptions for conspiracy because of its unusual nature. Because many united in crime pose a greater danger than the isolated offender, conspirators may be punished for the conspiracy, any completed substantive offense which is the object of the plot, and any foreseeable other offenses which one of the conspirators commits in furtherance of the scheme. Since conspiracy is an omnipresent crime, it may be prosecuted wherever an overt act is committed in its furtherance. Because conspiracy is a continuing crime, its statute of limitations does not begin to run until the last overt act committed for its benefit. Since conspiracy is a separate crime, it may be prosecuted following conviction for the underlying substantive offense, without offending constitutional double jeopardy principles; because conspiracy is a continuing offense, it may be punished when it straddles enactment of the prohibiting statute, without offending constitutional ex post facto principles. Accused conspirators are likely to be tried together, and the statements of one may often be admitted in evidence against all. In some respects, conspiracy is similar to attempt, to solicitation, and to aiding and abetting. Unlike aiding and abetting, however, it does not require commission of the underlying offense. Unlike attempt and solicitation, conspiracy does not merge with the substantive offense; a conspirator may be punished for both. This is an abridged version of a longer report, without the footnotes and citations to authority found there, CRS Report R41223, Federal Conspiracy Law: A Brief Overview, by [author name scrubbed].
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On June 11, 2009, in response to the global spread of a new strain of influenza, the World Health Organization (WHO) raised the level of influenza pandemic alert to phase 6, which indicates the start of an actual pandemic. This change reflects the spread of the new influenza A(H1N1) virus, not its severity. Although currently the pandemic is of moderate severity with the majority of patients experiencing mild symptoms and making a rapid and full recovery, this experience could change. The Americans with Disabilities Act (ADA) has often been described as the most sweeping nondiscrimination legislation since the Civil Rights Act of 1964. It provides broad nondiscrimination protection in employment, public services, public accommodation and services operated by private entities, transportation, and telecommunications for individuals with disabilities. As stated in the act, the ADA's purpose is "to provide a clear and comprehensive national mandate for the elimination of discrimination against individuals with disabilities." The application of the ADA to an influenza pandemic is uncharted territory since the most recent previous influenza pandemic was in 1969, before the 1990 enactment of the ADA, and before the 1973 enactment of Section 504 of the Rehabilitation Act of 1973, which was the model for the ADA. The starting point for an analysis of rights provided by the ADA is whether an individual is an individual with a disability. The term "disability," with respect to an individual, is defined as "(A) a physical or mental impairment that substantially limits one or more of the major life activities of such individual; (B) a record of such an impairment; or (C) being regarded as having such an impairment (as described in paragraph(3))." The ADA was amended by the ADA Amendments Act of 2008, P.L. 110-325 , to expand the interpretation of the definition of disability from that of several Supreme Court decisions. Although the statutory language is essentially the same as it was in the original ADA, P.L. 110-325 contains new rules of construction regarding the definition of disability, which provide that the definition of disability shall be construed in favor of broad coverage to the maximum extent permitted by the terms of the act; the term "substantially limits" shall be interpreted consistently with the findings and purposes of the ADA Amendments Act; an impairment that substantially limits one major life activity need not limit other major life activities to be considered a disability; an impairment that is episodic or in remission is a disability if it would have substantially limited a major life activity when active; the determination of whether an impairment substantially limits a major life activity shall be made without regard to the ameliorative effects of mitigating measures, except that the ameliorative effects of ordinary eyeglasses or contact lenses shall be considered. The findings of the ADA Amendments Act include statements indicating that the Supreme Court decisions in Sutton v. United Airlines and Toyota Motor Manufacturing v. Williams , as well as lower court cases, have narrowed and limited the ADA from what was intended by Congress. P.L. 110-325 specifically states that the current Equal Employment Opportunity Commission (EEOC) regulations defining the term "substantially limits" as "significantly restricted" are "inconsistent with congressional intent, by expressing too high a standard." The codified findings in the original ADA are also amended to delete the finding that "43,000,000 Americans have one or more physical or mental disabilities." This finding was used in Sutton to support limiting the reach of the definition of disability. The ADA Amendments Act states that the purposes of the legislation are to carry out the ADA's objectives of the elimination of discrimination and the provision of "'clear, strong, consistent, enforceable standards addressing discrimination' by reinstating a broad scope of protection available under the ADA." P.L. 110-325 rejected the Supreme Court's holdings that mitigating measures are to be used in making a determination of whether an impairment substantially limits a major life activity as well as holdings defining the "substantially limits" requirements. The substantially limits requirements of Toyota as well as the EEOC regulations defining substantially limits as "significantly restricted" are specifically rejected in the new law. The statutory definition of disability does not discuss pandemic influenza. How, then, would this definition apply in the context of an influenza pandemic? Specifically, are individuals infected with a pandemic influenza virus considered to be individuals with disabilities? There is not a clear-cut answer to these questions, but the EEOC has indicated that currently individuals infected with the H1N1 virus would not be individuals with disabilities. However, if the disease were to become more severe, an infected individual might be considered to be an individual with a disability under the ADA. On September 23, 2009, the EEOC issued proposed regulations under the ADA Amendments Act. The proposed regulations do not specifically discuss whether influenza is a disability; however, the comments to the proposed regulations state that certain types of impairments are usually not disabilities. These include "broken limbs that heal normally, sprained joints, appendicitis, and seasonal or common influenza." Pandemic influenza is not discussed. The appendix to the existing regulations contains similar language, but simply refers to "influenza," not "seasonal or common influenza." Thus, both current and proposed ADA regulations leave unanswered the application of the definition of disability to pandemic influenza. However, on October 5, 2009, EEOC issued a technical assistance document regarding workplace pandemic preparedness and the ADA that contains a fact-based analysis. The document indicates that EEOC believes that an individual infected with the H1N1 virus would not be an individual with a disability if the illness is similar to seasonal influenza, or the 2009 spring/summer H1N1 virus. However, if the illnesses were more serious, they might be considered disabilities under the ADA. Despite the fact that currently an individual infected with the H1N1 virus would not be considered an individual with a disability, the EEOC states that "employers should allow employees who experience flu-like symptoms to stay at home." Although the EEOC guidance indicates that the current situation with the H1N1 virus would not make an infected individual an individual with a disability under the ADA, the possibility of such coverage for a more serious illness is raised. However, the EEOC guidance does not delineate when the illness would be serious enough to be encompassed by the ADA. Generally, individuals with long-term contagious diseases would be considered individuals with disabilities. In Bragdon v. Abbott, the Supreme Court held that HIV infection was a physical impairment that was a substantial limitation on the major life activity of reproduction. It might be argued that an individual who is infected with a pandemic influenza virus and who manifests long-term symptoms would have a substantial limitation on a major life activity. Whether an individual infected with serious pandemic influenza is an individual with a disability is dependent on an individualized determination. This may turn on the severity of the particular infection and whether an individual had any long-lasting residual effects from the infection. In addition, the enactment of P.L. 110-325 , with its requirement that the definition of disability be construed broadly, makes it more likely that a disability will fall within the purview of the ADA. It should also be noted that the third prong of the definition of disability protects individuals who are "regarded as" having a disability and would appear to be the most applicable in situations such as quarantines, since individuals who are quarantined may not be infected. P.L. 110-325 amended the ADA definition of "regarded as" providing that an individual meets the requirement of being "regarded as" having a disability "if the individual establishes that he or she has been subjected to an action prohibited under this act because of an actual or perceived physical or mental impairment whether or not the impairment limits or is perceived to limit a major life activity." The "regarded as" prong does not apply to transitory and minor impairment. A transitory impairment is defined as an impairment with an actual or expected duration of six months or less. Therefore, it would appear to be difficult to find that an individual who has been quarantined is an individual with a disability under the "regarded as" prong. Title I of the ADA prohibits employment discrimination, and specifically provides that no covered entity shall discriminate against a qualified individual with a disability on the basis of disability in regard to job application procedures; the hiring, advancement, or discharge of employees; employee compensation; job training; and other terms, conditions, and privileges of employment. The term employer is defined as a person engaged in an industry affecting commerce who has 15 or more employees. The ADA limits an employer's ability to make disability-related inquiries or to require medical examinations. Prior to an offer of employment, all disability-related inquiries and medical examinations are prohibited. After a conditional job offer, but prior to the commencement of employment, an employer may make disability-related inquiries and conduct medical examinations as long as this is done for all entering employees in the same job category. After an employee begins work, an employer may make disability-related inquiries and conduct medical examinations only if they are job-related and consistent with business necessity. Any medical information an employer obtains as a result of these actions must be treated as a confidential medical record. If an inquiry is not about a disability or likely to elicit information about a disability, the ADA's prohibition on disability-related inquiries does not apply. The EEOC technical assistance document regarding workplace pandemic preparedness and the ADA discusses disability-related inquiries in the context of a pandemic, noting that "asking an individual about symptoms of a cold or the seasonal flu is not likely to elicit information about a disability." An inquiry that seeks to determine if an individual would be in a high-risk group for pandemic influenza due to a chronic health condition like asthma would not be permitted prior to a pandemic. Similarly, such an inquiry would not be permitted during a pandemic where the illness, as is currently the case, is generally moderate or mild. However, such inquiries may be made if public health officials find that the illness caused by the pandemic is generally severe. Any disclosures of medical information by an employee must be kept confidential. For an ADA employment-related issue, if the threshold issues of meeting the definition of an individual with a disability and involving an employer employing over 15 individuals are met, the next step is to determine whether the individual is a qualified individual with a disability who, with or without reasonable accommodation, can perform the essential functions of the job. Title I defines a "qualified individual with a disability." Such an individual is "an individual with a disability who, with or without reasonable accommodation, can perform the essential functions of the employment position that such person holds or desires." The EEOC states that a function may be essential because (1) the position exists to perform the duty, (2) there are a limited number of employees available who could perform the function, or (3) the function is highly specialized. It is a defense to a charge of discrimination that an alleged application of a qualification standard has been shown to be job-related and consistent with business necessity. A qualification standard may include a requirement that an individual not pose a direct threat to the health or safety of other individuals. "Direct threat" is defined as meaning "a significant risk to the health or safety of others that cannot be eliminated by reasonable accommodation." EEOC states that the severity of the illness is the determinate of whether pandemic influenza rises to the level of a direct threat, and that this determination is to be based on assessments by CDC or public health authorities. Currently, the H1N1 influenza virus is not seen as posing such a threat. The ADA requires the provision of reasonable accommodation unless the accommodation would pose an undue hardship on the operation of the business. "Reasonable accommodation" is defined in the ADA as including making existing facilities readily accessible to and usable by individuals with disabilities, job restructuring, part-time or modified work schedules, reassignment to vacant positions, acquisition or modification of equipment or devices, adjustment of examinations or training materials or policies, provision of qualified readers or interpreters, and other similar accommodations. The EEOC interprets reasonable accommodation as including work at home and the use of paid or unpaid leave. During a pandemic, reasonable accommodations must continue to be provided unless these constitute an undue hardship. For example, if employees are asked to telework to reduce the spread of the virus, an employee with a disability who needs an accommodation at work, such as a screen-reader, must be provided that same accommodation during telework, barring undue hardship. "Undue hardship" is defined as "an action requiring significant difficulty or expense." Factors to be considered in determining whether an action would create an undue hardship include the nature and cost of the accommodation, the overall financial resources of the facility, the overall financial resources of the covered entity, and the type of operation or operations of the covered entity. The EEOC has provided detailed guidance on reasonable accommodation and undue hardship, which, in part, discusses the use of paid or unpaid leave as a form of reasonable accommodation. It is important to note that the third prong of the ADA's definition of disability, being "regarded as" having a disability, does not require the provision of reasonable accommodation. As a practical matter, this would mean that the provision of telework for individuals who are quarantined or subject to a "snow day" would not be required under the ADA, even if an individual were to meet the requirements of the third prong of the definition.
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On June 11, 2009, in response to the global spread of a new strain of influenza, the World Health Organization (WHO) raised the level of influenza pandemic alert to phase 6, which indicates the start of an actual pandemic. This change reflects the spread of the new influenza A(H1N1) virus, not its severity. Although currently the pandemic is of moderate severity with the majority of patients experiencing mild symptoms and making a rapid and full recovery, this experience could change. The Americans with Disabilities Act (ADA) prohibits discrimination against individuals with disabilities and protects applicants and employees from discrimination based on disability. The application of the ADA's nondiscrimination mandates during an influenza pandemic is uncharted territory since the most recent previous influenza pandemic was in 1969, before the 1990 enactment of the ADA. Currently, an individual infected with the H1N1 virus would most likely not be considered an individual with a disability; however, if the H1N1 virus were to mutate to cause more severe illness, such an infection may be considered a disability. The ADA prohibits employers from making certain disability-related inquiries and, currently, this prohibition might be interpreted to apply to inquiries about whether an employee would be in a high-risk group for pandemic influenza. The ADA also requires that employers provide reasonable accommodation for individuals with disabilities, and during a pandemic these accommodations would continue to be applicable unless they constitute an undue hardship.
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The modern relationship between the United States and the United Kingdom (UK) was forged during the Second World War. It was cemented during the Cold War, as both countries worked together bilaterally and within NATO to counter the threat of the Soviet Union. The United States and the UK are two of the five permanent members of the United Nations Security Council, and both are founding members of NATO. In the early 1990s, the UK was an important U.S. ally in the first Gulf War, and the two countries later worked together in stabilization and peacekeeping operations in the Balkans. The UK was the leading U.S. ally in the 2003 invasion of Iraq and subsequent stabilization operations, and it was the largest non-U.S. contributor to the NATO-led mission in Afghanistan. The UK remains an important U.S. partner in ongoing global security challenges, such as combatting international terrorism, countering the Islamic State terrorist group, and opposing Russia's annexation of Crimea and actions destabilizing Ukraine, including by supporting strong sanctions in response to these actions. The UK is also the sixth-largest economy in the world and a major financial center. The United States and the UK share an extensive and mutually beneficial trade and economic relationship, and each is the other's largest foreign investor. U.S. and UK officials, from the Cabinet level down, consult frequently and extensively on many global issues. American and British diplomats report often turning to each other first when seeking to build support for their respective positions in multilateral institutions or during times of crisis, as in the immediate aftermath of the 9/11 attacks on the United States. British input is often cited as an element in shaping U.S. foreign policy debates. Some observers assert that a common language and cultural similarities, as well as the habits of cooperation that have developed over the years, contribute to the ease with which U.S. and UK policymakers interact with each other. The term special relationship has often been used to describe the high degree of mutual trust between the two countries in cooperating on diplomatic and political issues. The special relationship also encompasses close intelligence-sharing arrangements and unique cooperation in nuclear and defense matters. The government of the UK is led by Prime Minister Theresa May of the Conservative Party. She became prime minister in July 2016, after David Cameron resigned in the wake of leading the unsuccessful campaign for the UK to remain in the European Union (EU). Cameron's departure came after having been reelected in May 2015 with an absolute majority for the Conservatives. As the longest-serving home secretary in modern times, May oversaw the UK's counterterrorism, policing, crime, and immigration policies from 2010 to 2016. A Member of Parliament (MP) since 1997, she is the UK's second female prime minister. May remained prime minister after the UK election of June 8, 2017, resulted in a hung parliament, an outcome in which no single party won a majority of seats in the 650-seat House of Commons. With 318 seats, the Conservative Party came in first place but lost the majority it had after winning 331 seats in the 2015 election. The Labour Party came in second place, outperforming most expectations by winning 262 seats, a gain of 30. This result was not what Prime Minister May had in mind in April 2017 when she reversed her earlier assertions and unexpectedly announced a snap election shortly after opening the two-year window for negotiating the UK's exit from the EU (commonly termed Brexit ). At that time, polls showed a 20-point Conservative lead over the Labour Party, and May expected both to solidify her political mandate for the negotiations with an expanded majority and gain two years in the electoral calendar in which to manage the withdrawal process (by pushing the next general election back from 2020 to 2022). Polls showed the lead shrinking as the vote neared, however. Prime Minister May sought to portray her leadership as the only choice for preserving stability and delivering Brexit, but some observers criticized her campaign as dull and uninspiring. Many observers also interpreted the result as a reflection of voter unease about Brexit and the government's approach to the negotiations, pointing especially to higher turnout among young voters (who largely oppose Brexit). The Labour Party was relatively effective in focusing on concerns about proposed Conservative social and economic policies, to the extent that some voters seemingly overcame previous doubts about Labour Party leader Jeremy Corbyn, often derided as radically left-wing. Prime Minister May was able to form a Conservative minority government after concluding a deal for support from the Democratic Unionist Party (DUP), the largest unionist political party in Northern Ireland, which holds 10 seats in Parliament. The arrangement is not a formal coalition but rather a "confidence and supply" arrangement that allows the DUP certain concessions in return for its support in passing the budget and backing the government in any no-confidence votes. Legislation typically is supported on a case-by-case basis, potentially granting the DUP a pivotal role in determining the fate of certain bills. The DUP is one of the UK's most socially conservative parties, and it campaigned strongly in favor of Brexit. (Nearly 56% of voters in Northern Ireland supported remaining in the EU.) Since 2007, the DUP has led Northern Ireland's devolved regional government in a power-sharing arrangement with Irish nationalist party Sinn Fein, and it remains engaged with Sinn Fein in talks to reestablish the devolved government following regional elections in March 2017. The Conservatives granted the DUP more budgetary resources for Northern Ireland as a key part of the two parties' parliamentary support deal, and the DUP remains a significant factor in Brexit negotiations related to Northern Ireland. Other notable outcomes from the June 2017 election included the following: After gaining 50 seats in the 2015 election, the Scottish National Party (SNP) suffered the loss of 21 seats. The result dealt a blow to the aspirations of some SNP leaders for a second vote on Scottish independence following the 2014 referendum, which favored staying in the UK. After positioning themselves as the most pro-Remain party in the Brexit debate, the Liberal Democrats made modest gains, from 8 seats to 12. The Conservatives' losses occurred despite making inroads in Scotland and gaining vote share from the collapse of the populist, anti-EU UK Independence Party (UKIP). Labour also benefitted from an unexpected return of UKIP voters in some parts of England. Nearly 52% of British voters in the June 2016 referendum on EU membership answered that the UK should leave the EU. Factors such as economic dissatisfaction, unease with globalization and immigration, and antielite or antiestablishment sentiments played key roles in the referendum outcome. The vote was the culmination of a decades-long debate in the UK about the country's EU membership, however. Fearing a loss of national sovereignty and influence, the UK stood aside in the 1950s when the six founding countries (Belgium, France, Italy, Luxembourg, Netherlands, and West Germany) launched the first steps of European integration. The UK joined the precursor of the modern-day EU in 1973, largely to derive the economic benefits of membership but also to have a political voice on the inside as integration took shape. Nevertheless, historically many British leaders and citizens (perhaps most notably including former Prime Minister Margaret Thatcher) have been skeptical about the EU, and the relationship between London and Brussels often has been marked by ambivalence. The UK "opted out" of several major elements of European integration, such as the euro currency and the passport-free Schengen Area. British "euro-skeptics" have frequently expressed frustration that the EU tends to focus too much on internal treaties and process rather than taking a pragmatic approach to priorities such as boosting economic competitiveness, promoting a common energy policy, or improving European defense capabilities. Overall, Brexit remains the predominant issue in UK politics, and withdrawal negotiations with the EU are set to remain the UK government's top concern. With the clock ticking on a presumed exit in March 2019, Prime Minister May has sought to manage an intense debate about what Brexit should look like, pitting a desire for continued market access and free trade with the EU against demands to sharply curtail inward migration and the EU's ability to affect decisionmaking in the UK. The strategy put forth by the government in February 2017 opted for a "hard Brexit," meaning a full departure from the EU single market and customs union, and a full restoration of British sovereignty over lawmaking, including with regard to controlling immigration. The strategy indicated that the UK would attempt to negotiate a free trade agreement with the EU to secure as much access to the EU market as possible. Emboldened by the result of the June 2017 election, however, advocates of a "soft Brexit" strategy have continued to urge that the UK retain at least some elements of membership in the EU single market and agree to a multiyear transition period to smooth out shock effects from the withdrawal. Divisions over these differing viewpoints toward Brexit run through Parliament and the British public, but also through the Conservative Party and Prime Minister May's Cabinet. The "divergers," led by Foreign Secretary Boris Johnson, Environment Secretary Michael Gove, "Brexit Secretary" David Davis, and Secretary for International Trade Liam Fox, and numbering many Conservative MPs, continue to push for the government to deliver a hard Brexit. The "aligners," led by Chancellor Philip Hammond and Home Secretary Amber Rudd and comprising pro-EU MPs, continue to argue for maintaining closer ties with the EU. With her leadership weakened after the June 2017 election, many observers question how Prime Minister May can deliver a Brexit deal that satisfies both viewpoints. The tasks of managing Brexit-related tensions and disagreements within her own party, heading off rebellions from one side or the other, and finding potential areas of compromise are likely to be central challenges for the prime minister in 2018. In December 2017, the government suffered a defeat when Parliament voted (309-305, with 11 Conservative MPs defecting) in favor of an amendment to the government's EU Withdrawal Bill requiring that any Brexit deal be approved by a separate act of Parliament before it can be implemented. The government had promised a "meaningful vote" in Parliament on the withdrawal agreement, but some MPs feared the bill's language allowed ministers too much power to implement statutory changes without parliamentary approval. Advocates of a softer Brexit applauded passage of the amendment in the hopes that it would grant them greater influence over the government's approach to the withdrawal. In any case, while the Brexit issue overshadows most aspects of British politics, Prime Minister May faces other domestic challenges. The country's National Health Services (NHS) have been severely strained by a capacity crisis during the winter of 2017-2018, pressuring the government to make plans for increasing resources and improving the performance of the UK's health sector. Having implemented an overarching program of domestic spending cuts, the Conservative Party also faces growing calls for a new definition of what it stands for in order to counter voters' receptiveness to the antiausterity messages of Jeremy Corbyn and the Labour Party. On March 29, 2017, Prime Minister May invoked Article 50 of the Treaty on European Union, formally giving notice of the UK's intention to leave the EU and opening a two-year window for conducting withdrawal negotiations. The UK named as its lead negotiator David Davis, holding the newly created position of Secretary of State for Exiting the European Union. The European Commission (the EU's executive institution) serves as the EU's negotiator, with Michel Barnier, a former EU commissioner for financial services and former French foreign minister, leading talks for the EU. The EU's negotiating guidelines adopted at the leaders' summit in Brussels in April 2017 presented a two-phase approach to the talks. The first phase would deal with the terms of a withdrawal agreement, focusing initially on three priority topics: the status and rights of EU citizens living in the UK and UK citizens living in the EU, a financial settlement addressing remaining UK obligations to the EU, and arrangements for the border between Northern Ireland and the Republic of Ireland. Given sufficient progress on these topics, the second phase would discuss possible transitional arrangements and the framework for future relations between the UK and the EU. This issue of "sequencing" became an early point of tension in the negotiations, as the EU resisted opening negotiations on its future economic and trade relationship with the UK until at least some of the main terms of withdrawal had been agreed. Throughout 2017, continued discord in the UK about the desired shape of Brexit fueled criticism from EU officials and outside observers that a lack of clarity and unity on the British side had hindered the progress of withdrawal negotiations. The UK government pushed back against such charges, noting that it has produced a series of position papers detailing its approach to numerous items on the negotiating agenda. After seven months and six rounds of discussions, the two sides reached an agreement in principle covering main aspects of the three priority topics and released a joint report on December 8, 2017, that describes their common understanding and joint commitments. With some specific aspects yet to be finalized, the report notes that "nothing is agreed until everything is agreed," and that joint commitments "shall be reflected in the Withdrawal Agreement in full detail." On December 15, 2017, the European Council determined that sufficient progress had been made on the three priority topics to open the second phase of negotiations, dealing with the transition period and framework for future relations. EU leaders stated that the second phase would proceed as long as the commitments made in phase one are fully respected, and they called for continued progress on unresolved issues related to withdrawal arrangements and for the negotiators to begin drafting the withdrawal agreement. The European Commission released the text of its draft withdrawal agreement (totaling 118 pages) on February 28, 2018. Some observers noted that the document represented a maximalist presentation of the EU's positions and that numerous provisions would be rejected by the UK government. The EU initially proposed that EU nationals living in the UK (approximately 3 million people) and UK citizens living in EU countries (approximately 1 million people) on the withdrawal date retain for life their rights under EU law, as interpreted by the European Court of Justice (ECJ), including the ability to acquire permanent resident status. The UK initially proposed that EU free movement rights would not carry over after withdrawal, meaning that EU citizens resident in the UK at the time of withdrawal would need to apply for a new immigration status. The outcome reflected in the December joint report was much closer to the original EU position. According to the joint report, EU and UK citizens will continue to have the right of free movement until the withdrawal agreement takes effect (possibly on March 29, 2019). Anyone arriving before that date would retain the right to stay; to apply for permanent residency ("settled status"); and to receive equal treatment with regard to employment, education, health care, social benefits, and rights of family reunification (not extended to future spouses/partners). In the UK, the rights of such individuals would be guaranteed in law and enforced by British courts, with regard for relevant ECJ rulings and the possibility of requesting ECJ interpretations. The draft withdrawal agreement pushed these conditions further, proposing that EU citizens arriving legally in the UK before the end of the post-withdrawal transition period (possibly lasting to December 31, 2020) would have the right to "settled status" and extending family reunification rights to cover future partners. The draft withdrawal agreement also asserted that UK citizens given the right to reside in one EU country would not automatically have the right to move and settle in another EU country. Citizens' advocacy groups assert that a lack of clarity remains about many questions, including whether and how individuals would need to register in order to qualify or claim their rights. The "divorce bill" quickly became one of the most contentious subjects of the negotiations, with hard-line advocates of Brexit insisting that the UK pay nothing and sources in the EU suggesting a figure as high as €100 billion (approximately $124 billion). Although it does not specify a figure, the agreement set out in the December joint report and reflected in the draft withdrawal agreement suggests that the total cost to the UK is likely to be about €40-€45 billion (approximately $49-$56 billion). The agreement includes the UK's share of implementing the EU's budget through the end of 2020 (the EU's current budget framework covers 2014-2020), other EU financial commitments and liabilities incurred before the end of 2020, and future pensions owed to British EU civil servants, minus the return of UK capital and assets from certain EU institutions and programs. Although the exact schedule and methodology remains to be detailed, costs are to be paid in euros and as they fall due, rather than in advance or in a lump sum. Northern Ireland and the border between Northern Ireland and the Republic of Ireland have become a complicated sticking point in the Brexit negotiations. Some observers initially expressed concerns that Brexit could result in the reestablishment of a harder border to collect customs tariffs and halt EU nationals who would no longer have the right of free movement into the UK. Such border controls would not apply to Irish citizens because the UK and Ireland maintain a separate common travel area agreement, but the prospect of a harder border raised warnings that it could harm Northern Ireland's economy and destabilize the peace process. All parties have been eager to avoid such an outcome, and have sought to negotiate a special arrangement for Northern Ireland in recognition of its unique circumstances. In the December joint report, the EU and the UK commit to protecting and upholding all parts of the 1998 Good Friday Agreement that brought an end to decades of sectarian conflict, created the Northern Ireland Assembly, and established institutional arrangements for cross-border cooperation (see CRS Report RS21333, Northern Ireland: Current Issues and Ongoing Challenges in the Peace Process , by [author name scrubbed]). The UK commits to avoiding a hard border, including the establishment of physical infrastructure for checks or controls, and to protecting North-South cooperation. The separate common travel area between the UK and Ireland is to continue operating, without affecting Ireland's obligations regarding the free movement of EU citizens under EU law. The people of Northern Ireland will retain the right to choose Irish or British citizenship, or both, and those who are Irish citizens will continue to have the rights of EU citizens. Besides considerable uncertainty about how a "soft" or "invisible" border would work with respect to immigration controls and customs enforcement, some analysts note that language in the joint report is "prone to contradictory interpretations" with regard to a hard border and the broader UK-EU relationship. Recognizing that North-South cooperation "relies to a significant extent on a common European Union legal and policy framework," the UK intends to protect such cooperation and avoid a hard border "through the overall EU-UK relationship." If this is not possible, the UK "will propose specific solutions," and "[i]In the absence of agreed solutions, the United Kingdom will maintain full alignment with those rules of the Internal Market and the Customs Union which, now or in the future, support North-South cooperation, the all-island economy and the protection of the 1998 agreement." At the same time, to satisfy an intervention late in the negotiations by the DUP, which strongly opposes any special status for Northern Ireland, "the United Kingdom will ensure that no new regulatory barriers develop between Northern Ireland and the rest of the United Kingdom," unless agreed to by the Northern Ireland Executive and Assembly, and "the United Kingdom will continue to ensure the same unfettered access for Northern Ireland's businesses to the whole of the United Kingdom internal market." Some experts argue that if Northern Ireland is to remain fully aligned with both the EU and the UK, then logic suggests that the UK would proceed down the path of soft Brexit, ending in a Norway-style relationship with the EU where the UK remains a member of the single market and the customs union. This conclusion is not shared by the British government, however. In a letter of "Commitments to Northern Ireland," released parallel to the joint report, the prime minister reiterated that there would be no hard border, no barriers between Northern Ireland and the rest of the UK, maintenance of the common travel area, and protection of the Good Friday Agreement and North-South cooperation, but the whole of the UK, including Northern Ireland, would leave the EU single market and customs union and would no longer be subject to the jurisdiction of the ECJ. The EU's draft withdrawal agreement subsequently proposed that Northern Ireland would effectively remain part of the EU customs union and common regulatory area, but the rest of the UK would not. Prime Minister May reiterated that such an arrangement is unacceptable to her government. The European Council's statement of December 15, 2017, on phase two of the negotiations called on the UK to clarify its positions regarding the future relationship. Prime Minister May outlined her vision in a speech on March 2, 2018, asserting that she wants "the broadest and deepest possible partnership—covering more sectors and co-operating more fully than any Free Trade Agreement anywhere in the world today." The prime minister called for a custom tailored economic relationship with the EU rather than the UK choosing from an existing model such as Canada (free trade agreement) or Norway (a member of the single market/European Economic Area), or simply trading with the EU on World Trade Organization (WTO) terms. She asserted that "[t]he fact is that every Free Trade Agreement has varying market access depending on the respective interests of the countries involved. If this is cherry-picking, then every trade arrangement is cherry-picking." She additionally spoke of a border that is as "frictionless as possible," no new tariffs or quotas, a "comprehensive system of mutual recognition" in terms of regulatory standards, and a customs partnership or "highly streamlined customs arrangement" that also would include a "mechanism so that the UK would also be able to apply its own tariffs and trade policy for goods intended for the UK market." The prime minister also called for a new independent arbitration mechanism, not the ECJ, to resolve disputes. Draft guidelines subsequently published by European Council President Donald Tusk indicated that with the UK out of the single market and customs union, the EU considers such an ambitious trade and economic relationship as unrealistic. The draft suggested the possibility of a free trade agreement that avoids tariffs and quotas but has only limited coverage of services (including financial services) and less potential for regulatory cooperation and mutual recognition of standards. EU leaders are expected to adopt formal negotiating guidelines for phase two at a summit on March 22, 2018. While negotiating the dimensions of the future UK-EU trade and economic relationship likely will consume considerable time and attention, aspects of the three priority issues discussed above and an extensive list of other issues remain to be fleshed out and resolved in the withdrawal agreement and transition arrangements. Examples of such issues include transition arrangements for the UK's exit from free trade agreements with both the EU itself and with third countries; transfer of regulatory responsibilities, including for the financial services sector, agriculture, fisheries, and nuclear safeguards; the status of intellectual property, data protection, and contracts drawn up in the UK under EU law prior to withdrawal; and access to aviation and energy markets. The negotiations also are expected to address issues related to security cooperation, including judicial and law enforcement cooperation (for example, cross-border security arrangements and access to information-sharing databases), as well as a framework for partnership in areas such as counterterrorism, international crime, defense, and foreign policy (including sanctions). The remaining 27 member states will decide where to resettle the two EU agencies located in the UK, and the negotiators are expected to seek arrangements facilitating the transfer. (The agencies are the European Medicines Agency, which approves and monitors drug safety and has 900 staff, and the European Banking Authority, which coordinates EU banking rules and has 160 staff.) The withdrawal agreement must be approved by both sides. EU approval requires a qualified majority vote in the Council of the EU (equivalent to agreement by 20 out of 27 remaining member states, representing 65% of the population) and a simple majority in the 751-member European Parliament. In the UK, both Houses of Parliament (Commons and Lords) will vote on whether to accept the withdrawal agreement as negotiated or move ahead with no deal. (A free trade deal or other arrangement for the framework of UK-EU economic relations is expected to be a separate agreement that would be concluded after withdrawal and voted on at a later date.) Numerous observers have suggested that withdrawal negotiations should be completed by October 2018 if both sides are to have time to complete their respective approval procedures by March 2019. If no agreement is reached within the two-year window, the EU could decide to extend the negotiating period, but consensus would be required to do so—any one of the 27 remaining members could veto an extension. A transition period in which to implement the terms of withdrawal is likely to last about two years (probably to the end of 2020). During such a transition period, the UK is likely to remain subject to EU rules governing trade policy and the single market without having voting representation in the EU institutions that shape those rules. The EU's draft withdrawal agreement states that the ECJ would continue to have jurisdiction in the UK throughout the transition period on issues covered by the EU treaties and that the ECJ would serve as the authority for interpreting the withdrawal agreement and ruling on matters of compliance. Both sides remain focused on achieving an orderly withdrawal agreement, but some observers suggest that given the pace and dynamics of the negotiations thus far, there is a possibility of a "no deal" scenario for March 2019, in which the UK "crashes out" of the EU without comprehensive exit and transition arrangements. Although some of the strongest supporters of leaving the EU view such as scenario as relatively unproblematic and potentially desirable, many analysts suggest it might entail substantial and uncertain consequences with regard to business, trade, regulatory issues, citizens' rights, and other areas. In the meantime, the UK government has introduced in the House of Commons the European Union (Withdrawal) Bill (also commonly referred to as the Great Repeal Bill). This legislation would repeal the European Communities Act of 1972 (the domestic legislation that gives EU law effect in the UK) and convert all EU law into UK law to prevent a legal "black hole" following the UK's departure from the EU. The UK would then decide on its own timetable what parts of EU law to keep or change going forward. The UK has emphasized a desire both to preserve the trade arrangements it currently has through EU agreements with approximately 60 countries by transitioning the deals to a bilateral basis and to negotiate new trade agreements with other international partners. The UK also has expressed intentions to replicate the EU schedules of commitments in the World Trade Organization "as far as possible." The UK government has not conducted trade negotiations at the national level since transferring competence over a common commercial policy to the EU in 1973, but it has been building up the capacity of a new Department for International Trade that was created in the Foreign and Commonwealth Office. The UK would be able to formally negotiate trade deals only after it has withdrawn from the EU and may not be able to conclude any such agreements until after any transition period has ended. Overall, an analysis by The Financial Times found that after withdrawing from the EU, the UK's bureaucratic capacity will be tested by the need to renegotiate 759 separate international agreements with over 160 countries (including 295 agreements related to trade, 202 on regulatory cooperation, 69 on fisheries, 65 on transport, 49 on customs, 45 on nuclear issues, and 34 on agriculture). Many economists have expressed concerns that Brexit could cause an economic shock that leaves the UK facing weaker economic growth, higher inflation, job losses, and depreciation of the pound (which has already happened), with potentially significant negative consequences for the U.S. and global economies. Advocates of Brexit have maintained that such economic fears are greatly exaggerated and that, free from EU regulations, a "Global Britain" will be able to forge new trade relationships with dynamic, emerging economies while remaining a preeminent international banking and financial center. The UK economy has been relatively resilient thus far, with growth of 1.8% in 2017 and an expected 1.5% in 2018, outperforming many expectations. Unemployment has remained low, at 4.4% in 2017. In any case, observers have noted considerable unease among some of the many multinational corporations that have chosen the UK as their EU headquarters; these corporations face a period of uncertainty about the UK's trade and economic arrangements and the corresponding legal and regulatory frameworks. The uncertainty and potential risks of Brexit have led some such large companies to make plans, or to consider making plans, for moving their EU base, along with attendant jobs and capital, elsewhere. Of particular consequence, with half of the world's financial firms basing their European headquarters in London and employing 1 million people, is the loss of the UK's EU "passporting" rights, whereby a financial company incorporated in one member state can carry out activities in all other member states without establishing a separate entity or obtaining a separate authorization. The signature initiative of the Conservative-led coalition government that took office in 2010 was a far-reaching austerity program aiming to reduce the country's budget deficit. Their victory in the 2015 election allowed the Conservative Party to continue implementing this program as the centerpiece of their domestic economic policy. Between 1993 and 2008, the British economy enjoyed an unprecedented period of sustained growth. However, the country was severely impacted by the global financial crisis and entered a deep recession in 2008, and a prolonged slump lasted until 2012. During the years of economic expansion, the UK developed a large structural budget deficit as spending outpaced tax revenues and growth. The financial crisis and recession exacerbated this situation: the government budget deficit grew from 5% of gross domestic product (GDP) in 2008 to nearly 11% in 2009. Public sector debt has increased from approximately 52% of GDP in 2008 to approximately 88%. In response to these trends, the coalition government began a program of budget austerity entailing large spending cuts in areas such as governmental department expenditures and a range of social welfare benefits. It also increased the value added tax (VAT), capital gains tax, and national insurance contributions. The austerity strategy has gradually reduced the budget deficit, to 4.3% of GDP in 2015 and 2.9% in 2017. Supporters have praised the austerity strategy as necessary to put the UK back on the path of financial sustainability. Opponents have argued that the government's approach is ideologically driven, unduly targets the poor and the disabled, and affects society in ways that are unequal and unfair. Critics also have charged that the austerity measures have been too aggressive, hurt the economy's growth prospects, and eroded public services. The UK's most recent budget moderately loosened fiscal policy, with more spending to support the NHS and to address some issues in education, the housing market, and social welfare programs. The UK's "special relationship" with the United States has been a cornerstone of British foreign policy, to varying degrees and with some ups and downs, since the 1940s. The UK is often perceived to be the leading allied voice in shaping U.S. foreign policy debates, and observers assert that the UK's status as a close ally of the United States has often served to enhance its global influence. British support, in turn, has often helped add international credibility and weight to U.S. policies and initiatives, and the close U.S.-UK partnership has served common interests in bodies such as the U.N., NATO, and other multilateral institutions. The UK continues to look to the United States for close partnership and has sought to reinforce its U.S. ties following Brexit. President Trump appears to have a largely positive view of the UK as well, but there have been points of tension and uncertainty in the relationship over the past year, arising on the UK side over both the substantive nature of some of the Trump Administration's policies and because of some of President Trump's statements and tweets. In a postelection phone call with Prime Minister May, President Trump reportedly spoke about the importance of the relationship and his close personal connections to the UK. Having expressed early on his strong support for Brexit and ambivalence about the future of the EU, President Trump has repeatedly indicated he favors reaching a U.S.-UK free trade agreement quickly. Some Members of Congress also have backed negotiating a free trade agreement with the UK. Although the UK cannot formally negotiate trade agreements until it leaves the EU, some suggest that positive indications of a likely future agreement with the United States could help bolster the UK's position in negotiations with the EU on the terms of Brexit and the UK's post-Brexit economic relationship with the EU. Prime Minister May was the first foreign leader to visit President Trump following his inauguration. Despite considerable negative sentiment toward Trump in the UK, she has sought to portray the UK's relationship with the United States as a source of stability in the context of Brexit, and she extended an early invitation for President Trump to make a state visit to the UK. President Trump and Prime Minister May have proceeded from relatively compatible starting points on issues such as counterterrorism, combating the Islamic State, and seeking to end the conflict in Syria. In contrast, President Trump has expressed opposition to the Iran nuclear deal (and has not certified Iran's compliance with the deal) and announced the planned U.S. withdrawal from the Paris climate agreement, both of which are supported by the UK government. Given initial skepticism from President Trump about NATO, Prime Minister May has consistently sought to convey that the alliance remains central to European security and the deterrence of Russian aggression, while cautioning against potential overtures to Russian President Vladimir Putin. Prime Minister May disagreed with the Trump Administration's recognition of Jerusalem as Israel's capital, calling the move "unhelpful in terms of prospects for peace in the region." She also expressed "deep concern" about the President's plan announced in March 2018 to introduce tariffs on steel and aluminum imports to the United States. As the UK government seeks to forge a mutually beneficial partnership, President Trump remains a highly controversial figure in the UK, and many in the UK have criticized Prime Minister May's outreach. Numerous British politicians, including Prime Minister May, spoke out against Trump during the U.S. election campaign, and in January 2016 Members of Parliament debated whether Trump should be banned from the UK due to statements he made during the campaign (although Parliament did not decide to do so). In response to domestic critics of her outreach to the Trump Administration, Prime Minister May asserted that, "It is the special relationship that allows us to say when something is unacceptable. Whenever there is something I find unacceptable, I won't be afraid to say that to Donald Trump." Several incidents during President Trump's first year in office generated a backlash in the UK. In March 2017, UK officials categorically rejected accusations repeated by the White House that the UK's Government Communications Headquarters (GCHQ, the UK's signals intelligence agency, comparable to the U.S. National Security Agency, or NSA) had helped the Obama Administration "wiretap" Trump Tower during the U.S. election campaign. President Trump also renewed a public feud with London Mayor Sadiq Khan, an exchange that began over then-candidate Trump's 2015 call for a ban on Muslims entering the United States and continued with Trump criticizing Khan's reaction to the June 2017 terrorist attack in London. In November 2017, President Trump was rebuked by Prime Minister May and numerous other British politicians for retweeting anti-Muslim videos posted by a far-right British group. Although President Trump initially pushed back against May's criticism, he later offered to apologize, saying he had known nothing about the group at the time. A date for President Trump's state visit has not been officially set, leading to considerable media speculation. Among other factors, numerous sources have reported that he does not wish to go if there are large-scale protests against him. In January 2018, President Trump canceled a planned working visit in February 2018 to open the new $1.2 billion U.S. embassy in London, objecting that the embassy was a "bad deal" at an "off location" in the city. Later in the month, he indicated that he planned to visit the UK at least once in 2018, with the official state visit potentially taking place in October 2018. The cancellation of the February working visit led some observers, including UK Foreign Secretary Boris Johnson, to express concerns that opposition to Trump in the UK was endangering the U.S.-UK relationship. At a meeting with Prime Minister May at the World Economic Forum in Davos, Switzerland, in January 2018, however, President Trump called reports of a falling out between the two leaders a "false rumor," asserting that the U.S.-UK relationship was as "strong as it had ever been," and that the two countries remain "joined at the hip" when it comes to military cooperation. The United Kingdom and the United States have a particularly close defense relationship and a unique intelligence-sharing partnership. U.S. defense planners have long viewed the UK as one of the most capable European allies—if not the most capable, alongside France—in terms of well-trained combat forces and the ability to deploy them. Observers note that the United States and the UK have long tended to have similar outlooks on issues such as the use of force, the development of military capabilities, and the role of NATO. UK leaders have emphasized their continued commitment as a leading country in NATO, and the UK has taken a strong role in efforts to deter Russian aggression. As part of NATO's "enhanced forward presence," the UK leads a multinational battalion in Estonia with 800 troops, augmented in 2018 by 200 troops from Denmark (France served as the partner nation in 2017). The unit is based in Tapa, about 100 miles from the Russian border. The UK additionally contributes 130 troops to the U.S.-led multinational battalion in Poland. During 2017, the UK was the lead nation in NATO's Very High Readiness Joint Task Force (VJTF), the land component of the enhanced NATO Response Force (eNRF), with about 3,000 personnel assigned to the effort. UK armed forces also participate in U.S.-led coalition efforts against the Islamic State in Iraq and in Syria, including with airstrikes (by Typhoon and Tornado aircraft, and unmanned Reaper drones), as well as surveillance, intelligence gathering, logistical support, and training Iraqi forces. The UK hosts about 8,700 U.S. military personnel as well as airbases, equipment, radar sites, and intelligence centers. As part of its cost-saving European Infrastructure Consolidation review, the U.S. Department of Defense announced in 2015 that U.S. personnel would pull out of three leased UK airbases (RAF Mildenhall, which serves as a hub for reconnaissance and tanker aircraft and special operations, RAF Alconbury, and RAF Molesworth) and move to other locations in the UK and Germany. Subsequent reports suggest that full U.S. divestment from these bases, originally planned for 2022, might not occur until 2024. Facilities of the Joint Intelligence Analysis Complex are being relocated from Molesworth and consolidated in a new Joint Intelligence Analysis Center at RAF Croughton, home to a large military communications facility. The U.S. Air Force plans to increase personnel at RAF Lakenheath, the largest U.S. base in the UK with approximately 5,500 personnel and home to an F-15 fighter wing, in anticipation of basing two squadrons of F-35s there by 2020. A 1958 U.S.-UK Mutual Defense Agreement established unique cooperation with regard to nuclear weapons, allowing for the exchange of scientific information and nuclear material. Additionally, since the signing of the 1963 U.S.-UK Polaris Sales Agreement, the United States has sold the UK equipment and associated services for a submarine-launched strategic weapons delivery system. The UK's nuclear deterrent consists of several Vanguard class submarines, each armed with up to 16 Trident missiles. The United Kingdom and the United States are key partners in terms of defense industry cooperation and defense sales. The two countries are engaged in more than 20 joint equipment programs, including the F-35 Joint Strike Fighter. Most major U.S. defense companies have a UK presence; numerous British companies, most notably BAE Systems, operate in the United States. British defense companies' U.S. operations tend to be part of a larger supply chain, with sales consisting mostly of components and niche equipment rather than entire platforms. U.S. foreign military sales (government-to-government) agreements with the UK were approximately $5.1 billion in FY2016. The authorized value of U.S. direct commercial sales (contractor-to-government) agreements for defense articles and services to the UK in FY2016 was approximately $1.76 billion, and direct commercial sales shipments totaled approximately $94.4 million. In 2007, in an effort to address long-standing British concerns about U.S. technology-sharing restrictions and export controls, the countries signed a Treaty Concerning Defense Trade Cooperation. The U.S. Senate passed a resolution of advice and consent to ratification of the treaty in 2010. The treaty eliminates individual licensing requirements for certain defense articles and services controlled under the U.S. International Traffic in Arms Regulations. The agreement is reciprocal and is intended to cover defense equipment for which the U.S. and UK governments are the end-users. It also calls for the creation of "approved communities" of companies and individuals in each country with security clearances to deal with technological transfers. Despite this close cooperation, U.S. officials have expressed concerns about cuts to UK defense spending and reductions in the size and capabilities of the British military in recent years. In 2016, the UK had the world's fifth-largest military expenditure (behind the United States, China, Russia, and Saudi Arabia), spending approximately $52.5 billion. The UK is also one of the few NATO countries to meet the alliance's defense spending benchmark of 2% of GDP (according to NATO, the UK's defense spending was 2.21% of GDP in 2016). Nevertheless, as part of the government's broad austerity program, UK defense spending decreased 8% in real terms (inflation adjusted) over the period 2011-2015. The cuts affected each branch of the British military, with the overall number of full-time, trained service personnel decreasing by almost 31,000, a 17% reduction in the size of the armed forces. Experts assert that the cuts, combined with other associated decisions about personnel, equipment, and operational readiness, reduced the UK's conventional military combat capability by 20%-30%. A Strategic Defence and Security Review (SDSR) published in 2015 addressed the UK's future military spending and defense posture. The document committed the UK to maintaining a minimum defense spending level of 2% of GDP, increasing defense spending by 0.5% above inflation annually through 2021, increasing the budget for equipment acquisition over the next 10 years (totaling £178 billion, or approximately $252 billion), and devoting considerably greater resources to the country's intelligence and security agencies. Among the planned acquisitions are two new aircraft carriers (HMS Queen Elizabeth and HMS Prince of Wales ), 138 F-35s, new warships, and the renewal of the Trident nuclear deterrent. (With 65,000 tons displacement, the Queen Elizabeth class carriers are the largest ships ever built for the Royal Navy. By comparison, the new U.S. Gerald R. Ford class carriers have 100,000 tons displacement.) Experts observe, however, that the SDSR made more commitments than it could afford. Overambitious spending plans, difficulties meeting efficiency savings targets, commitments to maintain personnel numbers, and a decline in the value of the pound have left the UK Ministry of Defence with a £20 billion (approximately $28.4 billion) funding gap for the next decade. The defense element of a National Security Capability Review, to be completed by summer 2018, is expected to offer potential solutions and trade-offs, possibly including scaling back or deferring acquisitions, delaying equipment upgrades, or cutting additional personnel and capabilities (such as amphibious landing ships). In the meantime, the Ministry of Defence continues to face resistance from the Treasury in pushing for additional budgetary resources to help fill the gap. While experts assert that the UK remains one of the few European countries capable of expeditionary combat operations, defense resource constraints suggest an ability more for "time-limited deployments against less sophisticated opponents" than a "credible full-spectrum combat capability against a peer competitor such as Russia." Beyond debate over conventional capabilities, the UK also has been focusing on areas such as special forces, intelligence, counterterrorism, and cybersecurity to face what many experts consider the most likely threats to the country's security. In October 2016, the UK launched a new National Cyber Security Centre (NCSC) within the GCHQ. The NCSC absorbed and replaced four previous government cybersecurity units, bringing together their expertise in a single point of contact for the public and private sector. The agency provides advice, consulting services, and incident response and recovery services. It works with law enforcement, intelligence and security agencies, and international partners. Counterterrorism remains a primary issue for the UK. In the decade after four suicide bombers killed 52 people and injured more than 700 in central London on July 7, 2005, authorities reportedly disrupted about 40 major terrorist plots against the UK. Between March and June 2017, there were three terrorist incidents in the UK claimed by the Islamic State group, including car and knife attacks in London and a suicide bombing at a music concert in Manchester. With these attacks perpetrated by British citizens, the group's capacity to direct or inspire attacks in Europe has become a top concern. Experts have estimated that approximately 760 people have traveled from the UK to train or fight in Syria and Iraq and that at least 350 such individuals have returned home. The UK adopted a new Counter-Terrorism and Security Act in 2015 that enhanced the country's already relatively extensive body of counterterrorism legislation. Among other provisions, the act broadened the powers of police and border officials to confiscate the passports of terrorism suspects, introduced new powers to ban suspected terrorists with British passports from the country, required mobile phone and Internet service providers to retain data for use in terrorism investigations, and placed a new legal duty on relevant institutions (e.g., prisons, universities, schools, and mosques) to report extremism and develop policies to deal with radicals and extremist speakers. Following the June 2017 attacks in London, UK officials have called on internet and technology companies to do more to remove terrorism content from their sites. Most analysts and officials agree that U.S.-UK intelligence and counterterrorism cooperation is close, well established, and mutually beneficial. UK agencies routinely cooperate with their U.S. counterparts in sharing information, and U.S. and British law enforcement and intelligence agencies regularly serve as investigative partners. Although many of the details and achievements remain secret, U.S.-UK intelligence and counterterrorism cooperation reportedly has disrupted multiple terrorist operations against both countries in recent years, including a plot against the New York Stock Exchange and World Bank in 2004, a major plot against transatlantic aviation in 2006, and a cargo airplane bomb plot in 2010. The overall intelligence and counterterrorism relationship is overwhelmingly positive, but there have been occasional tensions. The relationship was damaged by public accusations of British complicity in U.S.-led renditions and the alleged torture of terrorist suspects between 2002 and 2008, and there also have been some past tensions about extradition arrangements. More recently, in May 2017, UK officials expressed their anger about leaks attributed to U.S. sources that occurred during the early stages of the investigation into the Manchester terrorist bombing. In 2013, reports based on leaked, classified documents obtained from a former U.S. NSA contractor focused on surveillance operations allegedly conducted by the NSA and GCHQ. Under the Tempora program, which has not been acknowledged by GCHQ, the UK reportedly has tapped into undersea transatlantic fiber-optic cables that carry international telephone and internet traffic. Media reports have suggested that the NSA and GCHQ worked together on at least some aspects of collection operations and have shared information gathered from these programs with each other. This episode raised considerable concerns among UK civil liberty and privacy groups. At the end of 2016, the UK adopted a new Investigatory Powers Act intended to update the legal framework governing surveillance activities and clarify authorization procedures, privacy constraints, transparency requirements, and other safeguards. Critics charge that the law also grants the government sweeping new powers to collect and retain data and to force technology companies to share information. The U.S.-UK bilateral investment relationship is the largest in the world. In 2016 (latest complete data available), U.S. foreign direct investment (FDI) in the UK was $682.4 billion. Total U.S. corporate assets in the UK stood at approximately $5 trillion in 2016, representing 19% of total U.S. corporate assets abroad. UK FDI in the United States was $555.7 billion in 2016, and total UK corporate assets invested in the United States exceed $2 trillion. In 2016, UK affiliates employed approximately 1.16 million U.S. workers, and U.S. firms employed nearly 1.45 million people in the UK. The prospect of Brexit is having an effect on the investment relationship: U.S. FDI flows to the UK reportedly decreased 50% over the first nine months of 2017, compared to the same period of 2016. The UK is the United States' seventh-largest trading partner. In 2017, U.S. exports of goods to the UK were worth more than $56.3 billion and U.S. imports from the UK were worth more than $53 billion. The UK is the United States' largest trading partner with regard to services. U.S. services exports to the UK totaled $65.7 billion in 2016 and U.S. services imports from the UK totaled $51.7 billion. President Trump and some Members of Congress have expressed support for the idea of concluding a bilateral free trade agreement with the UK. Although the UK cannot formally negotiate trade agreements until it leaves the EU, informal discussions between U.S. and UK officials could potentially take place to begin outlining the parameters of an eventual agreement. The UK is likely to remain a strong U.S. partner, and Brexit is unlikely to cause a dramatic makeover in most aspects of the U.S.-UK relationship. Analysts believe that close U.S.-UK cooperation will continue for the foreseeable future in areas such as counterterrorism, intelligence, economic issues, and the future of NATO, as well as on numerous global and regional security challenges. NATO remains the preeminent transatlantic security institution, and UK leaders have indicated their continued commitment as a leading country in NATO. The UK also is expected to remain a key U.S. partner in operations to combat the Islamic State in Iraq and Syria. UK officials have emphasized that Brexit does not entail a turn toward isolationism and that the UK intends to remain a global leader in international diplomacy, security issues, trade and finance, and development aid. At the same time, Brexit could have a substantial impact on certain U.S. strategic interests, especially in relation to Europe more broadly and with respect to possible implications for future developments in the EU. With the UK commonly regarded as the strongest U.S. partner in the EU, a partner that commonly shares U.S. views, and an essential voice in efforts to develop stronger EU foreign and defense policies, some U.S. officials have conveyed concerns that the UK's withdrawal could make the EU a less capable and less reliable partner on security and defense issues. As the UK is a leading voice for robust EU sanctions against Russia due to its actions in Crimea and eastern Ukraine, some observers suggest the departure of the UK could shift the debate in the EU about the duration and severity of the sanctions (the measures must be renewed every six months). Some analysts have suggested that Brexit could allow the EU to move ahead more easily with developing shared capabilities and undertaking military integration projects under the EU Common Security and Defense Policy (CSDP). In the past, the UK has irritated some of its EU partners by essentially vetoing initiatives to develop a stronger CSDP, arguing that such efforts duplicate and compete with NATO. In 2011, for example, the UK blocked a proposal to consolidate the command structure for EU military missions under a single permanent operational headquarters. In recent years, U.S. officials generally have supported EU initiatives aimed at increasing European defense capabilities, but they continue to urge that such efforts remain complementary to NATO and do not duplicate or compete with NATO activities. More broadly, U.S. officials have long urged the EU to move beyond what is often perceived as a predominantly inward focus on treaties and institutions, in order to concentrate more effort and resources toward addressing a wide range of shared external challenges (such as terrorism and instability to Europe's south and east). Some observers note that Brexit pushes Europe back toward another prolonged bout of internal preoccupation, consuming a considerable degree of UK and EU time and personnel resources in the process.
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Many U.S. officials and Members of Congress view the United Kingdom (UK) as the United States' closest and most reliable ally. This perception stems from a combination of factors, including a sense of shared history, values, and culture; a large and mutually beneficial economic relationship; and extensive cooperation on foreign policy and security issues. Conservative-Led Minority Government Following 2017 Election The government of the UK is led by Prime Minister Theresa May of the Conservative Party. Her leadership position was weakened after she triggered an early election in June 2017, which resulted in the Conservatives losing their absolute majority in the 650-seat House of Commons. Prime Minister May formed a government after the Conservative Party reached a deal for support from the Democratic Unionist Party, the largest unionist political party in Northern Ireland. The Labour Party, led by Jeremy Corbyn, performed unexpectedly well in the 2017 election and constitutes the largest opposition party. Managing Brexit The UK's pending exit from the European Union (commonly referred to as Brexit) is the central issue facing the government. Prime Minister May has sought to manage differing views on the UK's future relationship with the EU and the resultant divisions within her Cabinet and the Conservative Party. The UK intends to leave the EU single market and customs union, while pursuing a free trade agreement with the EU and seeking to partner with the EU on a range of other issues. Brexit Negotiations The UK has been engaged in complex negotiations with the EU about the terms of withdrawal and arrangements for a transition period. The prime minister opened the process in March 2017, and withdrawal negotiations are to be completed within two years. The first phase focused on citizens' rights, a financial settlement, and a difficult combination of issues related to Northern Ireland and the border between Northern Ireland and the Republic of Ireland. The two sides reached a broad understanding on these issues in December 2017 and the EU published a draft withdrawal agreement in February 2018, but many details and unresolved differences remain to be clarified and agreed upon. In December 2017, the EU determined that sufficient progress had been made to begin talks on the future trade and economic relationship. With initial negotiating guidelines established in March 2018, the EU appears less optimistic than the UK about the possibility of a deep and ambitious agreement that includes areas such as financial services and regulatory cooperation. U.S.-UK Relationship Since deciding to leave the EU, the UK has sought to reinforce its close ties with the United States and reaffirm its place as a leading country in NATO. President Trump has expressed a largely positive view of the UK, but there have been tensions and backlash from the UK side over both substantive differences and various statements made by the President. Most analysts believe that the two countries will remain close allies that choose to cooperate in many important areas, such as counterterrorism, economic issues, and the future of NATO, as well as numerous global and regional security challenges. President Trump and some Members of Congress have expressed support for the idea of concluding a bilateral free trade agreement with the UK after it leaves the EU (see CRS Report R44817, U.S.-UK Free Trade Agreement: Prospects and Issues for Congress, by [author name scrubbed]). The UK has the world's fifth-largest defense expenditure, but U.S. officials have expressed concerns about past UK defense cuts and their effect on the UK's military capabilities. Given its role as a close U.S. ally and partner, developments in the UK, Brexit negotiations, and the UK's relations with the United States are of continuing interest to the U.S. Congress. This report provides an overview and assessment of some of the main dimensions of these topics. For a broader analysis of EU issues, see CRS Report R44249, The European Union: Current Challenges and Future Prospects, by [author name scrubbed].
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Child support is the cash payment that noncustodial parents are obligated to pay for the financial support of their children. Child support payments enable parents who do not live with their children to fulfill their financial responsibility to their children by contributing to the payment of childrearing costs. The Child Support Enforcement (CSE) program was signed into law in 1975 ( P.L. 93-647 , Title IV-D of the Social Security Act) as a federal-state program to help strengthen families by securing financial support for children from their noncustodial parent on a consistent and continuing basis and by helping some families to remain self-sufficient and off public assistance. The CSE program is based on the premise that both parents are financially responsible for their children. Basic responsibility for administering the CSE program is left to the states, but the federal government has a major role in dictating the major design features of state programs; funding, monitoring, and evaluating state programs; providing technical assistance; and giving states help in locating noncustodial parents and obtaining child support payments. Congress, through legislative changes, has broadened the mission of the CSE program. The CSE program has evolved over time from a "welfare cost-recovery" program into a "family-first" service delivery program that seeks to enhance the well-being of families by making child support a reliable source of income. Included in their available methods to collect child support obligations, states use the threat of jail and actual incarceration in jail. Many states bring charges of civil or criminal contempt of court or criminal nonsupport against noncustodial parents who fail to pay child support. All states have criminal statutes that relate to the failure to pay child support. Thus, in all states, failure to pay child support is technically a crime under the state's criminal nonsupport statutes. However, many states choose to treat failure to pay child support less harshly by treating it as a violation of a court order. A violation of a court order is usually referred to as contempt of court and, depending on the state, it may be considered a civil offense, a criminal offense, or both. In the CSE program, although a general protocol is usually followed, the individual caseworker has discretion over how to manage a case. For example, the caseworker determines which child support collection methods to use. After the CSE caseworker determines that he or she has spent an appropriate amount of time trying to get a noncustodial parent to meet his or her child support obligation, the worker often has the authority to have a warrant issued to bring the noncompliant noncustodial parent before a judge. Some noncustodial parents contend that they appeared in court in compliance to a subpoena and then were immediately arrested and put in jail after the court hearing. The task of trying to persuade noncustodial parents to pay their child support obligation is an ongoing and, at times, futile duty for many judges. The threat of jail—or actual incarceration—for failure to pay child support is widely acknowledged to be just a temporary fix, but many judges contend that it is their most productive leverage in child support cases. Given that about 70% of child support arrearages (i.e., past due child support) are owed by noncustodial parents with no reported income or income of $10,000 or less per year, the inability of low-income noncustodial parents to pay child support will likely be a constant and ongoing problem. National data do not exist with respect to how often the incarceration option is used. So, if incarceration of noncustodial parents for nonpayment of child support is viewed as an issue, there are no data to reflect the magnitude of the problem. The CSE program is operated in all 50 states, the District of Columbia, Guam, Puerto Rico, and the U.S. Virgin Islands, and by several Indian tribes or tribal organizations. The CSE program provides seven major services on behalf of children: (1) parent location, (2) paternity establishment, (3) establishment of child support orders, (4) review and modification of child support orders, (5) collection of child support payments, (6) distribution of child support payments, and (7) establishment and enforcement of medical support. The CSE program has at its disposal a wide variety of methods by which to obtain child support obligations. Collection methods used by state CSE agencies include income withholding, intercept of federal and state income tax refunds, intercept of unemployment compensation, liens against property, reporting child support obligations to credit bureaus, intercept of lottery winnings, sending insurance settlement information to CSE agencies, authority to withhold or suspend driver's licenses, professional licenses, and recreational and sporting licenses of persons who owe past-due support, authority to seize assets of debtor parents held by public or private retirement funds and financial institutions, and authority for the Secretary of State to deny, revoke, or restrict passports of debtor parents. In addition, federal CSE law requires states to enact and implement the Uniform Interstate Family Support Act (UIFSA) and expand full faith and credit procedures (so as to effectively enforce interstate child support cases). Federal law also provides for international enforcement of child support. In addition, federal criminal penalties may be imposed in certain cases. Moreover, all jurisdictions also have civil or criminal contempt-of-court procedures and criminal nonsupport laws (see the Appendix ). This option means that it is possible for all states and jurisdictions to incarcerate certain noncustodial parents who owe past-due child support. The most effective child support enforcement tool is income withholding, a procedure by which automatic deductions are made from wages or other income. Once initiated, income withholding can keep child support flowing to the family on a regular basis. In FY2010, about 67% of the $32 billion collected by the states for child support payments was obtained through income withholding, 6% from the unemployment intercept offset, 6% by way of the federal income tax refund offset, 4% from other states, less than 1% from the state income tax refund offset, and 16% ($5 billion) from other sources. Sporadic data from the federal Office of Child Support Enforcement (OCSE) indicate that roughly $3.5 billion of the $5 billion amount from other sources is from child support collected through banks, credit unions, and other financial institutions pursuant to the financial institution data match program; and perhaps about $1 billion (per year) is from collections obtained due to the driver's license suspension program. Based on these rough estimates, probably less than 2% of child support collections can be associated with the threat of incarceration. If a noncustodial parent is actually incarcerated because of nonpayment of child support, the likelihood of receipt of child support payments from that parent during the period of incarceration is very small. It should be noted that even before the enactment of the CSE program in 1975, states individually and collectively tried to address the problem of nonpayment of child support. For example, in 1910 the National Conference of Commissioners on Uniform State Laws approved the Uniform Desertion and Non-Support Act, which imposed criminal penalties on fathers who failed to support their children. The 1910 act sought to improve the enforcement of the duties of support, but it did not take into account husbands and fathers who fled the jurisdiction. As the U.S. population became more mobile and noncustodial parents and their children increasingly lived in different states, welfare agencies had to support some destitute families because the extradition process was inefficient and often unsuccessful. In 1950, The National Conference of Commissions on Uniform State Laws published the Uniform Reciprocal Enforcement of Support Act (URESA). The commission stated that, "The purposes of this act are to improve and extend by reciprocal legislation the enforcement of duties of support and to make uniform the law with respect thereto." URESA sought to enforce the provisions in two ways: criminal enforcement and civil enforcement. Although jail has been a method to enforce child support obligations for a long time, from the outset many acknowledged that it was counterproductive to put the noncustodial parent in jail. Commentary on the 1950 version of URESA indicated the following: Everyone was agreed that the return of the obligor to face criminal charges in the state from which he had fled was of limited value. If convicted, he would be put in jail and the state would still have the burden of support of the destitute family. Even when free again, he would be under the heavy handicap of "a man with a criminal record" in finding a job and supporting his family. However, the commissioners finally decided to leave criminal enforcement in the Act because it was the traditional method of solving the problem and it was not certain that civil enforcement would take care of all cases; and it was felt that, while actual extradition would be of little use, the threat of extradition might be a powerful weapon in the case of shiftless and slippery obligors. State and federal laws and procedures that penalize noncustodial parents for not paying child support by "locking them up" have gained sympathy in recent years from a wide range of interested parties. Child support experts and state policymakers now generally categorize noncustodial parents who do not consistently pay their child support obligation on a timely basis as "can't pay" and "won't pay" parents. While policymakers and the public are somewhat sympathetic to those who cannot pay, they are angry with those that will not pay. In response, states and the federal government have developed and implemented aggressive child enforcement tools to pursue "won't pay" parents who refuse to meet their child support obligation despite having the financial resources to do so. The increasingly common use of criminal statutes and contempt of court orders in child support cases reflects society's growing frustration with "won't pay" parents. (It should be noted that although this either-or delineation may at first seem straightforward, in practice it can be very complicated and many low-income noncustodial parents claim that they are mistakenly lumped into the "won't pay" group when in reality they do not have the income or resources to pay.) Other countries also use the jail option. For example, in England and Wales if a nonresident parent refuses to pay the child maintenance he or she owes, the Child Support Agency can apply to the courts for a warrant of commitment. This warrant can legally send a nonresident parent to prison for up to six weeks. Moreover, as in the United States, even if the nonresident parent is sent to prison, he or she is still obligated to pay all of the child support owed. Among the 14 countries studied in a 2009 report, 3 did not imprison persons for failure to pay child support arrears. Two of the three countries that did not imprison were Australia and Finland. In addition, the report noted that although Denmark specifies criminal prosecution and imprisonment in various documents, it has never in practice prosecuted or incarcerated anyone because of nonpayment of child support. As mentioned above, one of the services provided by the CSE program is review and modification of child support orders. A prevalent viewpoint holds that an effective modification process can help assure that child support orders remain appropriate and prevent the accumulation of inappropriate child support debt. The section below discusses ways in which the nonpayment of child support can result in a noncustodial parent being incarcerated. Laws concerning most child support enforcement activities are civil, but nonpayment of child support may subject a noncustodial parent to criminal sanctions in three situations: (1) a finding of contempt of court for failure to obey a court's child support order—contempt of court is classified as either criminal or civil; (2) prosecution under a state criminal nonsupport statute; or (3) prosecution under the Child Support Recovery Act of 1992, as amended in 1998 ( P.L. 102-521 and P.L. 105-187 ). Anecdotally, it appears that it is not uncommon for low-income noncustodial parents to be incarcerated for nonpayment of child support or contempt of court charges that relate to nonpayment of child support. Unfortunately, national data do not exist with respect to how often the incarceration option is used. CSE agencies generally do not track arrests for nonpayment of child support and the record-keeping of sheriffs' offices or prosecuting attorneys' offices on this topic is sporadic, nonexistent, and/or inconsistent across jurisdictions. Contempt of court is a legal term that means that the individual in question is not following a court order. State courts have the authority to punish individuals for violating their valid judgments or decrees. Certain acts or omissions that embarrass the court, lessen its authority or dignity, or obstruct the administration of justice constitute contempt. A judge who feels someone is improperly challenging or ignoring the court's authority has the power to declare the defiant person in contempt of court. Contempt is classified as either civil or criminal. If the purpose of the penalty imposed is for the benefit of a private party to the action, the contempt is generally classified as civil. Civil contempt occurs when an individual willfully disobeys a court order or rule. This is sometimes referred to as indirect contempt because it occurs outside the judge's immediate realm and evidence must be presented to the judge to prove the contempt. An individual who is found to be in civil contempt of court may be fined, jailed, or both as a consequence of his or her actions. The fine or jailing is meant to coerce the individual into obeying the court, not to punish the person, and the person is to be released from jail just as soon as he or she complies with the court order. In family or domestic relations law, civil contempt is one way a court enforces child support orders that have been violated. In fact, parties seeking payment of child support often ask courts, through motions for civil contempt, to send the defendant (i.e., the noncustodial parent) to jail unless he or she comes up with the money owed. In a civil contempt of court case, the individual is no longer in contempt (and thereby free) once he or she complies with the court's requirements (e.g., fully pay all child support arrearages, make timely child support payments in accordance with a court-sanctioned agreement, or participate in a work and/or training program so as to be able to make child support payments at a later date). However, if the purpose of the penalty is to vindicate the authority of the court, the contempt is classified as criminal. Criminal contempt occurs when an individual interferes with the ability of the court to function properly. For example, if an individual yells at the judge or jury, it could be considered criminal contempt of court. An individual who is found to be in criminal contempt of court may be fined, jailed, or both as punishment for his or her actions. Criminal contempt of court charges are punitive, in that their intent is to deter future acts of contempt by punishing the offender no matter what happens in the underlying proceeding. In other words, criminal contempt of court charges become separate charges from the underlying case. Unlike civil contempt sanctions, criminal contempt charges may live on after resolution of the underlying case. Although contempt of court proceedings are generally classified as either civil or criminal, it is generally agreed that it is often hard to determine how a particular act or infraction should be properly classified. Interested parties also agree that judges should more carefully determine whether to impose civil or criminal contempt of court rulings. This is because "an incorrect decision (wrongly classifying the contempt proceeding as civil) can increase the risk of wrongful incarceration by depriving the defendant of the procedural protections (including counsel) that the Constitution would demand in a criminal proceeding." According to CSE documents, civil contempt actions are generally brought against noncustodial parents who have very poor child support payment histories, are unemployed or self-employed, or have no regular income that can be withheld through income withholding. The basic purpose of a civil contempt action is to encourage compliance with the child support order. In fact, in general, a finding of current ability to pay is a prerequisite to a civil contempt ruling. In a civil contempt action, the purpose is to force compliance by the noncustodial parent. The sanction usually falls into three categories: (1) coercive/punitive fines (paid to the court), (2) compensatory/remedial fines (paid to the custodial parent), and (3) incarceration. However, any fine or imprisonment is generally considered improper unless it benefits the custodial parent and the children and allows the noncustodial parent to purge himself or herself (i.e., avoid punishment) by complying with clearly stated and attainable requirements. According to arguments made during the Turner v. R ogers Supreme Court case, "A court may not impose punishment in a civil contempt proceeding when it is clearly established that the alleged contemnor is unable to comply with the terms of the order. And once a noncustodial parent who is delinquent in paying his or her child support obligation complies with the underlying order, he is purged of the contempt and is free." Some commentators characterize this situation by saying that "He carries the keys of his prison in his own pockets." The Court has made clear (in a case not involving the right to counsel) that, where civil contempt is at issue, the Fourteenth Amendment's Due Process Clause allows a state to provide fewer procedural protections than in a criminal case. Further, a state may place the burden of proving inability to pay on the defendant. Some commentators assert that although the intent may be that persons who are unable to comply with court requirements because they do not have the money to pay child support obligations should not be charged with contempt of court, in practice this may occur because some noncustodial parents are mistakenly thought to be able to pay and many noncustodial parents cannot prove that they are not able to pay. A strictly penal sanction is supposed to be imposed only in cases wherein the defendant is provided essential due process protections. These due process protections include the right to notice of the offense, the right to present a defense, the right to call witnesses, an impartial judge, and, in some jurisdictions, the right to counsel and a trial by jury. A criminal contempt proceeding is considerably more complicated than a civil contempt proceeding. Initiation of the proceeding may require a more formal notice than is provided the civil defendant in the motion and order to show cause, although a formal indictment is not necessary. The possibility of an indigency hearing, a jury trial, and a change of judge potentially makes the process a very long one. Nonetheless, there are occasions when criminal contempt may be effective. In cases where a noncustodial parent has been charged with civil contempt on several occasions but never voluntarily makes child support payments until the jail term is imminent, a criminal contempt action may change his or her attitude about compliance. In addition, a court may set consecutive jail terms for multiple contempt of court rulings. Moreover, criminal contempt might be the only available remedy to punish a noncustodial parent who willingly limited his or her ability to pay child support (out of spite) by quitting a job or taking one at a much lower salary. Parents can be jailed without a trial because failure to pay child support is usually handled as a civil matter—contempt of court. This means that if the noncustodial parent is found guilty of contempt of court and ordered to appear at a hearing, he or she can be sent to jail unless willing and able to satisfy the child support obligation. As mentioned, these civil defendants generally are not entitled to the constitutional protections that criminal defendants receive, including the presumption of innocence or the right to an attorney. In contrast, indigent criminal defendants have a right to court-appointed attorneys, who typically are paid with tax dollars. Recently, the U.S. Supreme Court was asked to determine whether the Fourteenth Amendment's Due Process Clause requires a state to provide legal representation to an indigent noncustodial parent who is subject to a child support order and faces imprisonment due to noncompliance with that order. In Turner v. Rogers , the Court declined to rule that due process requires legal representation in such instances where other procedural safeguards exist. These safeguards center around a defendant's ability to pay and include (1) notice to the defendant that his ability to pay is a critical issue in the contempt proceeding; (2) the use of a form (or the equivalent) to elicit relevant financial information; (3) an opportunity at the hearing for the defendant to respond to statements and questions about his financial status; and (4) an express finding by the court that the defendant has the ability to pay. The case at issue was a South Carolina child support case wherein the defendant, Michael Turner, spent a year in jail for failure to pay back child support after a hearing conducted without legal representation. He presented some evidence of his inability to work, but the court made no finding as to the defendant's indigent status or ability to pay. He was not convicted of a crime; the year in jail was not a punishment, per se. Turner was being held in contempt of court, and the jail time was a means to induce the payment of nearly $6,000 in past-due child support. In reaching its decision, the Court relied on factors set forth in Mathews v. Eldridge , to determine what safeguards are required to make a civil proceeding fundamentally fair. Specially, the Court stated A requirement that the State provide counsel to the noncustodial parent in these cases could create an asymmetry of representation that would "alter significantly the nature of the proceeding.... Doing so could mean a degree of formality or delay that would unduly slow payment to those immediately in need. And, perhaps more important for present purposes, doing so could make the proceedings less fair overall, increasing the risk of a decision that would erroneously deprive a family of the support it is entitled to receive. The needs of such families play an important role in our analysis." The Court determined that the straightforward nature of child support proceedings, the lack of representation by the custodial parent, and the existence of other procedural safeguards outside of legal representation all suggested that the Due Process Clause did not mandate appointment of an attorney under the circumstances presented. However, the Court found that the lower court violated Turner's rights by not ensuring that he had counsel or other procedural safeguards to provide notice that his ability to pay was a critical issue or a form to elicit financial information to make such a determination. It is important to note that this decision did not address instances where the child support is owed to the state (i.e., reimbursement of welfare funds) or where complex matters are presented. During discussion, debate, and arguments concerning the Turner v. Rogers case, the concept of whether nonpaying noncustodial parents should be viewed as deadbeats versus turnips was a recurring point of contention. Those who likened noncustodial parents with high child support arrearages to deadbeats argued that some defendants, most often fathers, somehow develop a belief that their financial and emotional obligations to their children ended when their relationship with the children's mother did. These observers also claimed that other noncustodial parents withhold child support in order to punish or control their ex-spouses. They asserted that for these two groups of defendants, sometimes the threat of jail, followed up by actual jail time (so as not to make the threat an empty one), is the only way to get such noncustodial parents to comply with their child support obligations. Those who likened certain noncustodial parents to turnips claimed that many low-income child support defendants were turnips from whom no one—not the custodial parent, not the CSE caseworkers, not the judge—could squeeze one penny. They asserted that the majority of low-income noncustodial parents who end up in jail are turnips, low-income defendants who cannot afford to purge themselves of contempt. According to several analysts and Turner's legal team, the turnips of the world are those who most often end up in jail, which both needlessly deprives them of freedom (and the ability to find a job) and fails to achieve the state's goal of inspiring compliance with child support. Because the defendant "holds the keys to his own jail cell" in a civil contempt case, with the ability to end the jail time by complying with the order, it has historically been considered differently than a jail sentence of a specified term for criminal contempt. According to Turner, the problem was that he just did not have the money to pay. Further, because he did not have a lawyer at his contempt hearing, he was unable to prove it. Because he was sent to jail to force him to comply with a debt he could not pay, he likened his situation to debtors' prison. The mother of his children and her supporters, including the two U.S. Senators from South Carolina, argued that granting civil contempt defendants the right to counsel would actually lead to inequality in the justice system for custodial parents, who do not have such a right. Under prior U.S. Supreme Court rulings, indigent criminal defendants have a right to court-appointed attorneys, who typically are paid with tax dollars. But the Supreme Court has declined to grant similar rights in civil proceedings that could result in jail time and declined to do so again in Turner . However, the U.S. Supreme Court did find that the state court violated the defendant's constitutional rights by sentencing him to imprisonment without first determining whether he had the ability to pay. Thus, the Court set aside a unanimous ruling by the South Carolina Supreme Court and sent the case back to the lower court for "further proceedings not inconsistent with this opinion." In many instances, CSE actions are not successful in collecting past-due child support. In those cases, the CSE caseworker via an attorney may pursue criminal charges against the delinquent obligor. There are criminal offenses for nonsupport of children at both the state and federal level. All 50 states and the District of Columbia have state-specific or jurisdiction-specific criminal statutes that relate to the failure to pay support in purely intrastate or intra-jurisdiction cases. In some of these states (including DC), the attorneys who establish and enforce child support obligations in civil court have the discretion to file criminal charges against a noncustodial parent. Other states have a referral process where the child support attorney refers the case to the district attorney or prosecutor to review for criminal prosecution. Also, some states appoint child support attorneys as special prosecutors solely for the purpose of bringing an action under the state criminal nonsupport statute. Although CSE program remedies such as income withholding and income tax refund intercept are still the most often used enforcement tools, criminal nonsupport proceedings can be a useful deterrent to noncompliance. In most states, the usual procedure is for all available civil remedies to be exhausted before resorting to the use of criminal nonsupport. It can be argued that where CSE remedies have proven unsuccessful or where the noncustodial parent has been evading civil remedies, a criminal charge can be effective in bringing about payment. In most states, the normal rules of evidence apply to a criminal nonsupport action. Depending on local practice, the action is initiated by filing a criminal complaint or indictment. Based on the initial finding, a judge may issue a warrant or summons. Like other state criminal actions, the initial pleading must allege all elements of the crime in such a manner that allows the defendant to understand the charge and prepare a defense. State law defines the elements of the crime. The standard of proof in these cases is proof beyond a reasonable doubt. See Table A-1 in the Appendix for a state-by-state listing of criminal nonpayment of child support statutes. During the early 1990s, research revealed that a significant number of noncustodial parents were able to meet their child support obligations but intentionally chose not to do so. The chances of successfully escaping one's child support duties increased substantially when the noncustodial parent crossed state lines so as not to pay child support. The Child Support Recovery Act of 1992 ( P.L. 102-521 ) addressed the problem of interstate enforcement of child support by taking the incentive out of moving to another state to avoid paying child support. According to the congressional report on the legislation, "The bill is designed to target interstate cases only. These are the cases which state officials report to be clearly the most difficult to enforce, especially the 'hard core' group of parents who flagrantly refuse to pay and whom traditional extradition procedures have utterly failed to bring to justice." P.L. 102-521 imposed a federal criminal penalty for the willful failure to pay a past due child support obligation to a child who resides in another state that has remained unpaid for longer than a year or is greater than $5,000. For the first conviction, the penalty is a fine of up to $5,000, imprisonment for not more than six months, or both; for a second conviction, the penalty is a fine of not more than $250,000, imprisonment for up to two years, or both. This federal criminal penalty was seen as an additional child support enforcement tool or remedy to be used for especially difficult cases in which state-level options had been exhausted and the noncustodial parent with the ability to pay seemed to be intent on evading his or her child support obligations. After the 1992 law was implemented, there was concern that by providing for a maximum punishment of just six months in prison for a first offense, even very egregious cases of nonsupport were only considered misdemeanors. In response to assertions that the 1992 law did not adequately address more serious instances of nonpayment of child support obligations, Congress passed the Deadbeat Parents Punishment Act of 1998 ( P.L. 105-187 ). The law establishes two new categories of felony offenses, subject to a two-year maximum prison term. The offenses are (1) traveling in interstate or foreign commerce with the intent to evade a support obligation if the obligation has remained unpaid for more than one year or is greater than $5,000; and (2) willfully failing to pay a child support obligation regarding a child residing in another state if the obligation has remained unpaid for more than two years or is greater than $10,000. "Project Save Our Children" is the mechanism through which the federal criminal penalties for nonsupport law is carried out. The Project Save Our Children initiative is conducted by officials from the HHS Office of Inspector General, the OCSE, the Department of Justice, state CSE agencies, and local law enforcement organizations working together to pursue chronic delinquent parents who owe large sums of child support. Its goal is to increase child support collections through the identification, investigation, and, when warranted, prosecutions of flagrant, delinquent child support offenders. According to HHS, in FY2006 Project Save Our Children, received over 10,000 cases from the states. As a result of the work of the task forces, in FY2006 986 arrests were made nationwide and 872 individuals were sentenced. Federal investigations resulted in a total of $39.6 million in restitution being ordered with $35.8 million actually collected in FY2006. In FY2007, the Project Save Our Children program resulted in about $8.1 million in child support collections from 1,139 child support cases. Many policymakers argue that the threat of jail usually brings noncustodial parents who are employed or have access to income or assets into compliance with child support orders. In contrast, low-income noncustodial parents who do not have the money to pay their child support obligation go directly to jail (because they are unable to comply before the threat is actualized due to their lack of funds). The threat of jailing noncustodial parents who are delinquent in meeting their child support obligations is intended to coerce them to pay, but if they have no money, they cannot pay. Moreover, in many instances these noncustodial parents have used up their goodwill with relatives and friends and thus can no longer borrow from others to meet their obligations. Thus, in the case of some low-income noncustodial parents, jail becomes their reality because they do not have the income or assets to eliminate the threat. According to many analysts, the threat of jail may be a good public policy tool, but actually making good on the threat generally is not productive. In other words, putting low-income noncustodial parents in jail, especially when it is known that they are unemployed and without the means to pay their child support obligations, does not seem to be effective in gaining financial or emotional help for children. But, observers ask, how can use of a threat be effective if everyone knows that there are no teeth behind it? Many noncustodial fathers maintain that the CSE system is dismissive of their financial condition and continues to pursue child support payments (current as well as arrearages) even when it knows that many of them can barely support themselves. They argue that for welfare families, the CSE program generally does not improve their child's well-being because their child support payments are used to benefit the state and federal government (i.e., welfare reimbursement) rather than their child. They contend that the CSE program causes conflicts between them and their child's mother because the women often use it as leverage by threatening to report them to CSE authorities, take them back to court, have more of their wages garnished, or have them arrested. Some commentators assert that jails are expensive, dangerous places in which people become aggressive in order to manage their fears or survive the sentence. Therefore, they contend that although most of these people may have been nonviolent before they were incarcerated, they often are no longer so after being in jail or prison. Noncustodial parents who are incarcerated for violations related to nonpayment of child support are usually put in jail rather than prison. One widely held myth is that jails only hold nonviolent offenders. To the contrary, jails receive individuals pending arraignment and hold those awaiting trial, conviction, or sentencing. They also hold probation, parole, and bail-bond violators. Some of these individuals are violent persons. It is generally agreed that violence is a part of prison life. It has been noted that the lack of outrage over prison violence is testament to the fact that it is considered a normal and acceptable part of behavior inside prison. According to one report: "The rates of physical assault for male inmates is over 18 times higher than assault victimization rates for males in the general population, and rates for female inmates are over 27 times higher than their nonincarcerated counterparts." Thus, many observers both inside and outside the criminal justice system concede that jails and prisons should primarily be used for violent offenders and that less harsh alternatives should be used for non-violent offenders such as those whose only offense is nonpayment of child support. According to a report by the American Civil Liberties Union (ACLU), "Incarceration has a devastating effect on men and women whose only remaining crime is that they are poor." Although the report pertains to legal financial obligations (i.e., fines and/or costs imposed on the defendant by a court), the following commentary could also apply to low-income noncustodial parents who are unable to handle their child support obligations. Upon release, they face the daunting prospect of having to rebuild their lives yet again. Even for those men and women with unpaid LFOs [Legal Financial Obligations] who do not end up back behind bars, their substantial legal debts pose a significant, and at times insurmountable, barrier as they attempt to re-enter society. They see their incomes reduced, their credit ratings worsen, their prospects for housing and employment dim, and their chances of ending up back in jail or prison increase. Many must make hard choices each month as they attempt to balance their needs and those of their families with their LFOs. They also remain tethered to the criminal justice system—sometimes decades after they complete their sentences—and live under constant threat of being sent back to jail or prison, solely because they cannot pay what has become an unmanageable legal debt. Some commentators note that jail generally increases a person's stress and negatively impacts his or her emotional/mental and physical health. They claim that some inmates adopt an aggressive persona out of self-preservation (because the inmate believes that it's a matter of intimidate or be intimidated). They also contend that many persons self-medicate (i.e., use legal or illegal drugs) both inside and outside of jail/prison to counteract the negative impacts, which often results in further repercussions that usually negatively affect the building of positive, strong parent-child relationships and sometimes result in recidivism. Many observers maintain that putting nonviolent persons in jail is often counterproductive especially in times of tight state and local budgets and/or when jail/prison overcrowding is an issue. The United States incarcerates more individuals than any other nation. In 2008, the Pew Center on the States reported that 1 in every 100 adults in the United States now lives behind bars. According to MDRC, a nonpartisan research organization, "Corrections costs exceed $65 billion per year, with most of the total borne by state and local governments." To save costs and to increase the effectiveness and efficiency of the criminal justice system, many states and localities are making use of community service (i.e., unpaid community work), halfway houses, electronic monitoring, court supervision, and community sentencing as alternatives to incarcerating people in jail or prison. Many policy analysts contend that the incarceration of persons for nonviolent offenses, such as nonpayment of child support, is both wrong and counterproductive. They say that criminalizing nonpayment of child support by making it a misdemeanor or a felony disproportionately affects low-income noncustodial parents who, more likely than not, are just as poor or poorer than the mother and child (or children) owed child support payments. They also contend that criminalizing nonpayment of child support disproportionately affects noncustodial parents who are African American. Many CSE officials counter that noncustodial parents are not penalized for being poor but rather because they are "deadbeats." They contend that it is about demonstrating intent. They assert that most judges give noncustodial parents chance after chance to avoid jail as long as he or she demonstrates a sincere effort to pay their child support obligation. They maintain that persons who show that they are truly looking for a job—by providing proof that they are filling out applications and talking to prospective employers—and persons who can prove that they have little income by showing documentation of bills and/or income receipts usually succeed in convincing the court that they should not be put in jail, especially if they acknowledge their child support responsibilities and a willingness to meet those obligations. Some observers argue that although it is not a crime to be poor, if a noncustodial parent is not able to pay his or her child support obligation because he or she has no income, that noncustodial parent could land in jail. They say that although some people assert that jail is the place for deadbeat dads, the truth is that you do not have to be a deadbeat to end up in jail. They claim that if a noncustodial parent is unemployed and unable to meet his or her child support obligation, he or she may be lumped into the deadbeat category. Thus, they contend that many law-abiding citizens face loss of freedom for failing to pay child support because they are poor. Some noncustodial parents claim that the deck is stacked against them. Many assert that their freedom is in the hands of CSE caseworkers. They contend that when a caseworker feels that enough time has been spent on trying to obtain payment, the caseworker has the authority to have a warrant issued to bring the noncustodial parent before a judge. They note that some noncustodial parents have the misfortune of being arrested and placed in jail immediately following the court proceeding. Many of these noncustodial parents say that it does not seem to them that all other options are used before CSE caseworkers send their cases to the courts for adjudication. Unlike other felons, noncustodial parents who are put in jail because of nonpayment of child support cannot get credit for child support owed for the time they serve in jail. In other words, a noncustodial parent cannot substitute time in jail in place of making child support payments. Also, as discussed earlier, unlike other felons, most noncustodial parents who face jail time because of noncompliance with child support orders do not get a chance to speak to an attorney or to have an attorney speak on their behalf. Some observers maintain that incarceration isolates parents from their children and weakens parent-child bonds. They point to the social science literature that maintains that children who have a healthy relationship with both biological parents generally do better on a variety of social indicators than those who only interact with one parent. They note that the costs of incarceration are high and include much more than food, clothing, and shelter expenses. These observers argue that the social, psychological, and emotional impacts on children and families and the negative, disruptive impacts on communities should also be considered. They further maintain that persons with a criminal record have a hard time finding employment and thus a vicious cycle is started and continues. In recent years, the concept of mandating work and/or training programs for low-income noncustodial parents who cannot afford to pay their child support obligations has been viewed by some as an alternative to incarceration. Other observers say that noncustodial parents are given numerous chances to pay their child support obligation or meet the court's requirements before they are finally remanded to jail or prison. They point out that noncustodial parents who are unable to meet their child support obligation can request a downward modification of their child support order. They contend that in many instances, the CSE agency will negotiate a payment plan with the noncustodial parent and in some instances forgive some of the child support arrearages. They assert that there are many ill-effects that result from failure to pay child support, namely the reduced income/economic status of children. They contend that not meeting child support obligations is a crime and should be treated as such. Others point out that operating safe, secure, humane, and well-programmed prisons cannot be done inexpensively. They contend that people are incarcerated for legitimate reasons and assert that nonpayment of child support is a legitimate reason for incarceration. They maintain that the cost of incarceration should not be an overriding factor if there is agreement that a crime has been committed. As mentioned earlier, imprisonment of noncustodial parents who are delinquent in making their child support payments is one of the older remedies that state CSE agencies are authorized to use for enforcing child support. Now, especially pursuant to the 1996 welfare reform law ( P.L. 104-193 ), there are many more child support enforcement tools. Nonetheless, incarceration still remains among the tools used by the CSE program to enforce child support obligations. Discussions that occurred during the early years of the CSE program indicate that policymakers and administrators maintained that the threat of jail would be more than enough to persuade noncustodial parents to pay their outstanding child support debts—that noncustodial parents would pay rather than go to jail. The historical view was that the CSE program needed "sticks" for noncustodial parents who failed to meet their child support obligations. Many observers viewed imprisonment as the last resort and encouraged CSE administrators to give noncustodial parents several opportunities to comply with child support orders before punishing noncompliant offenders by sending their cases to court, which could result in their incarceration. In practice, this viewpoint is still held. As shown in Table A-1 in the Appendix , all states have criminal sanctions for failure to pay child support. It used to be that most noncustodial parents who were penalized with jail were there because they were trying to avoid their financial and moral obligations to pay child support for their children. They tried to hide themselves by moving from place to place or earn money "under the table" (i.e., in the underground economy). Some noncustodial parents have indicated that they did these things out of anger or spite because of animosity toward the children's mother and/or because they believed that the CSE agency was unfairly taking too much out of their meager income. The CSE program has become more effective and efficient over the years. The program's ability to locate noncustodial parents and their income and assets is well known. Thus, for many noncustodial parents who currently end up in jail because of nonpayment of child support violations, it is because they do not have the income or means to pay. As one analyst put it, they are dead poor, not deadbeats. Other commentators have noted that large CSE caseloads lead to an increased likelihood that noncustodial parents will be viewed as "all the same," as making excuses, and as not trustworthy in their stated reasons for being unable to pay child support. This increases the probability that many low-income noncustodial parents will end up in jail for nonpayment of child support. Many observers argue that incarcerating people—knowing (1) the high costs associated with imprisoning people and (2) that it may significantly diminish their future ability to get jobs, pay taxes, and lift themselves and their families out of poverty—does not make sense. Although many custodial parents agree, to a certain extent, that some noncustodial parents are "dead broke" rather than "deadbeats," they contend that the states and the federal government need to proceed with caution in lowering child support orders for low-income noncustodial parents and refusing to use the incarceration option. They argue that child support is a source of income that could mean the difference between poverty and self-sufficiency for some families. They emphasize that lowering the child support order is likely to result in lower income for the child. They argue that even if a noncustodial parent is in dire financial straits, he or she should not be totally released from financial responsibility for the children. They assert that it is imperative that the children not be short-changed, and that children not be made to suffer because of recalcitrant noncustodial parents who fail to meet child support obligations. According to the National Child Support Enforcement Strategic Plan: "Preventing the build-up of unpaid support (arrearages) through early intervention rather than traditional debt threshold-based enforcement" has been a recent objective and strategy of the CSE program. "That is, we built a system that intervened only after debt ... accumulated and often too late for collection to be successful, let alone of real value to the child. Severe enforcement remedies applied when necessary have their place. But this Strategic Plan signals our intent to build a culture of compliance, in which parents support their children voluntarily and reliably." The CSE Strategic Plan lists the following as ways to strengthen the CSE system and thereby avoid the jail option: 1. modify orders to ensure that obligations stay consistent with ability to pay; 2. contact noncustodial parents soon after a scheduled payment is missed; 3. update child support guidelines to recognize modern family dynamics and realities (e.g., shared custody, incomes of custodial parents, etc.); 4. use automation to detect noncompliance as early as possible; and 5. aim primarily at consistent, reliable payment of current support, even if it means compromising uncollectible arrears to bring the noncustodial parent back into the fold. Many observers maintain that an effective modification process can help assure that child support orders remain appropriate and prevent the accumulation of inappropriate child support debt. Under the CSE program, states are given significant latitude regarding modifications and reviews of child support orders. Federal law requires that states give both parents the opportunity to request a review of their child support order at least once every three years, and states are required to notify the parents of this right. In order to prevent child support arrearages, especially for noncustodial parents who are unemployed or in prison, some analysts argue that child support modification laws should be changed so that they are more sensitive to periods of incarceration, unemployment, or injury/illness during which the noncustodial parent's ability to pay child support decreases. They contend that it is virtually impossible for most low-income noncustodial parents with those types of barriers to stay current in meeting their monthly child support payments. In addition, it has periodically been suggested that in some cases in which the child support obligation cannot be met, in-kind assistance (such as providing child care) may be one way in which society can steadfastly adhere to the tenet that both parents are responsible for the well-being of their children while recognizing the reality of the dire financial situation in which many low-income noncustodial parents find themselves. A wide body of research indicates that father absence has negative ramifications for children. Given that incarceration separates parents from children, many analysts contend that severe enforcement remedies such as incarceration no longer serve a useful purpose. They assert that more innovative approaches to confinement such as probation, participation in drug abuse prevention programs, participation in work and training programs, house arrest, or placement in a halfway house are effective counter measures to the negative effects incarceration has on familial relationships and one's ability to obtain employment. According to one former inmate: "When you come out of prison, you are facing a lot of issues like housing and transportation. Plus, you're a felon, and it's hard to find work. And you've got to pay child support and the court fees you owe." Many observers contend that non-incarceration remedies are a better option for noncustodial parents, children, families, and ultimately the communities in which they live. The costs of using the criminal justice system for nonviolent offenders are high. The money from revamping/restructuring the criminal justice system might fund many alternatives. According to the Pew Center on the States, "With states facing the worst fiscal crisis in a generation and corrections costs consuming one in every 15 state discretionary dollars, the need to find cost-effective ways to protect public safety is more critical than ever." Research from the Public Safety Performance Project and its partners details strategies—such as strengthening community supervision and reinvesting money currently spent on imprisoning the lowest risk inmates—to cut corrections costs and give taxpayers a better return on public safety dollars. There are now many state and federal initiatives with the purpose of trying to ameliorate some of the harmful impacts of father absence. Such initiatives include responsible fatherhood programs and CSE access and visitation programs. These initiatives are intended to provide low-income noncustodial parents with jobs, job training, and/or job skills so that they can earn a living and be able to meet their child support obligations—based on the premise that these noncustodial parents need extra help because people with a prison record are less desirable workers than people who have not been in jail from the standpoint of employers. Policymakers, CSE analysts and administrators, and most commentators agree that imposing jail time on low-income noncustodial parents who cannot afford to meet their child support obligations can be counterproductive, since imposing jail time means the person is not working and earning money. Moreover, having a criminal record usually lowers a person's job prospects. Ex-offenders re-entering communities face a host of problems, a major one being barriers to employment because of their criminal records. Most employers now conduct background checks, with the result that people are often denied employment or even fired from jobs because of their criminal records. Moreover, the inability of many people released from jails and prisons to meet their financial obligations can contribute to their being incarcerated again. According to a 2005 report: For most of these parents, their support orders will not be reduced while they are incarcerated and (unless they find some other means of continuing to pay during their incarceration), they will accumulate arrears and interest on these arrears. Moreover, in most states, if the custodial parent and child receive public assistance, the child support arrears are not owed to the child and custodial parents but to the state, and thus are of no direct benefit to the child, and cannot be forgiven by the custodial parent. The long-term consequences of these practices on individuals can be enormous. Whether they have been incarcerated for nonpayment of child support or on other grounds, the fact of having been incarcerated and having a criminal record, coupled with a large debt that can quickly reach an unpayable amount can make it virtually impossible for noncustodial parents to secure and maintain employment or to establish stability upon release. The lack of employment and continuing escalation of debt in turn greatly increase the likelihood that the noncustodial parents will be re-incarcerated for nonpayment of child support. Some commentators maintain that if required work and/or job training programs are used instead of the jail option, noncustodial parents and their children are better off. One CSE enforcement tool that can be used for noncustodial parents who have a child who receives Temporary Assistance for Needy Families (TANF) benefits allows judges to remand nonpaying noncustodial parents (of a child receiving TANF benefits) to a TANF work program, with the mandate to participate in the program, pay the child support owed, or be confined in jail. This obligation can be monitored to ensure compliance by the noncustodial parent. If the parent is in fact working surreptitiously, it is likely that the work program will conflict with his or her other job, forcing the parent to admit to having earnings and thereby to pay child support. If the noncustodial parent really is jobless, the program can help him or her get a job. One example of a child support-driven employment project is the Texas Noncustodial Parent Choices Program. Another example is the Fathering Court, which was first implemented in Missouri in 1998 and later launched in Alabama, Iowa, Louisiana, Texas, and Washington, DC. It is an alternative to the prosecution and incarceration of noncustodial fathers with significant child support arrearages. In addition, some noncustodial parents are participating in Transitional Jobs programs. Transitional Jobs programs provide time-limited wage-paying jobs that combine work, skill development, and supportive services to help participants, who have struggled to find or keep a job, quickly and successfully enter the labor force. Moreover, a number of state CSE programs have established employment programs in partnership with state and local workforce development boards and local courts for low-income noncustodial parents trying to meet their child support obligations. According to data from the federal Office of Child Support Enforcement (OCSE), as of September 2011, at least 29 states and the District of Columbia were operating work-oriented programs for noncustodial parents with active CSE agency involvement. Most of the programs were not statewide. However, other observers pose the "what if" question. They wonder what would happen if mandatory work and training program were imposed on low-income noncustodial parents who are unable to pay their child support obligations and for whatever reason these parents are not contributing to their child's support after participating in such a program. Would not incarceration be an appropriate option for low-income noncustodial parents who flunked out of an imposed work/training program, dropped out of the program, or could not keep the provided job? They contend that incarceration as a penalty of last resort for nonpayment of child support is a logical and long-standing option given that noncustodial parents (like custodial parents) have a moral and financial obligation to support their children and not meeting that obligation is criminal and may have long-term negative consequences for their children. They note the fact that all 50 states and the District of Columbia have criminal sanctions for nonpayment of child support is not happenstance. The failure to pay child support has been a crime in most states for many years. In the beginning, most of the laws were on the books but in practice rarely used. In the 1990s, nonpayment of child support was viewed as a serious crime. Many states even had a "most wanted" list for child support debtors. Moreover, a 1992 law also made nonpayment of child support a federal crime. By the late 1990s, most states had begun using jail as a last resort option after other CSE enforcement tools proved ineffective. Table A-1 shows state statutes related to criminal sanctions for failure to pay child support. As seen in the table, the classifications of these statutes include such titles as nonsupport, abandonment of dependent child, desertion and nonsupport of children, flagrant nonsupport, and criminal nonsupport. The maximum penalty ranges from up to six months in jail in Rhode Island and the District of Columbia to a fine of up to $150,000 in Arizona and imprisonment between five and 20 years in Arkansas. Table A-1 is an update of a table published in 1993 by the HHS Office of Child Support Enforcement in a now defunct publication titled the Child Support Prosecutor's Bulletin , which was published quarterly in coordination with the American Bar Association's Child Support Project. This update was compiled by Meredith Peterson and [author name scrubbed] of the Knowledge Services Group of the Congressional Research Service (CRS).
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The Child Support Enforcement (CSE) program was signed into law in 1975 (P.L. 93-647) as a federal-state program to enhance the well-being of families by making child support a reliable source of income. The CSE program is based on the premise that both parents are financially responsible for their children. The CSE program is operated in all 50 states, the District of Columbia, Guam, Puerto Rico, and the U.S. Virgin Islands, and by several Indian tribes or tribal organizations. State CSE programs have at their disposal a wide variety of methods by which to obtain child support obligations. In addition, states under their own authority and the authority of their courts can use the threat of incarceration and/or actual incarceration. Nonpayment of support may subject a noncustodial parent to criminal sanctions in three situations: (1) a finding of contempt of court for failure to obey a court's child support order, (2) prosecution under a state criminal nonsupport statute, or (3) prosecution under federal criminal penalties for nonpayment of child support. Contempt of court is classified as either "civil" or "criminal." Civil contempt occurs when an individual willfully disobeys a court order or rule. Criminal contempt occurs when an individual interferes with the ability of the court to function properly. Judges can sentence individuals to imprisonment upon a finding of contempt. Many contend that the incarceration of persons for nonpayment of child support is both wrong and counterproductive. They say that criminalizing nonpayment of child support by making it a misdemeanor and/or felony disproportionately affects low-income noncustodial parents who more likely than not are just as poor or poorer than the mother and children owed child support payments. They assert that incarceration means that the noncustodial parent is not working and earning money and that having a criminal record lowers a person's job prospects. They also contend that the negative ramifications of being in jail include a weakened bond between the noncustodial parent and his or her children and family and a high probability that the individual will ultimately be re-incarcerated for nonpayment of child support or other infractions or crimes. Others say that for some noncustodial parents, the threat of being incarcerated for nonpayment of support is not enough. For these persons, they say that incarceration is necessary. They contend that some noncustodial parents would rather quit their jobs, go from job to job, work in the underground economy (where earnings are not reported to anyone), or engage in illegal activity rather than meet their child support obligations. They argue that child support is a source of income that could mean the difference between poverty and self-sufficiency for some families. They say that children ought not to be short-changed because of recalcitrant noncustodial parents, and maintain that nonpayment of child support is a real crime and should be treated as such. Using jail as an option for nonpayment of child support has many implications: Are low-income noncustodial parents who are unable to fulfill their child support obligations penalized for being poor? Should noncustodial parents charged with civil contempt of court be entitled to an attorney? Should noncustodial parents whose only offense is nonpayment of child support be incarcerated in settings known to be violent and dangerous? Should incarcerating noncustodial parents be eliminated as an option due to the high costs associated with incarceration? This report includes an Appendix that indicates that all 50 states and the District of Columbia have criminal penalties for nonpayment of child support. Table A-1 shows state statute citations and the maximum penalties associated with nonpayment of child support.
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The idea of using the tax code to achieve energy policy goals and other national objectives is not new but, historically, U.S. federal energy tax policy promoted the exploration and development—the supply of—oil and gas. The 1970s witnessed (1) a significant cutback in the oil and gas industry's tax preferences, (2) the imposition of new excise taxes on oil (some of which were subsequently repealed or expired), and (3) the introduction of numerous tax preferences for energy conservation, the development of alternative fuels, and the commercialization of the technologies for producing these fuels (renewables such as solar, wind, and biomass, and nonconventional fossil fuels such as shale oil and coalbed methane). Comprehensive energy policy legislation containing numerous tax incentives, and some tax increases on the oil industry, was signed on August 8, 2005 ( P.L. 109-58 ). The law, the Energy Policy Act of 2005, contained about $15 billion in energy tax incentives over 11 years, including numerous tax incentives for the supply of conventional fuels, as well as for energy efficiency, and for several types of alternative and renewable resources, such as solar and geothermal. The Tax Relief and Health Care Act of 2006 ( P.L. 109-432 ), enacted in December 2006, provided for one-year extensions of some of these provisions. But some of these energy tax incentives expired on January 1, 2008, while others are about to expire at the end of 2008. In early December 2007, it appeared that congressional conferees had reached agreement on another comprehensive energy bill, the Energy Independence and Security Act ( H.R. 6 ), and particularly on the controversial energy tax provisions. The Democratic leadership in the 110 th Congress proposed to eliminate or reduce tax subsidies for oil and gas and use the additional revenues to increase funding for their energy policy priorities: energy efficiency and alternative and renewable fuels, that is, reducing fossil fuel demand rather than increasing energy (oil and gas) supply. In addition, congressional leaders wanted to extend many of the energy efficiency and renewable fuels tax incentives that either had expired or were about to expire. The compromise on the energy tax title in H.R. 6 proposed to raise taxes by about $21 billion to fund extensions and liberalization of existing energy tax incentives. However, the Senate on December 13, 2007, stripped the controversial tax title from its version of the comprehensive energy bill ( H.R. 6 ) and then passed the bill, 86-8, leading to the President's signing of the Energy Independence and Security Act of 2007 ( P.L. 110-140 ), on December 19, 2007. The only tax-related provisions that survived were (1) an extension of the Federal Unemployment Tax Act surtax for one year, raising about $1.5 billion; (2) higher penalties for failure to file partnership returns, increasing revenues by $655 million; and (3) an extension of the amortization period for geological and geophysical expenditures from five to seven years, raising $103 million in revenues. The latter provision was the only tax increase on the oil and gas industry in the final bill. Those three provisions would offset the $2.1 billion in lost excise tax revenues going into the federal Highway Trust Fund as a result of the implementation of the revised Corporate Average Fuel Economy standards. The decision to strip the much larger $21 billion tax title stemmed from a White House veto threat and the Senate's inability to get the votes required to end debate on the bill earlier in the day. Senate Majority Leader Harry Reid's (D-Nev.) effort to invoke cloture fell short by one vote, in a 59-40 tally. Since then, the Congress has tried several times to pass energy tax legislation, and thus avoid the impending expiration of several popular energy tax incentives, such as the "wind" energy tax credit under Internal Revenue Code (IRC) §45, which, since its enactment in 1992, has lapsed three times only to be reinstated. Several energy tax bills have passed the House but not the Senate, where on several occasions, the failure to invoke cloture failed to bring up the legislation for consideration. Senate Republicans objected to the idea of raising taxes to offset extension of expiring energy tax provisions, which they consider to be an extension of current tax policy rather than new tax policy. In addition, Senate Republicans objected to raising taxes on the oil and gas industry, such as by repealing the (IRC) §199 deduction, and by streamlining the foreign tax credit for oil companies. The Bush Administration repeatedly threatened to veto these types of energy tax bills, in part because of their proposed increased taxes on the oil and gas industry. Frustrated with the lack of action on energy tax legislation over the last two years, House Democrats introduced and approved several such bills, such as H.R. 5351 , which was approved by the House on February 27, 2008. House Speaker Pelosi and other Democrats sent President Bush a letter February 28, 2008, urging him to reconsider his opposition to the Democratic renewable energy plan, arguing that their energy tax plan would "correct an imbalance in the tax code." At this writing, a renewed legislative effort is being made to enact energy tax legislation, although the two chambers were moving in different directions on how to bring the legislation to the floor. In the House, energy tax provisions are part of H.R. 6899 , House Democratic leadership's latest draft of broad-based energy policy legislation, the Comprehensive American Energy Security and Consumer Protection Act. Passed on September 16, 2008, the bill would expand oil and gas drilling offshore by allowing oil and gas exploration and production in areas of the outer continental shelf that are currently off limits, except for waters in the Gulf of Mexico off the Florida coast. Under the bill, states could allow such drilling between 50 and 100 miles offshore, while the federal government could permit drilling from 100 to 200 miles offshore. Revenue from the new offshore leases would be used to assist the development of alternative energy, and would not be shared by the adjacent coastal states. The bill would also repeal the current ban on leasing federal lands for oil shale production if states enact laws providing for such leases and production. H.R. 6899 also would enact a renewable portfolio standard, a requirement that power companies generate 15% of their energy from renewable sources by 2020. The energy tax provisions in H.R. 6899 (Title XIII, the Energy Tax Incentives Act of 2008) are largely the same as those in H.R. 5351 , an approximately $18 billion energy tax package that was approved by the House on February 27, 2008. They also include some of the measures in H.R. 6049 , another energy tax bill that was also approved by the House. H.R. 5351 is, in turn, a smaller version of the energy tax title that was dropped from H.R. 3221 in December 2007, but larger than the $16 billion bill approved by the Ways and Means Committee in 2007 ( H.R. 2776 ). However, because H.R. 6899 incorporates some of the incentives of H.R. 6049 , its total cost is higher than the cost of H.R. 5351 : about $19 billion over 10 years, instead of $18 billion. H.R. 6899 includes several tax incentives for renewable energy that would reduce revenue by an estimated $19 billion over 10 years. At a cost of $6.9 billion over 10 years, it extends a renewable energy production tax credit, covering wind facilities for one additional year, through 2009, and certain other renewable energy production for three years, through 2011, while capping credits for facilities that come into service after 2009. The bill extends for eight years, through 2016, a credit for investing in solar energy and fuel cells, at a cost of $1.8 billion. It also extends the energy-efficient commercial building deduction for five years, the credit for efficiency improvements to existing homes for one year, and a credit for energy-efficient appliances for three years. The measure provides for the allocation of $2.625 billion in energy conservation bonds, $1.75 billion in clean renewable energy bonds, and $1.75 billion in energy security bonds to finance the installation of natural gas pumps at gas stations; all would be tax-credit bonds, which provide a tax credit in lieu of interest, and projects financed through the bonds would have to comply with Davis-Bacon requirements. It also creates a new tax credit for plug-in electric vehicles, an accelerated recovery period for smart electric meters and grid systems, and provides $1.1 billion in tax credits for carbon capture and sequestration projects. The tax title also includes one non-energy tax subsidy: a $1.1 billion provision to restructure the New York Liberty Zone tax incentives to allow for new transportation projects. H.R. 6899 is fully offset, raising $19 billion in taxes, including many of the same energy tax increases on oil companies also previously approved by the House. The energy tax provisions in H.R. 6899 are entirely offset, mainly by denying the IRC §199 manufacturing deduction to certain major integrated oil companies (including oil companies controlled by foreign governments—including CITGO ) and freezing the deduction for all other oil and gas producers at the current rate of 6%. Earlier §199 repeal proposals had been criticized for seeking to end the deduction only for U.S.-based major companies, while exempting Venezuelan-controlled CITGO because, not being a crude oil producer, it does not meet the definition of a "major integrated oil and gas producer." The entire provision would raise $13.9 billion over 10 years. Additional revenue—about $4.0 billion over 10 years—would come from a provision to streamline the tax treatment of foreign oil-related income so it is treated the same as foreign oil and gas extraction income. In addition to the H.R. 6899 , the Republican leadership in the House has introduced its own energy tax bill, H.R. 6566 , which also extends and expands some of the energy tax incentives and contains no tax increases (offsets). The energy tax provisions in this bill are, however, smaller and somewhat narrower than those in H.R. 6899 . In the Senate, legislative efforts on energy tax incentives and energy tax extenders center around S. 3478 , the Energy Independence and Investment Act of 2008, a $40 billion energy tax bill offered by Finance Committee Chairman Max Baucus and ranking Republican Charles Grassley. Senate Majority Leader Harry Reid said on September 12 that S. 3478 is "must-pass" legislation. Reid told reporters the energy tax package, which includes extensions of tax incentives for renewable energy, should be prioritized even ahead of the broader energy policy bills being considered, and the rest of the non-energy tax extenders package. Reid said he hopes to bring the bill to the floor during the week of September 15, but noted that the schedule depends on whether Senate Republicans will agree to move to the legislation. While most of the tax incentives in the bill are extensions of existing policy and are not controversial, the legislation would need to be paid for through new sources of revenue. One proposed offset—which has been previously blocked by Republicans—would repeal the IRC §199 manufacturing deduction for the five major oil and gas producers, raising $13.9 billion over 10 years. The bill also would be paid for through a new 13% excise tax on oil and natural gas pumped from the Outer Continental Shelf, a proposal to eliminate the distinction between foreign oil and gas extraction income and foreign oil-related income, and an extension and increase in the oil spill tax through the end of 2017. In total, tax increases on the oil and gas industry would account for $31 billion of the $40 billion total cost of the legislation. The final major offset would come from a requirement on securities brokers to report on the cost basis for transactions they handle to the Internal Revenue Service, a provision expected to raise about $8 billion in new revenues over 10 years. The tax offsets, or tax increases in S. 3478 are not without controversy, however, particularly the repeal of the IRC §199 manufacturing deduction for the five major oil and gas producers, as discussed previously. Several times the House has approved energy tax legislation, and several times in the Senate such legislation failed a cloture vote and thus could not be brought to the floor for debate. As noted above, Republicans have in the past objected to the idea of raising taxes to offset extension of expiring energy tax provisions, which they consider to be an extension of current tax policy rather than new tax policy. In addition, some Senate Republicans have objected to raising taxes on the oil and gas industry, particularly by repealing the IRC §199 deduction. The Bush Administration threatened to also veto any energy tax bill that would increase taxes on the oil and gas industry. At this writing, it appears that inclusion of the §199 deduction repeal as an offset might preclude the energy tax bill from coming to the Senate floor—some believe that it would fail another cloture vote—so this provision might not survive the process. Finally, the debate in the Senate over energy tax incentives and energy tax extenders is seen as potentially involving three other separate proposals: (1) The Gang of 20 proposal or "New Energy Reform Act of 2008"(this has not yet been introduced); (2) A Bingaman/Baucus bill (also not formally introduced); and (3) the Republican "Gas Price Reduction Act" (introduced by Senator McConnell as Senate Amendment 5108). A side-by-side comparison of H.R. 6899 and S. 3478 is in Table 1 . Revenue estimates were generated by the Joint Committee on Taxation.
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The Comprehensive American Energy Security and Consumer Protection Act, H.R. 6899, was introduced on September 15, 2008, and approved by the House on September 16, 2008. This plan allows oil and gas drilling in the Outer Continental Shelf (OCS), and it incorporates most of the energy tax provisions from an energy tax bill, H.R. 5351, and some of H.R. 6049, both of which were previously approved by the House of Representatives but failed to be taken up by the Senate. In the Senate, legislative efforts on energy tax incentives and energy tax extenders center around S. 3478, the $40 billion energy tax bill offered by Finance Committee Chairman Max Baucus and ranking Republican Charles Grassley, and supported by Senate Democratic leadership. In the Senate, controversy over tax increases on the oil and gas industry, particularly over proposed repeal of the tax code's §199 deduction for the major integrated oil companies, continues; it remains unclear whether an energy tax bill with this provision will pass a cloture vote to limit debate, and thus be taken up. This report is a side-by-side comparison of energy tax bills H.R. 6899 and S. 3478.
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Health Savings Accounts (HSAs), as authorized by the Medicare Prescription Drug, Improvement, and Modernization Act ( P.L. 108-173 , MMA) of 2003, are tax-preferred savings accounts used to pay for unreimbursed qualified medical expenses such as health insurance deductibles, copayments, and services not covered by insurance. To open or contribute to an HSA, the insured must have a high-deductible health plan (HDHP), and generally no other health insurance coverage. One of a number of the stated goals of the HSA enabling legislation is to encourage workers to better save for their health care in retirement. Moreover, the HDHP/HSA combination is thought to provide incentives for consumers to be more active in their care, and purchase the best possible medical services for the lowest possible price. The savings accounts provide strong incentives for the consumers to be especially prudent with their own funds, because they can save whatever is not spent on health services. HDHPs may have benefits even if plan holders do not go on to open an HSA. First, HDHPs have lower premiums than most other types of insurance plans, and therefore may be affordable to those who would otherwise not purchase insurance. Second, a plan with a high deductible removes some of the incentive for patients to purchase more care than they otherwise would under low deductible plans. On the other hand, the lower premium does not guarantee that all individuals will go on to open an account or use health services. Indeed, it has been argued that HSAs encourage individuals to under-use health care and forego necessary services. These various objectives of HDHPs, with and without HSAs, are part of a larger concept known as Consumer-Directed Health Care (CDHC). CDHC, which is also known as consumerism, provides incentives for the consumers of health services to become more active in their care by becoming well informed, and choosing practitioners and treatments that best suit their medical needs at the lowest possible prices. In fact, the use of "consumer" and not "patient" is indicative of the degree to which individuals are intended to take charge of their health care and expenditures. Despite their growing importance in the insurance market, little has been known about the effects of HDHPs and HSAs; data for any analysis have simply not been available. Now that data are starting to be collected and released, congressional agencies, policy organizations, and academics have begun to examine the impact of CDHC in general, and HDHPs and HSAs in particular. This report analyzes the available data, and presents findings from refereed academic publications, working papers, government documents, and reports from policy organizations. The goal of this report is to state what is known (and not known) about HDHPs and HSAs at this time. The report is in two parts. First, the report describes the rules covering HDHPs and HSAs, the trends in HDHPs purchased and the trends in individual contributions to HSAs. Second, the report discusses policy questions, including the degree to which HDHPs and HSAs have increased the quality of health care, contributed to retirement savings, reduced uninsurance, and reduced aggregate health expenditures. Existing research is too fragmented to answer this second group of questions very definitively. Frequently, only one or two studies test any given hypothesis, which makes it hard to generalize about the effects of HDHPs and HSAs, especially when the limited number of studies reach opposite results. This report therefore documents the state of the existing literature, including its strengths and its weaknesses. This report can be viewed as an analytic discussion of what is known about HDHPs and HSAs, and what remains to be learned. HDHPs have been available for many years. Their popularity, however, increased with the advent of HSAs over the past seven years. In this report, the term HDHP is restricted to mean a plan where the insured is eligible to open an HSA. In other words, HDHP in this report is shorthand for HSA-eligible HDHP. Also in this report, a preferred provider organization (PPO) not associated with an HDHP is used as the baseline to which an HDHP is compared. The choice of PPOs as the baseline structure is because more people are covered by PPOs without HDHPs than any other type of insurance plan structure. However, it should be noted that some HDHPs use PPO networks for the delivery of care. The high deductible associated with an HDHP is one primary difference between HDHPs and other insurance plans. HDHPs also limit the maximum amount of out-of-pocket spending by the consumers. The distinction between in-network and out-of-network is present in many HDHPs. In addition, HDHPs are available in the individual, small group, and large group markets. The basic rules for HSA-qualifying HDHPs in 2010 are as follows: The annual deductible for self-only coverage must be at least $1,200 and for family coverage at least $2,400, The annual limit on out-of-pocket spending is $5,950 for self-only plans and $11,900 for family plans, and Deductibles need not apply to preventive care. The amount of the minimum deductible is updated annually to reflect changes in the cost of living. The updates are rounded to multiples of $50. The HSA is one type of savings account associated with consumerism in health care. HSAs are used to pay for unreimbursed qualified medical expenses such as insurance deductibles, copayments, and services not covered by insurance. The basic rules covering HSAs are as follows: Individuals can establish and fund HSAs when they have qualifying HDHPs and no other coverage. HSA contributions may be made by account owners, their employers, or others up to an annual limit ($3,050 for self-only coverage and $6,150 for family coverage in 2010). Individuals who are at least 55 years old but not yet enrolled in Medicare may contribute an additional $1,000. This amount is not indexed for inflation. Contributions may be made at any point in the year, even after the health expenditures have been incurred. Unused balances may accrue without limit. HSA contributions and income are tax free. HSA withdrawals are tax free if used for qualified medical expenses, or if the account-holder is at least 65 years old. Many insurance carriers provide their HDHP/HSA plan holders with an HSA card. The card is similar to a debit card, and can be used to pay for health goods and services at the point of care (or purchase). Individuals are required to provide documentation for their reimbursed health expenditures to the Internal Revenue Service (IRS) upon request. HSAs are a particularly generous form of health-related savings account. The account contributions and income are not taxed, and consumers keep the account even if they change jobs. There is no "use it or lose it" provision; theoretically account balances can grow quite high. Although insurance policies must have a high deductible, the policies may (but are not required to) cover preventive care before the deductible is met. In addition, consumers can add money to the HSA even after the medical expenses have been incurred, so that individuals do not have to deposit money until it is actually needed. This section of the report discusses insurance premiums and deductibles for those with HDHPs and perhaps HSAs. The individual's (or family's) decision whether or not to select an HDHP and whether or not to subsequently open an HSA are separate but related decisions. The decisions are separate because selecting an HDHP does not require subsequently opening an HSA. The decisions are related because some of the factors that influence selecting an HDHP might also influence opening an HSA. For example, wealthy individuals might choose an HDHP because they can easily afford the relatively high out-of-pocket payments for health care associated with a high deductible. These same individuals might go on to open an HSA because they will receive relatively high tax benefits because of their high marginal tax bracket. On the other hand, lower-income individuals might choose an HDHP for its lower premiums but would not necessarily have the same tax incentive to open an HSA. In addition, all individuals may not face the same insurance plan options. Those who purchase insurance on the individual market can purchase HDHPs in all states. Individuals who receive employer-sponsored insurance (ESI), however, can only purchase HDHPs if their employer offers a plan with this structure. Some individuals who elect to receive ESI must purchase HDHPs because their employer offers only this plan structure. In any case, the price of the plan to the individual influences the individual's decision whether to enroll in an HDHP and take out an HSA. In health insurance, the common recurring and consistent measure of price is the premium, or the monthly (or annual) amount the policyholder pays for coverage. Data on single-coverage insurance premiums and deductibles for HDHPs and standard PPOs are provided in Table 1 ; data on family coverage shows similar relationships between the cells. Because the three insurance markets differ greatly, the data are presented separately for the individual market, small firms, and large firms. The data for small and large firms come from a survey of employers, and the data source for the individual market is a survey of insurers. For this reason the individual and firm data are not strictly comparable. HDHP deductibles are indeed high. For example, in 2009 the average deductible in the individual market was $3,263. Even though the legal minimum deductible in 2009 was $1,150, average deductibles were between 40% and 180% greater than this amount. As the market size increases, the HDHP deductible becomes a greater multiple of the PPO deductible; for example, in large firms, the HDHP is about 3.4 times the PPO deductible. The reason for this relationship is unclear. Nevertheless, the fact that HDHP deductibles may not fall below a given minimum while PPOs need not have a deductible may play a role. The HDHP high deductibles are offset by lower premiums. Premium data are not available for the individual health insurance market. Before turning to enrollment in HDHPs and HSAs, it is helpful to look at the population of individuals most likely to benefit from these plans. This section discusses the appeal of HDHPs with HSAs to people of different health statuses. Individuals at different health statuses may benefit financially from an HDHP coupled with an HSA. Because insurance plans with HSAs have high deductibles and may cover preventive care, some have concluded that they only benefit healthy people. This would be because the healthy are more likely to have only preventive health expenditures. The healthy would therefore spend very little on health care, and would be able to increase their tax-exempt savings. Nevertheless, it is often impossible to tell in advance which income levels would be better off with an HDHP/HSA. Figure 1 illustrates that, for one representative set of possible insurance plans, it is difficult to predict in advance whether a representative consumer would be better off with a high-deductible policy or a lower-deductible policy. In other words, at the start of health insurance open season, the consumer may not know whether the HDHP/HSA or the standard PPO would result in lower total out-of-pocket spending (incorporating premiums, deductibles, and copayments). In Figure 1 , the PPO policy, on the left, has a $500 deductible, and a $1,000 maximum level of out of pocket expenditures. The plan pays 80% of the individual's costs between $500 and $3,000. At the $3,000 expenditure mark, the individual's expenditures reach the maximum out of pocket level ($500 + 0.2*$2,500 = $1,000). The HDHP with HSA policy, on the right, has a $2,000 deductible and also a $2,000 out of pocket maximum. At low expenditure levels (below $500), the individual will foot the entire health care bill under both insurance plans. At high levels of expenditures (above $3,000), the individual again does not prefer one policy over another, because either policy covers 100% of his or her health expenditures. Between these two extremes, however, the individual sometimes would save money under a PPO, and sometimes under an HDHP. Although this example assumes that the individual has at least $2,000 in the HSA (and also ignores the tax benefits associated with the HSA), the general conclusion remains: it is hard to tell, especially during open enrollment when the next year's health expenditures are uncertain, whether some individuals would save money with a PPO or an HDHP/HSA. This subsection has discussed whether those of a certain health status might find it in their interests to enroll in the HDHP/HSA combination from a theoretical perspective. The next two subsections look at total enrollment in HDHPs and HSAs. Enrollment in HDHPs has grown steadily since 2004. Figure 2 presents the enrollment trend. Over one million lives (plan holders and their families) were covered by HDHPs in January 2005, following the first full year in which HSAs were available. There were about 10 million covered lives by January 2010, the last available data point. The year-to-year percent increase in HDHP covered lives is particularly informative. Covered lives grew by 43% during 2006 (from about 3.2 million to about 4.5 million), by 35% during 2007, by 31% during 2008, and by 25% in 2009. The growth rate in individuals covered by HDHPs has slowed somewhat over the last few years. Over the past five years, employers increasingly offered HDHPs, and employees increasingly chose them. In March 2005, 64% of lives covered by an HDHP were purchased in the individual market. By January 2009, however, only 23% of covered lives were associated with the individual plans. Tax filers who contribute to an HSA are eligible to claim the amount contributed as a tax deduction. As illustrated in Figure 3 , the number of personal income tax returns with an HSA deduction grew by 140% between 2004 and 2005, by 66% between 2005 and 2006, by 66% between 2006 and 2007 and by 39% between 2007 and 2008. In other words, the number of tax filers taking the HSA deduction is increasing, but at a decreasing rate. This is the same pattern discussed above for HDHPs. In order to calculate the percent of HDHP plan holders eligible for HSAs who had actually opened an HSA, the Government Accountability Office (GAO) analyzed IRS data. The GAO report concluded that, between 2005 to 2007, between 51% and 58% of HDHP plan holders opened an HSA. The remaining plan holders were roughly evenly split between those who planned to open an HSA and those who did not. The trustees of HSAs, which are generally banks, are required to report the fair market value of the accounts to the IRS. The aggregate value was about $560 million in 2005, $1.7 billion in 2006, and $3.1 billion in 2007. These data from tax filers provide no information on the year in which the savings account was opened. If individuals are using HSAs to save for health care in retirement, the average balance across all HSAs may increase over time. The data needed to look at the average balance over time across all HSAs, however, are not available. Nevertheless, America's Health Insurance Plans (AHIP), an industry source, has collected relatively comprehensive data on about 1.1 million HSAs from five large bank trustees. Figure 4 presents the average balance in these HSAs by the year the account was opened, as of June 30, 2008. The accounts opened in 2004 include rollovers from Archer Medical Savings Accounts, and are therefore not comparable to the other data. The average balances are roughly equal in the accounts opened in 2005 and 2006, while the 2007 value is smaller. Because of the lower average value in the newest accounts, these data provide some evidence that account holders are saving money over time. On the other hand, the similarity between the 2005 and 2006 values suggest that it is impossible to draw any inferences from this data. This section covers the degree to which HDHPs, with or without HSAs, have met four possible goals of consumer-directed care by summarizing and evaluating the current literature. To preview the results of the literature review: HDHPs are designed to change consumer behavior by providing incentives for consumers to be more concerned with the cost and quality of their health care. Although some consumers do seem to respond to the new incentives for lower cost, the small number of available empirical studies reach differing conclusions. HSAs could encourage individuals to save for their health expenses in retirement by increasing the balance in their HSAs. Data are not available to describe which demographic groups, if any, are indeed saving for their retirement. Nevertheless, not all demographic groups are equally likely to open an HSA. In particular, those who open an HSA generally have higher income than those who do not open an HSA. Because HDHPs have lower premiums than other policies, previously uninsured individuals might purchase these plans. There is little evidence, however, that the widespread adoption of HDHPs would lower the aggregate uninsurance rate or affect the operations of insurance markets. Aggregate health expenditures could fall if most policy holders moved from standard PPO plans to HDHP/HSA plans. A key policy goal is to increase both the quality of health care and patient health as consumers take a more active role in their health care. The consumers' quality of care and ultimate health status depend on their own behaviors, the behavior of doctors and other health care providers, and how these behaviors translate into changes in health. HDHPs and HSAs alter the incentives of both patients and doctors, and therefore potentially the health of consumers. HDHPs and HSAs can change the consumers' incentives to purchase health care by changing the out-of-pocket cost of care. The demand for health services increases as the price paid for the services falls, and vice versa. This basic relationship has been verified numerous times since first evaluated in the early 1980s in the large-scale Health Insurance Experiment (HIE) conducted by the RAND Corporation. When compared with a standard PPO plan, as in Figure 1 , HDHPs/HSAs create ranges of health expenditures over which the out-of-pocket cost of care is both higher and lower than it might otherwise be. Relative to traditional health insurance plans, an individual with an HDHP spends his or her own money until reaching a much higher deductible. This difference in the relative cost of care should reduce health spending by the individual. For example, consider an individual who has already incurred about $1,500 in medical bills. When this individual develops what appears to be a minor cold, but could actually be a more serious flu, he or she must decide whether to visit the doctor. If the individual belongs to a standard PPO, he or she might only incur 20% of the total doctor visit's costs. If the individual belongs to an HDHP/HSA, however, he or she would need to pay 100% of the costs (either from a funded HSA or out-of-pocket). The higher cost sharing might decrease the probability that the HDHP/HSA individual goes ahead and sees the doctor. In this scenario, the individual's health expenditures might be lower with an HDHP than with a PPO because the individual chose not to visit the physician. On the other hand, the tax savings associated with an HSA may make the individual feel wealthier overall, and therefore increase his or her willingness to spend on all goods and services, including health care. The above discussion treats all health care as the same. However, certain medical procedures are clearly more important than others. In most cases, skipping a doctor's visit for a minor cold does not permanently damage a patient's health. Skipping a doctor's visit for the treatment of diabetes or for blood pressure monitoring, however, can have lasting consequences. The important question, therefore, is whether the incentives created by an HDHP/HSA lower expenditures on what has been termed "unnecessary" care, while not lowering expenditures on "necessary" care. For the financial incentives of HDHPs (with or without HSAs) to change behavior, consumers must understand the details of their health insurance plans. In fact, some consumers do not understand the incentives associated with their plan. For example, in 2005, 1,515 adults in their second year of membership in Kaiser Permanente California were asked whether they knew the size of their deductible and what types of care were excluded from it. The responses were then checked against the actual policies. Of those individuals who actually had deductibles, 52% knew that they had one, 35% knew the amount of the deductible, and 5% knew all of the services to which it applied. Although this survey found that many consumers did not seem to understand the terms of their insurance plans, two studies found that consumers behaved in accordance with the incentives provided by the plans. Both studies looked at patients in an HDHP where cancer screening was done at no cost to the patient. Using a before and after framework, a study of Harvard Pilgrim Health Care members compared those who switched to an HDHP with those who remained in an HMO. Cancer screening tests were free to the consumer in both insurance policies, and therefore the consumers had no incentive to reduce their screening behavior. Those who switched to the HDHP did not change their use of breast, cervical, or colorectal cancer screening. However, these plan switchers may have changed their specific test for colorectal screening away from a test no longer fully covered (such as a colonoscopy) to an equally-appropriate test that was fully covered (such as a fecal occult blood test). Researchers examined participants over time in an Aetna health fund where some were enrolled in a standard PPO while others were enrolled in an HDHP. The cost of preventive services, cancer screening, and diabetic monitoring was free for those in the HDHP, and included a very low co-payment for those in the PPO who used in-network providers. The study tested whether the use of preventive services, cancer screening, and diabetic monitoring services differed between the two groups. During the three-year evaluation period, both the PPO and the HDHP groups had the same service utilization. The above two studies suggest that those in an HDHP do not make behavioral changes when the HDHP has no incentives for behavioral change. One study found a desired behavioral change after the passage of time. A study of Emergency Department (ED) patients suggests that behavioral changes may take more than one year to occur. The study design was a before-and-after comparison of workers whose employers mandated a switch to an HDHP, as compared with a before-and-after comparison of those remaining in a standard HMO. Those in an HDHP reduced their visits to the ED for low severity conditions, a desired outcome. Nevertheless, this reduction only happened after their initial visit to the ED, suggesting that patients need information gained at the initial visit to understand the workings of their HDHP. Should the limited results of these three studies generalize, HDHPs would not worsen consumer health. On the other hand, two studies found changes that may ultimately lower health outcomes for consumerist patients. A single-employer study compared individuals who switched into an HDHP with those who remained in a standard PPO. The study found that those with HDHPs (controlling for other variables) were more likely than those with PPOs to not see the doctor when they thought they should. In addition, those with HDHPs reported taking a lower than recommended dose of a pharmaceutical. The study concluded that, as with the RAND health insurance experiment, those in an HDHP cut back on both necessary and unnecessary care. A group of individuals joined an HDHP from one insurance company in the small group market because this insurance plan became the only one offered by their employer. These individuals cut back on outpatient services and pharmaceuticals but not inpatient services or out-of-pocket spending. The varying results of these studies suggest that we cannot yet be sure how consumers respond to the incentives provided by HDHPs. Nevertheless, the ultimate health of the consumers and the costs of care depend on their response, if any. In addition to patients, the overall concept of consumer-directed health care, of which HDHPs and HSAs are a part, also have implications for physicians and other suppliers of care. First, the health care providers will be called upon to answer all questions that the consumer asks, and it is assumed that consumers will be more actively engaged in directing their health care. Second, the providers and insurers are expected to provide the needed information for the consumers to make informed decisions. Even more fundamentally, accurate information must exist. Third, a move toward consumerism may affect legal doctrines for health care, and therefore change provider incentives. First, some providers might prefer a traditional doctor-patient relationship over a consumerist relationship. In fact, it has been argued that consumerism lowers the level of average care. Suppose that providers work a fixed number of hours each week. If consumerist patients get more care (time with the providers) because they ask more questions, traditional patients may get less care. In addition, some doctors believe that the additional time that the consumerists receive may not be worthwhile. For example, the consumerist patients could be asking about conditions the doctors know they do not have, or treatments that the doctors know would be counterproductive. Second, there exists little consensus on how best to measure quality of care and then how to provide proper incentives for health insurance companies to inform patients of the quality of their network providers. Objective measures of provider performance include rates of medical errors, misuse of health care services, and improper use of evidence-based guidelines. Subjective measures of quality, including various measures of patient satisfaction, are limited. Despite these suggested objective and subjective measures, quality remains hard to measure. Finally, consumer-directed health care may alter legal doctrines for health care, and therefore alter provider behavior. When consumers purchase HDHPs and HSAs, they are expected to take larger roles in determining which treatments to seek and how much of the treatments to receive. It is unclear, however, whether consumers are also expected to take a larger share of the responsibility if things go wrong. Currently, the bulk of responsibility for treatments falls on medical professionals and insurers. Under consumerism, some of this responsibility may, in a legal sense, shift to patients. If this shifting does occur, providers may have less of an incentive to practice defensively. Because there is so little evidence on the effects of HDHPs/HSAs on physician behavior, these hypotheses must remain untested at this time. If HDHPs/HSAs do encourage more prudent consumption of health care, the consumers' health status should, at worst, remain constant, and at best, improve. The danger, however, is that the consumer's additional focus on price might be accompanied by a reduction in necessary care or reduced focus on quality. It has been observed that "... consumers cannot always tell where desirable economy ends and unacceptable skimping begins." Health effects in the RAND health insurance experiment conducted in the 1980s were mixed. Researchers found minimal to no effects for the majority of those enrolled in the experiment. However, individuals who were both poor and sick reduced the use of health services, and, on average, suffered some health consequences. For example, some lost control over their hypertension. The annual likelihood of death for these poor and sick people rose about 10%. Nevertheless, it is impossible to know whether this result would still stand today. The studies reported above focus on the implications of HDHPs on various tasks the patient can perform to increase his or her present and future health, such as trips to the doctor and cancer screening. Given that the patient's health may take years to respond to changes in the patient's use of services, it is too early to evaluate the effects of HDHPs and HSAs on actual health. The second policy goal, and a primary reason given for supporting HSA legislation, is to help individuals save money for post-retirement medical expenses. For an analysis of retirement savings, it is necessary to use data on HSAs; an HDHP by itself does not provide a mechanism for retirement savings. It is also important to know the amount of money in each individual's HSA in order to differentiate those account holders who are using their HSAs for savings purposes from those who are drawing down their HSA balance each year. Longitudinal data on HSA balances are not readily available. Instead, we distinguished between individuals who might be using an HSA to save for retirement from those who cannot be using an HSA to save for retirement. In other words, we compare those with an HSA (who might be building a retirement account) with those without an HSA (who cannot be building a retirement account). In particular, this section examines whether those with HSAs have different demographic characteristics than those without HSAs. As mentioned above, GAO estimates that less than 60% of individuals with HDHPs open HSAs. There are at least two possible reasons for this. First, individuals in low tax brackets may choose HDHPs because of their low premiums, and not in response to any anticipated tax savings. These individuals may not have sufficient discretionary funds to open an HSA and/or use health services. Second, given the relative complexity of HDHPs and HSAs, some may not understand their best option, and choose not to purchase an HDHP or open an HSA even though they could save money by doing so. HSAs seem to appeal to those with higher incomes who have the liquidity to afford a high deductible. Two studies look at the relationship between income and HDHP and HSA holders directly: Of workers who chose to enroll in a Kaiser-Permanente HDHP in 2004, 77.7% had annual incomes of at least $35,000 while of workers who chose to enroll in non-HDHP PPOs, 62.5% had annual incomes of at least $35,000. For tax filers between ages 19 and 64, the average adjusted gross income in 2005 was $139,000 for those with HSA activity and $57,000 for all other filers. This income difference remained when the samples of individuals were evaluated separately by age group and by tax filing status. One study looks at the relationship between income and HSA holders using an approximation for the holders' income: Research by AHIP concluded that those with HSAs in 2008 were almost as likely to live in "lower income" or "lower-middle income" Census tracts as in higher income tracts. This study used geographic averages for income instead of the actual income of individuals. All else being equal, using an exact measure of income is preferable to using a geographic average because the average will be incorrect for many individuals. Therefore the two studies that conclude that those who enroll in HDHPs and HSAs are more likely to have higher income than others are methodologically stronger than the third study cited above. Turning to other demographic characteristics, there are no differences by gender in the percent of persons covered by an HDHP, and of those, the percent with an HSA. On the other hand, black individuals are less likely to be covered by HDHPs than individuals of other races, and those with higher levels of education are more likely to have HDHPs than those with lower levels of education. In short, individuals with different income levels, different races, and different education levels appear to be saving (or not saving) for retirement health care differently. The tax code provisions associated with health and retirement savings accounts make tax arbitrage possible. In this context, tax arbitrage refers to the process of taking advantage of the different tax treatments of HSAs and 401(k) retirement savings plans in order to earn a profit. Under some scenarios, prudent taxpayers might use their funds as retirement savings accounts instead of health savings accounts. Consider a firm that does not make contributions to its employees' 401(k)s. Workers will come out ahead financially if they put money into their HSAs instead of their 401(k)s. Contributions to, investment income from, and withdrawals from HSAs are tax-exempt if used for qualified medical expenses. All withdrawals made at age 65 and above are tax free, whatever their usage. On the other hand, withdrawals from 401(k)s are taxable income. In short, HSAs can be viewed as a tax shelter. Given that so little data on HSAs themselves are available, it is not surprising that there is almost no research on their impact on retirement savings. One recent paper looks at the health plan choices and retirement savings of about 16,000 workers in one firm. This research, which may or may not generalize, cannot reject the hypothesis that, for otherwise comparable individuals, there is no relationship between HSA contributions and retirement savings. There is therefore no support for the theoretical hypothesis of tax arbitrage. A third policy goal of HDHPs/HSAs is to reduce uninsurance rates as the lower HDHP premiums induce the previously-uninsured to purchase insurance. HDHP data are sufficient to look at changes in uninsurance rates induced by consumerist plans and policies because individuals with an HDHP are insured whether or not they open an HSA. The effect of HDHPs on the aggregate number of individuals without health insurance cannot be known in advance. Because HDHPs have lower premiums than standard plans, some uninsured individuals may find the plans attractive, purchase them in the nongroup market, and thereby decrease the number of individuals without insurance. On the other hand, healthy individuals with standard policies might be attracted to HDHPs because of their low premiums. However, a large increase in enrollment, coming mainly from those with standard policies switching to HDHPs, would not reduce uninsurance. In addition, an argument based on "adverse selection" concludes that HDHPs could actually lead to an increase in the uninsurance rate. Suppose enrollment in HDHPs increases dramatically, and attracts healthier than average members. The pool of individuals remaining in the standard PPOs would correspondingly become increasingly less healthy and more costly to insure. The PPOs would then increase their premiums and other forms of cost-sharing in response to their cost increase. Two studies measure transitions from uninsurance into HDHP insurance. Both studies are complicated simulation models, attempt to control for (incorporate) demographic characteristics of consumers, and incorporate hypothetical policy scenarios. Both studies use approximations of HDHPs. The data sources also differ. Given the complexity of each model, and the differences in data and model specification, it is perhaps not surprising that the two papers reach opposing conclusions. One simulation predicts no change in the uninsurance rates. In this simulation, few uninsured individuals would move into HDHPs because their incomes are too low to receive tax advantages from the associated HSAs. The second simulation predicts a decrease in uninsurance. In this simulation, individuals without access to either public insurance or a group market would purchase HDHPs in the nongroup market because they are attracted to the HDHP's low premiums. In conclusion, there is very little available research measuring insurance transitions into HDHPs (or HSAs). Therefore, no reliable conclusions about the effects of these products on the aggregate uninsurance rate can be drawn. As discussed above, if new HDHP enrollees are particularly healthy, the insurance market might experience disruptions as premiums increase for other health insurance products. The research in this area focuses on single employers (presumably because the researchers have access to only one employer's data). The studies do find some evidence of favorable selection among those who enroll in an HDHP. Prior to HDHP enrollment, otherwise comparable individuals in one large firm had lower pharmacy costs and took medications in fewer drug classes than individuals who did not enroll in an HDHP. Those who enrolled in an HDHP were more likely than comparable individuals in the same firm without an HDHP to be in excellent or very good health and not to have any chronic health conditions. Otherwise comparable employees of a single firm (Alcoa) were more likely to choose an HDHP if they did not have a chronic health condition and had health spending in the bottom quartile of the sample. These separate studies yield similar results, although their reliance on single-employer studies makes the conclusion weaker than it would otherwise be. In addition, these studies compared health status at the time the individual chose the HDHP, and differences in health status may surface after consumers have been in the HDHP for more than a year. There is, therefore, evidence that those who enroll in HDHPs are somewhat healthier than average, but this evidence may or may not generalize. In short, it is too soon to say if a move toward HDHPs would induce problems of adverse selection and cause disruptions in the insurance market. The fourth policy goal of HDHPs and HSAs is to reduce aggregate health expenditures. Some observers argue that there will be minimal effects on aggregate expenditures because so few individuals account for so much of aggregate expenditures. For example, one study concludes that 1% of individuals accounted for about 24% of health expenditures in 2003. This distribution of spending levels across the population suggests to some that aggregate expenditures cannot be reduced by adopting HDHPs, because most of the adopters will not be high users of care. Nevertheless, a substantial amount of cost-sharing is possible under HDHPs. In particular, according to one analysis, expenditures above the standard PPO deductible and below the HDHP deductible account for about 35% of total expenditures. Individuals in this range would experience more cost sharing, and therefore, on average, lower health expenditures after moving from a standard PPO to an HDHP/HSA. However, this analysis concludes that a notable decrease in aggregate expenditures would require that most or all individuals moved from a representative PPO to a representative HDHP. Aggregate changes in health expenditures also depend on the composition of HDHP enrollees. If those in consumerist plans are healthier than those in standard PPOs, as the early evidence suggests, those remaining in the PPOs are by definition less healthy. Even if expenditures decrease for the consumerist patients, the decrease may be offset by an increase in expenditures from those remaining in PPOs. Enrollment in HDHPs, as measured by covered lives, has been increasing since HSAs were authorized in 2003, although the growth rate of this increase is slowing (see Figure 2 ). It is estimated that between 51% and 58% of HDHP holders go on to open an HSA. Although some say that HDHPs only benefit the young and healthy, it can be demonstrated that some individuals at many levels of the health spending distribution would face equal or lower costs with an HDHP/HSA than with a standard PPO (see Figure 1 ). It is generally too soon to evaluate whether HDHPs and HSAs have met some of their original objectives. The evidence on whether consumers respond to the new incentives provided by the HDHPs and HSAs is mixed. Health providers may also change their behavior, but it is impossible to say whether the change would raise or lower the quality of care they provide. According to recent research, not all individuals seem to be saving for their health expenses in retirement because only about half of those who are eligible to open an HSA do so. In addition, some of these may value the tax benefits more than accumulating a fund for health care later in life. There is some evidence that those individuals who do open HSAs have higher income than those who do not. There is almost no evidence that the widespread adoption of HDHPs would lower the overall uninsurance rate or modify the operations of insurance markets. A widespread change from standard PPO policies to HDHPs/HSA policies could lower aggregate health expenditures. Nevertheless, the empirical evidence backing many of these results is weak, and much remains unknown about the effects of HDHPs and HSAs on uninsurance, utilization of health care, and aggregate health expenditures. This report contains both a literature review and original data analysis. This section first discusses the criteria used to select literature for the analysis. The section then reviews the available data. Literature Search To locate the relevant articles, CRS first searched the academic search indexes MEDLINE, JSTOR, ECONLIT, and the websites of congressional and policy organizations. Additional references were located from the citations within these articles. Finally, the table of contents of Health Affairs for each issue since 2004 was scanned for relevant articles. The report describes many of the located articles. Research was generally excluded if it met one or more of the following criteria: was a theoretical exercise designed to build mathematical models of insurance market, was primarily about health retirement accounts (HRAs), covered post-health insurance reform in Massachusetts, or did not describe the methodology used. Data Sources It has been difficult to calculate enrollment in HDHPs and HSAs because no comprehensive data source has information on HDHP enrollment, HSA enrollment, and the socioeconomic characteristics of the plan holder. In fact, many of the available data sources are uniquely organized. For example, each source can look at the characteristics, attitudes and/or behaviors of a different analytical "entity." The individual data sources therefore cannot be combined to provide a comprehensive data source. Much of the available HDHP data come from an industry source, the Association for Health Insurance Plans (AHIP). Enrollment measures total lives covered by an HDHP plan, and is reported by insurance firms. The data cover the individual, small group, and large group markets. Although all individuals in these HDHPs are eligible to open an HSA, AHIP has only recently begun to provide limited information on HSAs. The latest data cover January 2010. Two types of data on HSAs are available from the IRS. First, the number of tax returns that took an HSA deduction and the average value of the deduction are publicly available. The HSA deduction is available to all filers with an HSA; whether or not the filer itemizes deductions is irrelevant. Second, the number of HSAs and their aggregate market value are filed by banks (and other account trustees). Both the individual and trustee data are available with a considerable time lag, and only data through tax year 2008 have been released. Another source of information on HSAs is provided by a survey of employers conducted by the Kaiser Family Foundation and the Health Research and Educational Trust (KFF-HRET). This is an annual survey of employer-sponsored health insurance (ESI) benefits. While this data source contains detailed information on those with ESI, it has no information on those who purchase insurance in the non-group market, or those who are uninsured. The sample size in 2009 was 2,054 employers, and the sample is weighted to represent a population of about 3.4 million employers. Turning to less general sources, data from the Employee Benefit Research Institute (EBRI) can be used to answer a limited number of questions. In addition, a number of surveys of individual firms provide information on HDHPs and HSAs belonging to employees at those firms. These and other surveys are described as needed throughout the report. A final data issue concerns the characterization of insurance plan structures. First, in this report, comparisons by insurance plan structures give priority to HDHPs. In other words, if a consumer has an HDHP that uses a PPO network, he or she is considered in the HDHP group and not in the PPO group. Most of the academic and policy literature follows this convention, and the articles almost never provide enough information to calculate what the conclusions would be if HDHPs were not given priority. Second, HDHPs are compared to PPOs (instead of indemnity plans or other plan structures) because more employers offering health insurance offer PPOs than any other plan structure; about 44% of employers offered a PPO in 2009.
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Health Savings Accounts (HSAs), as authorized by the Medicare Prescription Drug, Improvement, and Modernization Act (P.L. 108-173, MMA) of 2003, are tax-preferred savings accounts used to pay for unreimbursed qualified medical expenses such as health insurance deductibles, copayments, and services not covered by insurance. To contribute to an HSA, the insured must have a high-deductible health plan (HDHP), and generally no other health insurance coverage. One of a number of the stated goals of the 2003 legislation is to encourage workers to better save for their health care in retirement. Moreover, the HDHP/HSA combination is thought to provide incentives for the consumers to be more active in their care, and purchase the best possible medical services for the lowest possible price. This report analyzes existing data and reviews the current literature to discuss whether HDHPs and HSAs have begun to meet some of these objectives. Enrollment in HDHPs has been increasing since HSAs were introduced in 2004. Nevertheless, the HDHP enrollment growth rate is slowing. Individuals who have an HDHP may or may not open an HSA; it is estimated that between 51% and 58% of HDHP holders go on to open an HSA. Whether opening an HDHP/HSA is financially advantageous is a complicated issue. In fact, those at many levels of the health spending distribution might save money by opening an HDHP/HSA instead of enrolling in a standard preferred provider organization (PPO) plan (the most common type of health insurance plan). A review of the literature on HDHPs and HSAs suggests the following: HSAs are designed to change consumer behavior by providing incentives for consumers to be more concerned with the cost and quality of their health care. Although a few studies suggest this is happening, the literature in this area reports mixed and inconclusive results. HSAs could encourage individuals to save for their health expenses in retirement. However, because only about half of HDHP plan holders open an HSA, the remaining half are not saving for their health expenses in this tax-preferred account. Among those with HSAs, some may be using the account as a tax benefit and not saving for health care in retirement. The uninsurance rate could potentially decrease with the advent of HDHPs as previously uninsured individuals purchased these plans because of their relatively low premiums. There is little evidence, however, that the currently uninsured are transitioning into HDHPs. Some hoped that a change from standard PPO plans to HDHP/HSA plans would lower aggregate health expenditures. They maintain that expenditures would fall if most of those insured in a standard PPO plan actually moved to an HDHP/HSA. The empirical evidence backing many of these results is weak or limited, and much remains unknown about the effects of HDHPs and HSAs on uninsurance, the utilization of health care, and aggregate health expenditures.
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U.S.-Ghanaian relations are warm, as signaled by President Barack Obama's travel in 2009 to Ghana, where he laid out his views on democratization and governance in Africa in his single major Africa-focused policy address. Ghana is the only sub-Saharan African country to which Mr. Obama has thus far traveled while serving as president. Then-President George W. Bush also traveled there, in 2008, and Members of Congress regularly visit Ghana, which is widely seen as a key U.S. partner in West Africa and as an African success story. It has built a relatively robust democracy and a growing economy, although it faces persistent, widespread poverty and a range of profound development challenges. Ghana, which last held national elections in early December 2012 (see below), is considered a model for many of the outcomes that congressional and executive branch policy-makers have long sought to achieve in the region under diverse programs that have drawn substantial congressional engagement. Ghana has received a large U.S. Millennium Challenge Corporation (MCC) Compact and may soon receive a second one. It also participates in three presidential development initiatives, the Global Climate Change (GCC) initiative, Feed the Future (FtF), and the Global Health Initiative (GHI), and hosts U.S. Agency for International Development (USAID) and U.S. Drug Enforcement Agency (DEA) regional offices and the USAID-administered West Africa Trade Hub. The Hub activities seek to expand intra-regional and bilateral trade with West African countries, a focus of renewed congressional interest and a key pillar of the Obama Administration's June 2012 U.S. Strategy Toward Sub-Saharan Afric a . Ghana has also drawn U.S. attention because of its recent discovery of sizable oil reserves and its potential contributions to global and U.S. energy security. Energy production may boost national income and development prospects, but may also pose good governance and resource management challenges, as is common in oil-rich developing countries. Ghana has evolved into a U.S. partner in the region, in part, because in recent decades—after two politically tumultuous decades following independence—it developed into a stable country in an often volatile sub-region. Commitment to constitutional governance has become increasingly ingrained, as illustrated by successful inter-party transfers of state power following close recent national elections. Similarly, when President John Atta Mills died in July 2012, state power was transferred to then-Vice President John Dramani Mahama, as constitutionally mandated, within hours. Ghana's regional stability and international peace efforts have dovetailed with those of the United States, which has often sought to support regional solutions to regional political crises and to mitigate the effects of conflict in West Africa by providing large amounts of humanitarian assistance. Ghana's government has helped to mediate several armed civil conflicts in West Africa in recent decades and has hosted refugees fleeing such crises. In late 2012, the last of a residual long-term Liberian refugee population in Ghana was repatriated, but Ghana continues to host refugees from Côte d'Ivoire who fled during or following that country's 2011 civil-military crisis. Such populations are generally peaceful, but can contain politically restive elements, some opposed to their home governments, as was the case with a small number of the Liberian refugees. In recent months, Ghana has detained or deported multiple Ivoirian who, while in Ghana, have allegedly participated in efforts to destabilize the government of Côte d'Ivoire or are accused of crimes during the Ivoirian crisis. Ghana has pledged not to allow such activities and, in coordination with Ivoirian officials, is investigating attacks allegedly carried out from its territory. Still, critics contend that it has taken insufficient action to counter such acts. Ghana is a steady contributor of troops to international peacekeeping operations, both in Africa and elsewhere, and is a recipient of U.S. training and assistance aimed at supporting such deployments. Ghana also faces threats from illicit narcotics trafficking, notably related to a rise in cocaine being transported from South America to Europe via West Africa. Shared interest in countering such trafficking is a growing area of U.S.-Ghanaian cooperation. Ghana is viewed as having achieved substantial progress in its socio-economic development, despite many remaining challenges. In FY2013, it met or greatly exceeded the minimum score on 18 out of 20 Millennium Challenge Corporation (MCC) policy performance criteria that are prerequisites for MCC compact eligibility. These criteria pertain to three broad eligibility assessment categories: Economic Freedom, Investing in People, and Ruling Justly. Its FY2012 performance had also been strong, especially in the area of governance; it ranked among the top 5% "of all low-income countries on every single Ruling Justly indicator, including control of corruption, government effectiveness and democratic rights." Ghana completed a five-year $547 million MCC compact in February 2012, and is a likely recipient of a second MCC compact. The anticipated compact, for which Ghana had been found eligible to apply in early 2011, is expected to support higher rates of economic growth by increasing access to credit, secure land tenure, and electrical power. These goals were identified as national development priorities under joint Partnership for Growth and MCC analyses. Power sector enhancements are seen by the MCC as offering "an opportunity to advance U.S. interests by addressing problems in the power sector that are a brake on economic growth in one of Africa's most important regional anchors." An economic constraints analysis for the proposed compact was completed in November 2011. Ghana was selected as one of four initial U.S. Partnership for Growth countries globally for several reasons. These include its positive MCC scores and compact completion record; potential synergies between the expected second MCC compact and other U.S. assistance programs; and increases in other types of U.S.-Ghanaian engagement, including private sector business deals. Ghana's most recently elected president, John Atta Mills, died on July 24, 2012, of natural causes. Mills, a former academic and national office holder, was elected in 2008 and took office in early 2009, succeeding former President John Kufuor of the New Patriotic Party (NPP). Key Mills policies were rooted in his National Democratic Congress (NDC) party's election platform, A Better Ghana : Investing in People, Jobs and the Economy (2008) and were detailed in various policy statements. They included: good governance and anti-corruption efforts, including passage of a Right to Information Bill, security force capacity building, prioritization of female appointments in government, and greater representative, decentralized governance and accountability; economic growth and investment, notably through what the NDC platform called "activist and enabling state" policies and actions, such as efforts to spur business growth by increasing access to credit, enact business-friendly regulatory and tax reforms, and boost Ghanaian exports and diversified local industrial and agricultural production; investment in people, especially in health, education, and poverty reduction efforts; and investments in infrastructure, including public housing construction, water and sanitation improvements, and reforms, and investments in roads, rails, and the electricity sector. President John Dramani Mahama was elected president in Ghana's December 2012 national elections and is scheduled to be inaugurated on January 7, 2012, despite an NPP legal suit challenging his election. Mahama, former Vice President under Mills, had initially assumed the presidency in July 2012, succeeding Mills hours after his death, in accordance with the constitution. Mahama is a Christian from northern Ghana, and a former non-governmental organization manager, Communications Minister, Member of Parliament (MP), and national NDC party leader who also served on several national functional agencies. Polling during the December 7, 2012, presidential and legislative elections was peaceful, but limited technical challenges and late poll openings hindered voting in some places. Key problems included malfunctions associated with a new biometric voter identification system used by Ghana's Electoral Commission (EC) to register and identify Ghana's 14.03 million voters, 80.2% of whom (11.25 million) cast ballots. In response to these technical delays, voting was extended by a day at hundreds of polling places. The presidential race featured a close contest between the NDC's Mahama and Nana Addo Dankwa Akufo-Addo of the NPP. Akufo-Addo served as Foreign Affairs Minister and Justice Minister under Kufuor, is a former MP, and was Mills's rival in the 2008 election. The 2012 election resulted in Mahama's election as president, with nearly 50.8% of votes. Akufo-Addo garnered over 47.7% of votes, while six minor candidates each won a 0.6% or lower vote share. Domestic and international observers reported that, apart from the limited technical problems—primarily those noted above—polling and the vote counting processes were carried out in a transparent, free, and largely proficient manner, and that the process overall was credible and legitimate. The United States recognized the re-election of President Mahama and congratulated him and the Ghanaian people for a "successful election." Despite such findings, following the announcement of the presidential election results, NPP supporters staged boisterous street protests questioning the election results and the neutrality of the Electoral Commission, and the Akufo-Addo campaign and the NPP announced that they would challenge the legitimacy of the vote in court. They did so in a December 28 suit, filed in the Supreme Court, naming President Mahama and the Electoral Commission as respondents. Their suit alleged that there had been "diverse and flagrant violations of the statutory provisions and regulations governing the conduct" of the presidential election "which substantially and materially affected the results of the elections." The suit contended that the announced election results were "vitiated by gross and widespread irregularities and/or malpractices which fundamentally impugned the validity of the results" reported for 4,709 polling stations, resulting in the recording of 1.34 million "irregular votes." The plaintiffs further asserted that these allegedly irregular votes should be annulled. Once they were discounted, the plaintiffs claimed, the results would show that Mahama had garnered 4.66 million votes (48.26%), while Akufo-Addo had won 4.85 million (50.28%), making him the "duly and validly elected" winner of the election. The initial suit may reportedly be followed by further NPP suits in 2013. In the legislative races, 275 parliamentary seats were contested―45 more than the 230 seats in the previous parliament. According to official Electoral Commission results, the NDC won 148 seats, while the NPP won 123 seats, with the balance going to the small People's National Convention (PNC, one seat) and independents (three seats). Despite winning fewer seats than the NDC, the NPP's share of the aggregate popular parliamentary vote was reportedly 120,000 votes larger than that of the NDC. Due to the geographic concentration of its supporters, however, this advantage was not reflected in the overall results. Some polls during the pre-election period, which featured very limited political violence, indicated that the two parties were very evenly matched, but that many voters—as many as a third—were undecided. In early November, incumbent politicians, but most notably the majority NDC government, received a potentially politically damaging blow when it was reported that president Mahama had authorized a large, backdated pay raise quietly passed by parliament in late October for himself, ministers, and parliamentarians. The increases were harshly criticized by government transparency activists and raised a public furor. In early November, Mahama ordered that the salaries not go into effect and asked parliament to rescind them, but the incident may have politically damaged the NDC. Another negative signal for NDC prospects was a survey suggesting that as many as 63% of Ghanaians in 2012 are dissatisfied with economic trends, up from 45% in 2008, when the NDC took power from the NPP. The primary stakes in the hard-fought election were control over rapidly rising oil revenues and influence over the direction and political and financial fruits of a vibrant economy, potentially for some time to come. The winner of the 2012 election was also seen as well placed to win the 2016 election. In late October, a live televised presidential debate was held between Mahama, Akufo-Addo, and the candidates of two minor parties that hold seats in the parliament. The debate, the first to feature a sitting Ghanaian president, was reportedly fiercely contested. It featured allegations by Akufo-Addo of NDC corruption, and a stiff defense by Mahama of the NDC record, especially regarding economic growth. Key issues included the economy, job creation, and the agricultural and energy sectors; education and healthcare; and taxation, among other issues addressed in the two parties' 2012 election manifestos, which were broadly similar. A vice presidential debate was also held in early November, as was a second presidential debate later in the month. After taking power following Mills's death, Mahama worked to unify a somewhat divided NDC and to counter a major contracting corruption scandal that rocked the Mills government and threatened to hurt NDC electoral prospects (see textbox). In early September he also set out a policy plan that used Mills's Better Ghana priorities as a general point of departure but also laid out a range of specific actions that Mahama used to guide his administration in the period leading up to the elections. One of the objectives in his agenda was tighter regulation of state-private business transactions, possibly as a means of averting corruption-focused criticism of the NDC by the political opposition. A key source of internal NDC divisions had been personalized, often barbed criticism of Mills by former president Rawlings, the founder of the NDC, whose wife, Nana Konadu Agyeman-Rawlings, had unsuccessfully challenged Mills for the 2012 NDC presidential spot prior to his death. Rawlings appeared to view Mills, who had served as his vice president, as his political protégé and to have resented the independent political support base that Mills built within the NDC. After Mills's death, Rawlings initially endorsed Mahama and pledged to support party unity, but then threw his support behind his wife after her October 2012 selection as the presidential candidate of the newly formed National Democratic Party. Agyeman-Rawlings's candidacy was rejected by the Electoral Commission on technical grounds, a decision that she legally contested. She later announced her support for the NPP, and her husband reportedly declined to campaign for the NDC. Some analysts have concluded that Agyeman-Rawlings failed presidential bids and the NDC's victory, notwithstanding Rawlings's absence from the NDC campaign hustings, indicate that Rawlings's past strong influence over the NDC and Ghanaian politics generally has waned considerably. Ghana's economy has grown steadily in recent years; gross domestic product (GDP) totaled $32 billion in 2010, rose to $39 billion in 2011, and is projected to rise further. Goods export earnings have also grown; estimated at $8 billion in 2010, they grew to $13 billion in 2011, with additional gradual growth projected in the next three years. Spurred by new oil sector investment and production (discussed further below), the economy grew at an estimated annual rate of 14.4% in 2011, according to the Economist Intelligence Unit (EIU, a private economic analysis firm), which projected a decline to 7.3% in 2012 and 7.6% in 2013. The International Monetary Fund also estimated that the economy grew by 14.4% in 2011, but provided a slightly more optimistic estimate of 8.1% for 2012 and 7.8% in 2013. This prospective decline is attributable, in part, to slowing new investment in the oil sector, lower-than-expected initial oil output, and a temporary dip in prices for cocoa. In general, rising commodity prices and production, notably for key exports like cocoa and gold, along with growth in tourism, have helped propel economic growth in recent years. Despite diversification into oil, mining and, to a lesser extent, financial services and offshore information processing, and even though about 52% of Ghanaians are urban, farming remains a cornerstone of the economy. Agriculture employs over half of workers, and contributes about 27% of annual GDP, although its share has dropped since the mid-2000s. The government, with donor backing, is investing heavily in agricultural productivity gains, including in the cocoa sector. Services have expanded rapidly, and contributed 47% of GDP in 2011. Industry, notably the gold mining sector, has also grown markedly; it provides about 25% of GDP. In recent years, gold has contributed a high share of export revenues, in part due to high global prices. Government policies are supportive of the extensive small-scale and informal sectors. The Ghana Stock Exchange, which has performed well in recent years, plans to establish a separate exchange for small firms, the Ghana Alternative Market. Ghana cooperates closely with international financial institutions and received substantial foreign debt relief in the mid- 2000s. In recent years, the World Bank's annual Doing Business report has consistently rated Ghana positively—better than all but four countries in sub-Saharan Africa. Ghanaians enjoy better access to public goods and services than is typical in West Africa, and poverty rates are slowly declining. Average annual per capita income, at $1,570 in 2011, has grown markedly from $310 in 2003. Rates of access to cell phones are high, and most social indicators have also steadily improved in recent years. Rates of access to electricity are also relatively high, although there are regular periodic electricity shortages. Insufficient electricity supplies have long hindered economic growth, but several national and international regional power generation/distribution projects and efforts to liberalize the electricity sector are under way. Development of Ghana's natural gas reserves (see below) for use in fueling electricity generation—notably at Asogi, a major power plant—and other types of longer term industrial development has been beset by technical problems associated with piping the gas from offshore and construction of a new gas processing plant. Asogi has also been idled due to a break in Chevron-operated West African Gas Pipeline, designed to ferry gas from Nigeria to Ghana and other coastal countries. Despite significant economic success, poverty is widespread, notably in rural areas, and income distribution is unequal. Slightly more than half of Ghanaians have access to piped water, tarred roads, sewage systems, and health clinics, leaving many without access to these public goods and services, according to a recent survey of economic and social conditions. As discussed previously, the survey also found that 63% of respondents rated national economic conditions as "bad" or "very bad"; in contrast, only 30% described conditions as "good" or "very good," and six percent were neutral on the matter. Such views have generally remained roughly similar over the past decade, apart from the most recent prior survey, undertaken in 2008. At that time, the proportion of respondents who saw conditions as "bad or very bad" and as "good or very good" was equal, at 45% for each group, indicating that a growing number of Ghanaians have become dissatisfied with economic trends. Rising import demand, spurred by the oil sector, has also driven a substantial devaluation in 2012 of the national currency, the cedi . This, in turn, has led to a nascent rise in smuggling of cocoa into Côte d'Ivoire, where sellers can obtain relatively more stable Euro-pegged CFA francs , reversing a trend in which large amounts of Ivoirian cocoa were reportedly smuggled into Ghana. The start of oil production in late 2010, from the first of several sizable, recently discovered offshore oil fields, and the reported likelihood that other finds being assessed will prove positive have boosted export and state revenue projections. The advent of large-scale oil and gas production is a game-changer for Ghana's economic future. Production from Ghana's large Jubilee field alone is projected to place it among the world's top 50 oil-producing countries. The potential for greater rates of production and additional reserve confirmations is high. Ghana's total oil and gas reserves (i.e., deposits for which production is technically and economically viable) are difficult to estimate; most of its oil and gas deposits have been discovered relatively recently, and new discoveries and estimates continue. According to U.S. government estimates, Ghana has 660 million barrels of oil (MMBO) of proven reserves, the 45 th largest globally. The Jubilee field alone has been very conservatively estimated as containing 278 MMBO, but is widely believed to house much larger reserves, in the 500-600 MMBO range and potentially as much as 1,500 MMBO. Total national oil reserves are thought to range between 3 billion and 4.5 billion barrels, with more optimistic projections suggesting that reserves might be larger by a factor of two or more. Most of Ghana's oil fields also contain natural gas condensate, and there have been several significant gas finds. Ghana's proven natural gas reserves, according to U.S. government estimates, stand at 22.65 billion cubic meters, the 75th largest globally. Production at Jubilee started in late 2010 under a $3 billion-plus "Phase 1" operation focusing on a core area where reserves are best documented. It is led by UK-based Tullow Oil, in partnership with five other firms; three are U.S-based (Anadarko, 23.5%; Kosmos, 23.5%; and Sabre, 2.8%). About 120,000 barrels of oil per day were projected to be produced once full production rates were reached, and Phase 2 production in 2014 was projected to increase production to 240,000 barrels per day, and possibly eventually 500,000 barrels per day. Initial production, however, was substantially below the level initially projected, due to technical problems, as noted above. The start of oil production has spurred an increase in public spending and borrowing based on projected future oil earnings. External debt climbed from $3.32 billion in 2006, after Ghana received international financial institution-mediated debt forgiveness, to an estimated $9.7 billion in late 2011. The Economist Intelligence Unit estimates that debt will have grown to $11.6 in 2012 and $18.5 billion by 2018. Critics have warned that this could lead to financial over-commitments and excessive state reliance on oil revenues. However, Ghana may be able to continue to rely on its generally positive record of economic growth and diversification to borrow on international bond markets. There are also concerns that Ghana lacks adequate environmental oversight and oil spill response capacities. In March 2011, a Petroleum Revenue Management Act was enacted after months of debate, but a proposed Petroleum Exploration and Production Act has yet to be passed. Civil society groups are closely monitoring the government's actions as a signatory of the Extractive Industries Transparency Initiative (EITI), an internationally-backed effort to promote governance accountability governance in resource-rich countries. In October 2009, Ghana became the second African EITI signatory, and one of five countries worldwide to be judged EITI Compliant at the time. Despite such developments, energy sector governance—notably transparency, accountability, and efficacy regarding public uses of oil revenue receipts and expenditures—is a key issue facing Ghanaians. The World Bank has been providing technical assistance aimed at addressing environmental protection and management challenges, as well as promoting transparency regarding extractive industry contracting, licensing, and revenue payments. Public sector bribery in Ghana is reportedly common and there have been several high profile corruption cases involving top officials, although by some measures, Ghana is significantly less corrupt than many of its regional peers. According to Transparency International's (TI) Global Corruption Barometer (GCB) 20 10/11 , 60% of Ghanaian respondents thought corruption had worsened in the past three years and 40% reported that they had paid a bribe in the last 12 months. About 55% of Ghanaians viewed their government's anti-corruption efforts as effective, while another 36% reported them as ineffective. According to the State Department and GCB , petty police corruption is widespread. President Mills pledged to reduce corruption "to the barest minimum and make the penalty for corruption so high that it will become something to avoid at all cost." His primary tactics for doing so included efforts to improve the capabilities of anti-corruption government agencies, to "rigorously" enforce Ghana's Whistleblower's Act, and to "vigorously" prosecute official corruption. The government also planned "a massive education campaign against corruption" involving state anti-corruption institutions and civil society anti-corruption agencies and organizations. How effective these efforts have been is not clear. As previously noted, President Mahama has pledged to continue Mills's policies, including regarding transparency issues. Ghana faces illicit drug trafficking challenges, notably as a result of a rise in recent years of cocaine from South America and heroin from southwest Asia. These drugs are typically shipped onward to Europe and, to a lesser extent, to South Africa and North America, often via couriers on commercial flights. In the early to mid-2000s, cocaine was reported to arrive on small aircraft and small freighters, with local transfers to smaller coastal vessels, such as fishing boats. These methods reportedly continue to be used, but in recent years there has been a reported increase in cocaine shipments via containerized ship freight, sometimes from non-traditional shipment points, such as Chile and Panama. A nascent methamphetamine production and export trade servicing local and foreign markets has also emerged in recent years. Ghana has served as a departure point for human drug couriers, known as mules, who swallow their shipments or otherwise transport them while traveling on commercial passenger flights. There have been other indications of Ghanaian ties to international drug trafficking, as indicated by periodic arrests of Ghanaians in other countries, including in the United States, West Africa, and Europe. Several years ago, there were also several high-profile cocaine-corruption cases involving government officials. In some instances, suspected large-scale seizures disappeared prior to or after being confiscated, allegedly with official connivance. According to the State Department's 2012 International Narcotics Control Strategy Report (INCSR ), Gangs trafficking South American cocaine have increased their foothold in Ghana, establishing distribution networks run by Nigerian and Ghanaian criminals. Ghana's interest in attracting investment provides good cover for foreign drug barons to enter the country under the guise of legitimate business. However, South American traffickers limit their personal involvement in Ghana by relying on local partners, thus insulating themselves from possible arrest by local authorities. Ghana engages in counternarcotics cooperation with multiple members of the international community, including the United States, but its capabilities are seen as limited. The State Department reports in the 2012 INCSR that Corruption, a lack of resources, and porous borders seriously impede interdiction efforts. While law enforcement authorities continue to arrest low-level narcotics traffickers, Ghana has had relatively less success pursuing the so-called drug barons. Narcotics-related cases and others involving serious crimes can sometimes take years to prosecute, due to lack of expertise for prosecutors and judges, overbooked attorneys and the failure of witnesses to appear in court. Interagency coordination among law enforcement agencies remains a challenge. The U.S. Drug Enforcement Agency (DEA), which opened a regional office in Ghana in 2009, has initiated several extradition cases and carried out other law enforcement operations with Ghana. Beginning in FY2010, the DEA also developed a Sensitive Investigative Unit (SIU) in Ghana. SIUs are composed of specialized host country counternarcotics investigators and police who are vetted, or screened, by the DEA through drug tests, background investigations, and polygraphs. They receive additional DEA-funded training, as well as mentoring, including during cooperation on sensitive bilateral investigations. Drug-related law enforcement activities and liaisons in several West African countries are coordinated through the DEA country office in Accra. The Department of Defense (DoD) also provides counternarcotics-related training and equipment-related assistance to Ghana. Examples include airport scanners and related trace detection machines, and the U.S. military's Africa Command has funded the construction of several small physical facilities to house counter-narcotics machinery and seizures. The State Department classifies Ghana as a "Tier 2" country with respect to trafficking in persons (TIP). This means that the government "does not fully comply with the minimum standards for the elimination of trafficking; however, it is making significant efforts to do so," according to the State Department's most recent annual Trafficking in Persons Report , released in June 2012. According to the report, "Ghana is a country of origin, transit, and destination for men, women, and children subjected to forced labor and sex trafficking." Ghanaian nationals, notably children, make up the bulk of trafficking victims within the country, although transnational TIP operations also regularly victimize foreign migrants. Ghanaians are also trafficked into other countries in the region and further abroad. U.S.-Ghanaian relations are close. A small population of Americans, many of African-American descent, has settled permanently in Ghana, and many prominent Ghanaians have received education in the United States. In its foreign aid Congressional Budget Justification (CBJ) for FY2013, the Obama Administration stated that the United States supports the Ghanaian government's "efforts to improve on and sustain middle-income status, and to solidify its position as a regional leader in an area better known for civil strife and economic stagnation." It also pledged to help Ghana to achieve the poverty reduction and development-focused United Nations Millennium Development Goals by 2015. The United States also sponsors a variety of exchange visits for Ghanaian government officials, focused on increasing Ghanaian familiarization with U.S. legislative and other governance practices, and a variety of educational programs for students and civil society organizations. A 130-member Peace Corps program, funded at $3.8 million in FY2012, with $3.9 million requested for FY2013, supports work in information technology, education and business development, health, and food security. The Administration has requested combined FY2013 State Department and U.S. Agency for International Development (USAID) assistance of $179.3 million. An estimated $172.7 million in aid is being provided in FY2012, while $165.9 was provided in FY2011. A large portion of the FY2013 aid request (89%) would support education (16% of the total); agricultural development (29%), mostly under Feed the Future programs; and health-related capacity development (44%), under the Global Health Initiative. This pattern of allocations closely mirrors that of FY2011 and FY2012. Some Development Assistance funding is provided under the Global Climate Change Initiative. As discussed previously, Ghana is a likely candidate for a second MCC compact. Ghana is a leading African buyer of U.S. goods, and while bilateral trade is relatively small compared to U.S. trade with countries in other regions, it has grown exponentially―by 638%―over the last decade. Total bilateral trade in 2002 stood at $309 million; by 2011, it had grown to $1.97 billion. In 2009, U.S. exports to Ghana totaled $634 million, but they jumped to $983 million in 2010 and $1.2 billion in 2011. These increases appear attributable to inputs for the oil sector. U.S. imports from Ghana stood at $135 million in 2009, and rose to $273 million in 2010 and $779 million in 2011. There is a highly variable but large U.S. trade surplus with Ghana. In 2009, the total value of U.S. exports to Ghana was 4.7 times as large as that for U.S. imports from Ghana, and over the past decade the trade surplus ratio in favor of the United States has averaged nearly 2.5 to 1. Ghana is eligible for trade benefits under the U.S. African Growth and Opportunity Act (AGOA, P.L. 106-200 , Title I, as amended). Exports under AGOA, however, have declined sharply, from a high of 41% of exports to the United States in 2004 to under 1% in 2010, although there was a jump to just over 9% in 2011. Furthermore, AGOA exports were undiversified, made up mostly of processed fuel products and a range of textile and apparel products. Multiple factors may account for the general decline in exports under AGOA as a share of all exports to the United States, which have risen, but one study attributes these trends to Ghana's "lack of supply capacity, the result of low industrialization; its lack of financial resources; and its lack of a national strategy on AGOA." Three bilateral trade and investment agreements are in force. They include an Overseas Private Investment Corporation (OPIC) Investment Incentive Agreement, a Trade and Investment Framework Agreement (TIFA), and an Open Skies aviation agreement. U.S. firms are key investors in Ghana. U.S. foreign direct investment (FDI) in Ghana (investments in which U.S. firms own 10% or more of an overseas firm or other business asset) have risen steadily in recent years. It totaled $2.3 billion in 2011, $2.1 billion in 2010, and $1.6 billion in 2009. Most of this investment is likely associated with oil sector and mining investments. Corruption (see above) can negatively affect trade and investment, but foreign investors can generally operate far more easily in Ghana than in many other countries in the region. Accra, the capital, along with several smaller cities in the interior, offers relatively advanced and steadily improving cell phone and Internet access. In many areas of commercial activity, doing business is relatively straightforward and subject to effective legal protections, including from nationalization or expropriation, with limited exceptions. In rare cases where expropriation has occurred, legal redress and/or compensation have been forthcoming. Legal processes, however, are often slow and enforcement of legal judgments can present challenges. Alternative commercial dispute resolution is both allowed and practiced, and such services are provided by the Commercial Conciliation Center of the American Chamber of Commerce (Ghana). U.S. trade capacity-building (TCB) assistance in Ghana, mostly in the form of activities authorized, mandated, or encouraged under AGOA, is diverse. Ghana hosts the USAID regional office and USAID's West Africa Trade Hub, which seeks to increase exports from countries in the region. Trade hub export promotion focuses on expanding exports of selected products that are competitively produced by small scale manufacturers and other types of firms in the region (e.g., apparel, cashew, fish and seafood, home decor & accessories, shea nut butter and products, and specialty foods). The hub educates buyers and sellers regarding how to export and access their target markets and obtain financing. It also connects importers and exporters through trade shows and other forums, and helps build producer industry alliances. Hub staff coordinate with other USAID units to address regional trade and competition-inhibiting challenges related to transportation and telecommunications, lack of access to finance and business services, and poor business environments. For instance, the hub issues regular reports on checkpoints, bribes and delays on West Africa trade corridors and other aspects of road governance. It also sponsors regional capacity-building projects that support initiatives such as the Economic Community of West African States (ECOWAS) free trade area. This initiative aims to facilitate the free movement of transport, goods, and persons within ECOWAS member states and remove tariff and non-tariff barriers to trade, but faces numerous implementation challenges. Ghana receives bilateral TCB assistance administered by various U.S. development and trade agencies in all major TCB categories. The majority of aid supports: construction of communications, transport, and power infrastructure for trade-related industrial zones and trade-related agricultural, agribusiness, and services capacity-building; trade facilitation (e.g., customs operations; market expansion-based trade promotion; business networking and trade-related information technology capacity-building, and skills training; and free trade agreement implementation assistance); and trade-related labor improvements (support for labor standards, worker rights and the elimination of child labor, and workforce development), financial sector development, and environment-related capacity-building). U.S. TCB assistance to Ghana is primarily provided by the Department of Treasury, MCC, Overseas Private Investment Corporation (OPIC), U.S. Trade and Development Agency (USTDA), Department of Agriculture (USDA), and USAID. From FY2007 through FY2011, bilateral TCB assistance from all agencies totaled $312.5 million, but varied considerably by year (e.g., ranging between $248.2 million in FY2007 and $7.1 million in 2008). Large variations are usually attributable to one-time obligations of funds for large projects, such as multi-year outlays of MCC compacts (e.g., FY2007) or, as in the case of FY2011, a large OPIC project. Close U.S.-Ghanaian relations are growing stronger, as reflected by Ghana's selection as a Partnership for Growth country, and appear likely to remain positive. Ghana is a key target for increased and more diverse public-private development cooperation and investment under several U.S. initiatives, and has a growing and increasingly diverse economy. Ghana's role as a new oil producer is also likely to increase its strategic importance to the United States. Prospects for growing trade and investment relations may spur new congressional interest in Ghana. Development cooperation is likely to remain a key area of congressional engagement; despite its economic successes, Ghana faces deep-seated socio-economic development challenges. It also may face natural resource governance challenges—a growing area of policy interest among some Members—associated with its anticipated oil export earnings windfall.
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Ghana: Bilateral Cooperation and Leadership Engagement Ghana is considered a model for many of the outcomes that many Members of Congress have long sought to achieve in sub-Saharan Africa in the areas of authorizations; appropriations and program guidance; and oversight. Ghana has received a large U.S. Millennium Challenge Corporation (MCC) Compact and may soon receive a second. It is also a recipient of substantial U.S. Agency for International Development (USAID) and State Department bilateral aid, much of which is channeled through three presidential development initiatives: the Global Climate Change (GCC) initiative; Feed the Future (FtF), a global food security and poverty reduction initiative; and the President's Malaria Initiative (PMI) and the Global Health Initiative (GHI). Ghana also hosts USAID and U.S. Drug Enforcement Agency (DEA) regional offices and the USAID-administered West Africa Trade Hub. The Hub focuses on expanding intra-regional and bilateral trade with countries in the region, a key area of current congressional interest and a pillar of the Obama Administration's U.S. Strategy Toward Sub-Saharan Africa, released in June 2012. Ghana is also one of four initial Partnerships for Growth (PfG) countries. PfG, implementation of which began in 2011 in El Salvador, is intended to advance public and private bilateral cooperation with selected countries whose top leaders demonstrate commitment to good governance and sustainable development. Ghana hosts regular visits by Members of Congress, and in 2009 President Barack Obama signaled that ties remain close by traveling to Ghana, the only sub-Saharan African country that he has visited as president. Good Governance and Stability President Obama's visit was premised on Ghana's record of having built a relatively robust democracy and a growing economy, albeit in the face of widespread poverty and diverse development challenges, making it a stable country in an often unstable region. During his visit he lauded its democratic and economic development record and made a major policy address relating these issues to good governance in Africa and the wider developing world. Ghana's stability is maintained, in part, by its citizens' commitment to constitutional governance. Since undergoing a transition from single party rule in the early 1990s, it has held a series of peaceful but close elections, two involving inter-party transfers of state power. The most recent elections, held in early December 2012, were closely contested. In all cases, opposition challengers have either accepted poll results outright or contested them through the courts, rather than through the use of violence or street protests. Constitutional governance was also upheld in July 2012, when state power was rapidly and transparently transferred to the current president, John Dramani Mahama, after the death of President John Atta Mills. Ghana has also contributed to efforts to maintain stability and end conflict in the surrounding West Africa region, and regularly contributes to international peacekeeping operations elsewhere. It receives U.S. capacity-building assistance in this area, as well as aid to help counter threats posed by international narcotics trafficking. Development and Economy: Progress and Challenges Ghana's economy has grown substantially in recent years, based both on increases in farm and mining exports and, more recently, oil production, which is likely to increase its strategic importance to the United States. Growing oil earnings may help fund development, but may also pose resource governance and fiscal management challenges. Economic growth has led to socio-economic and infrastructure construction gains, but Ghana continues to face profound development challenges and threats to the rule of law linked to corruption and trafficking in illegal drugs and persons.
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On January 28, 2010, President Obama announced the first round of grants from the $8 billion for intercity passenger rail and high speed rail. Among the awards was $112 million for improvements to the Northeast Corridor. Other grants will fund projects that include improvements to Amtrak stations and routes that are used, but not owned, by Amtrak. In December 2009 Congress passed the FY2010 transportation appropriations act (Division A of the Consolidated Appropriations Act, 2010, P.L. 111-117 ), which provided Amtrak $1.565 billion for FY2010. The Administration had requested $1.502 billion for Amtrak; Amtrak itself requested $1.840 billion. The legislation also provided $2.5 billion for grants for high-speed rail and intercity passenger rail projects and rail network congestion mitigation projects, funding for which Amtrak is among the eligible recipients. The legislation also requires Amtrak to implement procedures to allow passengers to transport firearms in checked baggage by December 2010. In December 2009 the Amtrak Board extended interim CEO Joseph Boardman's one-year appointment to "indefinite." Boardman, the former administrator of the Federal Railroad Administration (FRA), was chosen to succeed Alexander Kummant, who resigned in November 2008. In March 2009 Congress passed the FY2009 transportation appropriation act (Division I of the Omnibus Appropriations Act of 2009, P.L. 111-8 ), which provided $1.490 billion for Amtrak for FY2009, $165 million more than in FY2008. In February 2009 Congress appropriated $1.3 billion for capital grants to Amtrak, and $8 billion for intercity passenger rail infrastructure grants (for which Amtrak is among the eligible recipients) in the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ). In October 2008, the 110 th Congress passed an Amtrak reauthorization bill, the Passenger Rail Investment and Improvement Act of 2008 (Division B of P.L. 110-432 ). This bill authorizes nearly $10 billion over the five-year life of the bill (FY2009-FY2013) specifically for Amtrak, including $5.3 billion in capital grants, nearly $3 billion in operating grants, and $1.4 billion for debt service. In addition, Congress authorized a total of $1.9 billion over these five fiscal years in intercity passenger rail capital grants to the states on an 80-20 federal/state matching basis. Congress also authorized $1.5 billion in capital grants to states and/or Amtrak for the development of 11 authorized high-speed rail corridors, and $325 million in rail network congestion mitigation grants. In all, Congress authorized an annual average of $2.7 billion for intercity passenger rail, roughly twice the amount Congress has appropriated for that purpose in recent years (around $1.3 billion). The act established a procedure for interested public or private entities to submit proposals for the financing, design, construction, and operation of high-speed rail in the 11 authorized corridors. However, putting a proposal into action would require further legislation from Congress. The act established a role for the Surface Transportation Board, a railroad economic regulatory body, in enforcing Amtrak priority over freight trains on track over which both types of trains operate and in facilitating negotiations between commuter rail operators and freight railroads concerning access to freight-owned rights-of-way. Amtrak—officially, the National Railroad Passenger Corporation—is the nation's only provider of intercity passenger rail service. Amtrak is structured as a private company, but virtually all its shares are held by the United States Department of Transportation (DOT). Amtrak was created by Congress in 1970 to maintain a minimum level of intercity passenger rail service, while relieving the railroad companies of the financial burden of providing that money-losing service. Although created as a for-profit corporation, Amtrak, like intercity passenger rail operators in other countries, has not been able to make a profit. During the 35 years from 1971-2006, federal assistance to Amtrak amounted to approximately $30 billion. From FY2007-FY2010, Amtrak has received $7.0 billion in federal assistance. Amtrak's approximately 19,000 employees operate trains and maintain its infrastructure. The company operates approximately 44 routes over 21,000 miles of track. Most of that track is owned by freight rail companies; Amtrak owns about 625 route miles of track. The section it owns—the Northeast Corridor (NEC)—includes some of the most heavily used segments of track in the nation. Amtrak "is distinctly a minority user on certain portions of the NEC. By far, the greatest volume of NEC traffic is represented by" commuter and freight trains. Amtrak operates corridor routes (covering distances under 400 miles) and long-distance routes (over 400 miles in length). Some of Amtrak's corridor routes are supported in part by assistance from the states they serve. Amtrak also operates commuter service under contract with state and local commuter authorities in various parts of the country. Amtrak's FY2005-FY2009 Strategic Plan called for more than $8 billion in federal assistance over five years. The Administration consistently requested significantly less funding than that for Amtrak; in FY2006, no funding was requested for Amtrak. But Congress split the difference, providing an average of around $1.3 billion annually—enough to keep Amtrak operating, but not enough to prevent the deferral of some significant maintenance projects—until midway through FY2009, when, with a new Administration that was more supportive of Amtrak, Congress appropriated a total of $2.8 billion, bringing Amtrak's five-year total to $7.9 billion, very nearly the amount called for in the Strategic Plan. Amtrak has not yet issued a Strategic Plan for the period FY2010-FY2014; its FY2010-FY2014 Financial Plan is based on the funding levels in its current authorization. According to the Department of Transportation Inspector General (DOT IG), Amtrak needs about $2 billion a year to restore the system to a state-of-good-repair and develop corridor service, or $1.4 billion simply to keep the system from falling into further disrepair. More fundamentally, the DOT IG has stated that a new federal intercity passenger rail strategy is needed: The current model for providing intercity passenger service continues to produce financial instability and poor service quality. Despite multiple efforts over the years to change Amtrak's structure and funding, we have a system that limps along, is never in a state-of-good-repair, awash in debt, and perpetually on the edge of collapse. In the end, Amtrak has been tasked to be all things to all people, but the model under which it operates leaves many unsatisfied. On November 3, 2005, the GAO released a report that was highly critical of Amtrak's management and performance. On November 9, 2005, Amtrak's President and CEO, David Gunn, was fired by Amtrak's Board of Directors. Gunn was opposed to some of the more far reaching restructuring proposals sought by the Administration and the Amtrak Board, such as splitting the infrastructure component and the operating component on the Northeast Corridor (NEC) into two separate entities. On September 28, 2006, Amtrak's new CEO, Alexander Kummant, testified before the House Railroads Subcommittee that he was committed to operating a national system of trains and that he believed long-distance trains were an important part of the nation's transportation network. He also testified that the fastest growing service was in rail corridors between city pairs of 300-500 miles and that developing these corridors was going to be the driving force of Amtrak's future. Amtrak has demonstrated that rail can play a significant role in intercity passenger travel in certain corridors. Slightly more people travel by train than fly between New York City and Washington, DC, while slightly fewer people travel by train than fly between New York City and Boston. Congress has included provisions in Amtrak's recent appropriations, beginning in FY2003 ( P.L. 108-7 ; 117 STAT 11), intended to bring greater transparency to Amtrak's finances and to increase DOT's control over Amtrak's use of its appropriation. Amtrak is required to submit a Strategic Plan to Congress, updated annually, and is prohibited from making expenditures not programmed in the Strategic Plan without advance notice to Congress. Amtrak is also required to submit a monthly financial statement to Congress. Also, Congress changed the way Amtrak receives its funding; the funding no longer goes directly to Amtrak, but is allocated to the Secretary of Transportation, who makes quarterly grants to Amtrak. Amtrak is required to submit grant applications to DOT for each route to receive this funding. Additional requirements were imposed in the reauthorization legislation in 2008 ( P.L. 110-432 ). These include a requirement for performance improvement plans for Amtrak's long-distance routes, periodic reviews of Amtrak's compliance with accessibility requirements, reports on service delays on certain Amtrak routes, and an assessment of Amtrak management's implementation of the provisions of the reauthorization act. Amtrak runs a deficit of over a billion dollars each year. Virtually all of Amtrak's 44 or so routes lose money but the long-distance routes lose the most. According to the DOT IG, "in 2004, long-distance trains cumulatively incurred operating losses of more than $600 million (excluding interest and depreciation)." However, by his calculation, even eliminating long-distance service entirely would only have reduced Amtrak's operating losses by about $300 million, far too little to make Amtrak profitable. In congressional testimony, the DOT IG stated that long distance trains accounted for only 15% of total intercity rail ridership and that 77% of long-distance train passengers traveled along only portions of the routes, not end-to-end trips. Trips mostly ranged from 500-700 miles, slightly longer than corridor trips. The IG estimated that Amtrak could realize "annual operating savings of between $75 million and $158 million, and an additional $79 million in planned annual capital expenditures that could be avoided" by eliminating the highly subsidized sleeper class service from its long-distance trains. Sleeper class service includes a sleeping room and prepaid meals in the train's dining car; coach class passengers on long-distance trains sleep in their seats on overnight trips, and usually buy food in the train's lounge car. On October 10, 2006, the DOT IG reported that Amtrak had begun restructuring sleeper class service and expected to save up to $20 million in FY2007 from this restructuring. In addition to its annual deficit, Amtrak has major liabilities due to deferred maintenance and accumulated debt. Lacking money to complete all its capital repair and maintenance projects, Amtrak has deferred many maintenance projects. This has led the DOT IG to observe that Amtrak's continued deferral of maintenance increases the risk of a major failure on its system. Amtrak has an estimated $6 billion in backlogged capital maintenance needs, of which about $4 billion is needed on the NEC. These include replacement of aging bridges, signal equipment, and catenary (the power source for the Northeast Corridor trains), improvements to tunnels and track, repair of wrecked equipment, and overhaul of aging equipment. The IG has criticized some of the capital spending choices Amtrak has made, such as refurbishing sleeper cars instead of replacing aging bridges. The Amtrak Reform Council and the DOT IG both estimated that Amtrak requires around $1.5 billion to $2 billion in federal operating and capital support annually. This is a higher level of federal funding than Amtrak has ever consistently received, though Amtrak's current authorization authorizes funding in this range. In recent years Amtrak has stopped borrowing, trimmed its workforce, and cut its expenses, while at the same time achieving increases in ridership. However, the cuts in expenses have been small relative to Amtrak's annual deficit, and increases in ridership have been relatively modest as well. In this context, the DOT IG has observed that "it is difficult to see how Amtrak can achieve further reductions within its Federal operating subsidy without addressing state-supported routes, route restructuring, and labor contracts." Amtrak did not gain any flexibility in work rules in its latest labor agreement. While Amtrak competes with freight and commuter railroads to retain its workforce, it competes with the airlines (on its corridor routes) in terms of labor productivity. Amtrak's internal options for significantly reducing its annual deficit in the short term are limited. Its two major cost categories are the operating losses of the long-distance trains and maintenance costs of the Northeast Corridor. Reducing the size of its system could, in the long run, significantly reduce Amtrak's deficit and the long-run cost to the Federal Government, although Amtrak would still run a short-term deficit even if it eliminated all its long-distance trains, because of severance payments to employees. Additionally, the costs of maintaining the Northeast Corridor would remain, whatever the fate of long-distance service. Amtrak interprets 49 U.S.C. 24701 to require it to provide service nationwide, which it takes to mean service that spans the nation, rather than service in different parts of the nation. Thus, Amtrak is unlikely to eliminate or restructure long-distance routes without explicit direction from Congress. Many Members of Congress continue to support a nationwide Amtrak network. Amtrak's same-route ridership has grown since FY2004. However, it appears unlikely that Amtrak could increase its revenues enough to eliminate its deficits. Total revenues in FY2008 were $588 million more than in FY2004, but total expenses also increased. Amtrak has narrowed its overall annual loss by $128 million, from $1.331 billion in FY2004 to $1.160 billion in FY2008. Amtrak appropriations are provided as part of the Department of Transportation funding. A summary of its recent appropriations is provided in Table 1 . President Bush requested $900 million for Amtrak for FY2008. Congress provided $1.325 billion for Amtrak (in the Consolidated Appropriations Act, 2008, P.L. 110-161 ), plus $30 million to the states in a new matching grant program for passenger rail-related capital improvements. Of the $1.325 billion total, $475 million was provided for operating grants, and $850 million was provided in capital and debt service grants. President Bush again requested $900 million for Amtrak. Amtrak requested $1.671 billion. To justify its request, Amtrak noted increasing fuel costs, increasing health care costs, and increases in wage costs as a result of a recent bargaining agreement reached with some of Amtrak's unions. Regarding this labor agreement, Amtrak noted that its budget request did not include $114 million in "back pay" to employees that was recommended by the President Emergency Board. Amtrak's budget request noted a continuing problem with cracking of concrete ties on the Northeast Corridor, and noted that while the contractor is contractually obligated to replace many of the defective ties, the contract does not cover substantial labor costs associated with replacement. The request also noted that the average age of Amtrak's coach fleet is 24 years and the average age of its locomotive fleet is more than 15 years, and thus replacing rolling stock is a high priority for the railroad. Congress provided $1.490 billion for Amtrak (in Division I of the Omnibus Appropriations Act, 2009, P.L. 111-8 ), $165 million more than the FY2008 level, and also appropriated $90 million for grants to states in a newly authorized matching grant program for passenger rail-related capital improvements (Amtrak can become eligible to receive a grant under that program if it signs a cooperative agreement with a state to carry out a project for that state). Congress noted that the additional costs of Amtrak's "back pay" agreement were included in the $550 million provided for operating grants. Congress provided Amtrak with additional funding in the emergency economic stimulus bill passed in February 2009, the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5 ). Amtrak received $1.3 billion for capital grants (of which $450 million was specifically for capital security grants). Also, Congress provided $8 billion for grants for high-speed rail projects, intercity passenger rail projects, and rail congestion relief grants. Amtrak is among the eligible recipients for grants from that funding. On January 28, 2010, President Obama announced the first round of grants from the $8 billion for intercity passenger rail and high speed rail. Among the awards was $112 million for improvements to the Northeast Corridor. Other grants will fund projects that include improvements to Amtrak stations and routes that are used, but not owned, by Amtrak. The Obama Administration requested $1.502 billion for Amtrak for FY2010: $572.3 million for operating grants (of which not less than $21 million is for the Amtrak Inspector General's Office) and $929.6 million for capital grants (of which up to $264 million is for debt service). The Administration also requested $1.0 billion for grants for high-speed rail projects, intercity passenger rail projects, and rail network congestion mitigation projects. Amtrak's own FY2010 budget request totaled $1.84 billion: $601 million for operating grants (including $21 million for the Inspector General's Office), $975 million for capital grants, and $264 million for debt service. Congress provided $1.584 billion for Amtrak (in the Consolidated Appropriations Act, 2010, P.L. 111-117 ). Also, Congress provided $2.5 billion for grants for intercity passenger rail and high speed rail service. Amtrak is among the eligible recipients for grants from that program. In June 2009, Amtrak's Inspector General, who had served as Amtrak's IG since the creation of the office in 1989, resigned. Soon afterward, the House Committee on Oversight and Government Reform announced that it was launching an investigation into the circumstances surrounding the departure of the IG. To promote the independence of the Office of the Inspector General, the Senate Committee on Appropriations recommended that Amtrak's OIG be funded as an independent agency, not as part of Amtrak's appropriation under FRA, and accordingly placed the funding for the OIG in Title III of the appropriation bill, "Independent Agencies." Conferees confirmed this shift. During Senate floor consideration of the Transportation, Housing and Urban Development, and Related Agencies Appropriations (THUD) bill, an amendment was added which required that Amtrak allow passengers to transport firearms in checked baggage as of March 31, 2010, or lose its federal funding. Amtrak began prohibiting the transport of firearms even in checked baggage after 9/11. In the enacted legislation, this requirement was altered to give Amtrak one year to implement procedures to allow passengers to carry firearms in checked baggage (section 159). Amtrak's previous authorization expired in December 2002. The Amtrak Reform and Accountability Act of 1997 ( P.L. 105-134 ; 111 Stat. 2570) authorized Amtrak for the period December 1997 through December 2002. It required that Amtrak operate without federal operating assistance after 2002; this was not accomplished. Between 2002 and 2008, reauthorization of Amtrak was stalled by disagreement over the future of U.S. passenger rail policy. Although numerous bills were introduced and various approaches were advanced, Congress was unwilling to decide what kind of passenger rail policy it would be willing to fund. During that period, Congress neither provided Amtrak with the level of funding that Amtrak requested nor required an Amtrak restructuring that would be consistent with the level of funding that Congress provided. As Congress considered reauthorization of Amtrak, the range of options for passenger rail included (1) providing higher levels of funding to support an expanded passenger rail system; (2) providing funding for operating and maintaining the current system; (3) focusing available resources on providing service only to those corridors that can be justified on economic grounds; (4) reducing Amtrak funding and eliminating much of the present passenger rail network; (5) eliminating funding for Amtrak and reorganizing passenger rail service in the United States. Although various combinations of those options were possible, the DOT IG stated that the "status quo" option was unsustainable and that federal funding for Amtrak of between $1.4 billion and $1.5 billion would be necessary to prevent cuts in service, but would not be enough to restore the system to a state-of-good-repair nor permit investment in new corridor development. In regard to Amtrak reauthorization, the DOT IG urged Congress to consider three points: (1) without competition, Amtrak has few incentives, other than the threat of budget cuts or elimination, for cost control; (2) states, rather than Amtrak, should decide where and how intercity passenger rail service is provided; and (3) the federal government must be willing to provide adequate funding (but not directly to Amtrak) to bring the infrastructure into a state-of-good-repair. In the 110 th Congress, Senator Frank R. Lautenberg and then Senator Trent Lott introduced an Amtrak reauthorization bill, the Passenger Rail Investment and Improvement Act of 2007 ( S. 294 ), on January 16, 2007. This bill would have authorized a total of $3.3 billion in operating grants and $6.3 billion in capital grants for fiscal years 2007 through 2012 to be administered by the DOT to Amtrak. Of the $6.3 billion in capital grants, a certain percentage of that amount, ranging from 3% in FY2007 to 33% in FY2012, would be directed to states rather than to Amtrak. The bill would also allow states to use operators other than Amtrak to provide rail service on particular routes, thus potentially opening up competition for Amtrak. The bill created a capital match program for a state or group of states for the purpose of providing new or improved intercity rail service. The federal share of this program would be 80%. While the bill would have repealed the requirement that Amtrak become financially self-sufficient, it would have required Amtrak to reduce operating subsidies by 40% over the life of the bill. The bill would have expanded Amtrak's board of directors to 10 members, including the Secretary of Transportation, the President of Amtrak, and eight members selected by the Administration with no more than five of these from the same political party and representing the geographic regions that Amtrak currently serves, to the extent possible. S. 294 was approved (with amendments) by the Committee on Commerce, Science, and Transportation on April 25, 2007, and was passed (with amendments) by the full Senate on October 20, 2007. During Senate floor debate, among the amendments rejected was an amendment to limit the per-passenger subsidy amount on Amtrak routes and an amendment to increase the number of routes to be made available for competitive bid. Amendments accepted included an amendment to require Amtrak to publish annual revenue and cost amounts for each route, an amendment giving additional consideration to states with limited Amtrak service when considering new routes, and an amendment expressing the sense of Congress of the need to maintain Amtrak as a national passenger rail system. The House version of an Amtrak reauthorization bill ( H.R. 6003 ) was introduced on May 8, 2008, and ordered to be reported by the House Committee on Transportation and Infrastructure on May 22, 2008. It was passed by the House with amendments on June 11, 2008, by a vote of 311 to 104. For FY2009-FY2013, H.R. 6003 would have authorized a total of $6.7 billion in capital grants to Amtrak, of which $2.5 billion would have been provided to states in a capital matching program; $3.0 billion in operating grants; $1.7 billion for debt service; and $1.1 billion for ADA compliance. The House bill also would have provided $1.8 billion over the life of the bill ($350 million per fiscal year) for the development of up to two high-speed rail corridors, one of which would be between Washington, DC, and New York City. In this instance, high-speed rail was defined as at least 110 mph, and in the case of the Washington, DC, and New York City corridor, travel time for express trains between those two cities would have to be under two hours. Under this provision, private companies would bid for the financing, design, construction, and operation of these high-speed rail corridors. DOT and a commission would evaluate and rank the proposals and report their findings to Congress. The House bill also required Amtrak to submit a plan for restoring service between New Orleans and Sanford, Florida. The House bill would have restructured Amtrak's board of directors in the same way as the Senate bill. Both the House and Senate bills would have involved the Surface Transportation Board (STB) in resolving disputes between freight railroads and passenger train interests, but for different purposes. The Senate bill (Section 209) would allow Amtrak or states subsidizing Amtrak service to petition the STB to investigate when Amtrak's on-time performance falls below a certain level. If the STB finds that the host freight railroad is at fault, it may award damages or provide some other relief. The provision would also allow freight railroads to petition the STB if they believe passenger trains are negatively affecting their business on a certain route. The House bill (section 401) would require the STB to conduct non-binding mediation between freight railroads and public transit authorities seeking access to freight railroad right-of-ways for passenger service, in circumstances where the two parties cannot reach agreement. Congress reauthorized Amtrak in the Passenger Rail Investment and Improvement Act of 2008, enacted on October 16, 2008. For the period FY2009-FY2013, the act authorized a total of $9.8 billion in funding for Amtrak, divided as follows: Operating grants: $2.9 billion. Capital grants: $5.3 billion. Grants for repayment of long-term debts and capital leases: $1.4 billion. Funding for Amtrak's Inspector General: $108 million. Total authorized Amtrak funding averages $1.955 billion annually, a significant increase over the $1.3 billion Amtrak was appropriated in FY2007 and FY2008. The act also authorizes three new federal intercity passenger rail grant programs for which Amtrak is eligible: Intercity Passenger Rail Service Corridor Capital Assistance Program (§301) : authorizes DOT to make grants to states, public agencies, or Amtrak (in cooperation with a state) for the capital costs of facilities, infrastructure, and equipment to provide or improve intercity passenger rail transportation; federal share not to exceed 80%; total authorized funding $1.9 billion over FY2009-FY2013. High-Speed Rail Corridor Development: authorizes DOT to make grants to states, public agencies, or Amtrak for capital projects (e.g., acquiring, constructing, or improving rail structures and equipment) on designated high-speed lines that would result in train operating speeds of 110 mph or more; federal share not to exceed 80%; total authorized funding $1.5 billion over FY2009-FY2013. Congestion Relief (§302): authorizes DOT to make grants to states, public agencies, or Amtrak to reduce congestion or facilitate ridership growth in heavily traveled intercity rail passenger corridors; federal share not to exceed 80%; total authorized funding $325 billion over FY2010-FY2013. The act directs FRA and Amtrak to jointly develop measurement criteria, and minimum standards, to measure Amtrak's performance and service quality; directs FRA to develop objective methodologies for Amtrak to use in making decisions regarding adding, altering, or eliminating routes and service levels; and directs FRA to establish a standard methodology for allocating costs between Amtrak and states for state-supported routes. It allows Amtrak or states subsidizing Amtrak service to petition the STB to investigate when Amtrak's on-time performance falls below a certain level. If the STB finds that the host freight railroad is at fault, it may award damages or provide some other relief. Freight railroads may petition the STB if they believe passenger trains are negatively affecting their business on a route. And it requires the STB to conduct non-binding mediation between freight railroads and public transit authorities seeking access to freight railroad right-of-ways for passenger service, in circumstances where the two parties cannot reach agreement. The act also increased the size of Amtrak's Board of Directors from 7 to 9 persons, including the Secretary of Transportation, the President of Amtrak, and 7 persons appointed by the President, not more than 5 of whom may be members of the same political party. The act also removed the prohibition on having board members who were representatives of rail labor or rail management.
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Amtrak was created by Congress in 1970 to provide intercity passenger railroad service. It operates approximately 44 routes over 22,000 miles of track, 97% of which is owned by freight rail companies. It runs a deficit each year, and requires federal assistance to cover operating losses and capital investment. Without a yearly federal grant to cover operating losses, Amtrak would not survive as presently configured. The crux of the public policy issue facing Congress has been succinctly stated by the Department of Transportation Inspector General (DOT IG): "To create a new model for intercity passenger rail, a comprehensive reauthorization that provides new direction and adequate funding is needed. The problem with the current model extends beyond funding—there are inadequate incentives for Amtrak to provide cost-effective service; state-of-good-repair needs are not being adequately addressed; and states have insufficient leverage in determining service quality options, in part because Amtrak receives Federal rail funds, not the states." Amtrak was reauthorized in 2008. Its previous authorization had lapsed in 2002 because of a policy stalemate involving the Bush Administration and Congress. The Bush Administration advocated significant changes to federal passenger rail policy, involving a reduction of Amtrak's role. Those changes were supported by some in Congress, while others supported increased funding for Amtrak, in line with Amtrak's strategy of maintaining its full current network while restoring its infrastructure to a state of good repair. Interest in alternatives to, and complements to, auto and air transportation, spurred by concerns over gasoline supplies and global warming, as well as the Obama Administration's interest in high-speed rail, suggest that Amtrak policy may receive additional attention in the 111th Congress. Appropriations. For FY2010, the Obama Administration requested $1.502 billion for Amtrak, which is $600 million more than the previous Administration requested for FY2009. Amtrak itself requested $1.840 billion, which is $350 million more than Congress appropriated last year. Congress provided $1.584 billion for Amtrak FY2010. Congress also appropriated $2.5 billion for intercity and high speed rail grants, for which Amtrak is among the eligible recipients. Congress provided $1.490 billion for Amtrak in the FY2009 transportation appropriations act (Division I of P.L. 111-8), $165 million more than the $1.325 billion provided in FY2008. In addition, Congress appropriated $1.3 billion for capital grants to Amtrak, and appropriated another $8 billion for intercity rail infrastructure projects (for which Amtrak is among the eligible recipients) in the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5). Reauthorization. Amtrak's previous authorization expired in December 2002. In October 2008, the 110th Congress passed an Amtrak reauthorization bill, the Passenger Rail Investment and Improvement Act of 2008 (Division B of P.L. 110-432). This bill authorized nearly $10 billion over the five-year life of the bill (FY2009-FY2013) specifically for Amtrak, including $5.3 billion in capital grants, nearly $3 billion in operating grants, and $1.4 billion for debt service. In addition, Congress authorized a total of $1.9 billion over these five fiscal years in intercity passenger rail capital grants to the states on an 80-20 federal/state matching basis. Congress also authorized $1.5 billion in capital grants to states and/or Amtrak for the development of 11 authorized high-speed rail corridors. The act established a procedure for interested public or private entities to submit proposals for the financing, design, construction, and operation of high-speed rail on these 11 corridors. However, putting a proposal into action would require further legislation from Congress.
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The United Republic of Tanzania is an East African country of nearly 54 million people that is about twice as large as California. The International Monetary Fund (IMF) estimates it to have been the 31 st -poorest country globally in 2016 when ranked by per capita gross domestic product (GDP), which stood at $970 in 2016. The country has substantial natural resource wealth and agricultural potential, however, and multiple socioeconomic development indicators have generally improved in recent years. Its relative political stability and government reforms have attracted substantial official development aid, although there are abiding concerns regarding corruption and a difficult business climate. Despite such challenges, some sectors of the economy, most notably the extractive industries, are attracting private investment. President John Magufuli was elected in 2015 and is serving his first five-year term in office. U.S.-Tanzanian ties have generally been cordial and U.S. aid expanded significantly under the last two U.S. Administrations. Since the 2015 elections, however, U.S. concerns about Tanzania's governance have raised some tensions. Such concerns have centered on the nullification of the 2015 election results (and the subsequent rerun in 2016) in the semiautonomous coastal region of Zanzibar, restrictions on civil liberties, and similar issues. Citing such concerns, in March 2016, the U.S. Millennium Challenge Corporation (MCC) Board announced it would suspend its partnership with Tanzania, deferring a vote on the country's continued eligibility for a potential second large development compact; this effectively ended, for the time being, the development of a second MCC compact with Tanzania, following its completion of an initial compact between 2008 and 2013. The MCC had previously authorized and helped fund initial research and concept design activities focused on the development of a second compact, which had been expected to center on the electrical power sector—and in mid-2015 had informed Congress of its intent to negotiate such a compact Tanzania. These developments ran counter to a prior narrative of improving governance and economic development in Tanzania and closer U.S. ties, underscored by former President Obama's July 2013 visit to the country, during which he highlighted such progress, as well as growing U.S. trade and investment ties. Despite the later tensions, the Obama Administration described bilateral ties as being characterized by a "strong" partnership focused on a "shared vision of improving the quality of life for all Tanzanians" in its FY2017 State Department/U.S. Agency for International Development (USAID) foreign aid budget submission to Congress. How bilateral ties may proceed under the Trump Administration and during the 115 th Congress has yet to be determined, but they appear likely to remain on a positive track. An April 26, 2017, press release issued under the name of Secretary of State Rex Tillerson characterized the U.S.-Tanzanian relationship as "strong," and "marked by a collaborative effort toward shared goals and close cooperation on a variety of programs and initiatives, from health and education, promoting economic growth and democratic governance, and advancing regional security," and projected similar trends in the future. Tanzania may also benefit from the fact that Mark Green, the new USAID Administrator, is a former U.S. ambassador to the country (2007 to 2009). In recent years, Tanzania has been the second- or third-largest annual recipient of such aid in sub-Saharan Africa, with funding reaching a high of $634.1 million in FY2015 and a low of $546.6 million in FY2017 (provisional current estimate; see Table 1 ). The Trump Administration has requested $535 million for Tanzania in FY2018, the second-highest level requested for a country in the region and a minimal 2% drop relative to the current FY2017 estimate for Tanzania. This decrease would be modest compared to the roughly one-third decrease in overall global aid levels proposed by the Trump Administration. The bulk of U.S. development aid for Tanzania in recent years has been provided under Obama Administration presidential development initiatives, including Feed the Future (FTF), the Global Health Initiative, the Global Climate Change Initiative, Power Africa, and Trade Africa. In 2014 Tanzania was selected as one of six initial partner countries under the Obama Administration's African Peacekeeping Rapid Response Partnership (APRRP). It was also chosen to be a Partnership for Growth (PFG) country, one of four worldwide. (See assistance section, below, for more on these efforts.) While most U.S. aid has focused on health and economic growth, bilateral security cooperation has also increased. Tanzania is a top African contributor of personnel to international peacekeeping operations. While there is generally little Tanzania-focused congressional activity or legislation, some Members of Congress occasionally travel to the country and periodically host visits from Tanzanian leaders, such as that of former President Jakaya Kikwete during the August 2014 U.S.-Africa Leaders Summit. Some Members have sponsored legislation advocating protections for albinos, who are the target of attacks, as discussed below. Tanzania, formed in 1964, is a union of Tanganyika, the mainland territory, which gained independence from Britain in 1961, and the Zanzibar archipelago. Zanzibar, which gained independence from the United Kingdom in 1963, remains semiautonomous, with its own government. Julius Nyerere, Tanzania's president from 1964 until 1985, remained influential until his death in 1999. Under Nyerere, Tanzania was governed as a socialist state, but maintained cordial, albeit sometimes tepid relations with the West. Nyerere advanced a set of national social policies known collectively as ujamaa ("socialism" in Swahili, the lingua franca), which centered on rural, village-based collectivism and self-reliance and the nationalization of key industries. U jamaa had a decidedly mixed record. At a national level, central state control of economic policy failed to spur transformative growth and industrialization and inhibited market-based economic transaction efficiencies and private sector growth, while at the village level, collectivization faced increasing resistance. Such factors, together with a range of global ones (e.g., the oil crisis of the 1970s and poor commodity prices for Tanzania's core agricultural exports) led the country to seek credit and technical cooperation with international financial institutions in the mid-1980s. This led to the gradual liberalization of the economy and later of the state. In contrast to the economic effects of ujamaa , Nyerere's leadership and policies are widely seen as having united an ethnically and religiously diverse population under a strong shared national identity. His leadership, by many accounts, spared the mainland from the ethnic tensions that have inhibited national unity or destabilized some other African countries. Zanzibar, however, has experienced some internal ethnic and religious frictions. Since the mid-1990s, successive governments have taken steps to further liberalize the economy, but Tanzania's business environment remains challenging, due, in part, to the enduring effects of state-centric policies and bureaucratization during the socialist period. A 2016 State Department assessment observed that "in certain sectors the legacy of socialist attitudes has not fully dissipated, sometimes resulting in suspicion of foreign investors and slow decision making." Despite a stated commitment to reform, corruption and poor service delivery have hampered Tanzania's efforts to curb widespread poverty and reduce reliance on subsistence agriculture. As is common in the region, Tanzania's aging infrastructure has suffered from chronic underinvestment. Nevertheless, the Obama Administration viewed the Tanzanian government as committed to development and governance reform, and provided substantial aid to spur progress in these areas, and to invest in infrastructure. Tanzania's ruling party, Chama Cha Mapinduzi (CCM, Swahili for Party of the Revolution), was created by Nyerere in 1977 through the merger of the ruling parties of the mainland and Zanzibar. It has dominated Tanzanian politics since its inception, a key point of criticism by opposition parties. In the first multiparty elections in 1995, the CCM won a landslide victory in voting marred by irregularities. The party has continued to enjoy considerable electoral success on the mainland, in part due to the powers of incumbency, but opposition parties have won a growing share of legislative seats in successive elections. Still, opposition parties reportedly face periodic harassment and de facto restrictions on their activities. Increased political pluralism may distribute political power more widely, but it may also hold the potential to spur increasing ethnic, regional, and/or religious divisions, which the CCM long sought to avert. Recent years have seen a rise in the harassment of opposition political figures and restrictions on their activities. In September 2017, Tundu Lissu, a member of parliament and parliamentary chief whip of the opposition Chadema party ( Chama Cha Demokrasia na Maendeleo , the Party for Democracy and Progress), was shot by unknown assailants and seriously wounded. Lissu, who is also the president of the Tanganyika Law Society, is a fierce critic of President Magufuli and his government, but also a long-standing critic of corruption who may face hostility from many quarters. Lissu has often been arrested for his long-standing criticism of the government. The shooting was preceded by a firebombing of a local blue chip law firm, IMMMA Advocates, a local affiliate of the U.S. firm DLA Piper, which Lissu alleged police were involved in. Other opposition parliamentarians also face frequent duress from police. In late September 2017, police arrested a Chadema MP after a party event, and another complained that police were prohibiting his meetings with constituents, as had another in August. Such events have been preceded by many similar ones in recent years, notably during electoral periods. Similarly, newspapers have faced suspension or other sanction for coverage seen as critical of the government. Most recently, in September 2017, the publication of two newspapers was banned, in one case for 90 days and in another for two years, three months after another publication was also shuttered for two years. The strength of electoral challenges to the CCM has grown during the past two national elections, in 2010 and in 2015 (see below), notably from Chadema, which was formed prior to the 2000 elections. In 2014, opposition parties boycotted the process of drafting of a new constitution, claiming the CCM had refused to include opposition proposals to limit the power of the executive and establish a federal government system. The CCM-majority legislature then adopted a draft charter and the government scheduled a nationwide referendum for April 2015, but later postponed it indefinitely. Opposition parties had called for a referendum boycott and had legally challenged the reform process. Rivalry between the CCM and UKAWA (an opposition alliance made up of Chadema, the Civic United Front [CUF], and two smaller parties) remains a key focus of politics. Tanzania held national and Zanzibari elections on October 25, 2015. Key electoral issues included access to land, poverty and unemployment, state service provision, corruption, and political dominance of the state by the CCM, as well as energy sector development. Then-President Kikwete was constitutionally barred from running for a third term, but his CCM party was widely favored to win the polls, given its power of incumbency. The opposition, however, mounted a strong challenge, resulting in the closest presidential election in Tanzania's history. The CCM chose as its candidate, Dr. John Magufuli, a long-time government minister (see profile below), while the main UKAWA opposition coalition candidate was Edward Lowassa, of the Chadema party. Lowassa's candidacy was unusual, as he was a major CCM figure and former prime minister (2005-2008)—albeit a controversial one—who defected shortly before the election to become the main opposition candidate after not being selected in a contentious CCM nomination process, a major development in Tanzanian politics. Lowassa drew large crowds of supporters, and his challenge to the CCM was seen as energizing the 23 million-person electorate, especially among the large youth population, and as a credible threat to the CCM. The apparently close election contest raised tensions, and there was some limited campaign-period violence, notably between militant members of party youth wings and in Zanzibar, where opposition supporters were reportedly subject to intimidation. Opposition parties also complained of a few instances of police interference or limitations on assembly. In the presidential race, Magufuli won a 58.5% vote share, while Lowassa won 40%. The CCM also won 74% of elected legislative seats for which results were announced, while Chadema won just under 13%, the CUF 12%, and two minor parties less than 1% each. Due to additional indirect elections and seat apportionment, the CCM holds 69% of parliamentary seats, Chadema just under 19%, the CUF just over 11%, and the two minor parties each old one seat. An October 27, 2015, European Union (EU) Election Observation Mission (EUEOM) characterized the national election as "largely well administered" but asserted that "insufficient efforts at transparency meant that both the National Electoral Commission (NEC) and the Zanzibar Electoral Commission (ZEC) did not enjoy the full confidence of all parties." In Zanzibar, this finding was strongly substantiated the next day, when the ZEC chairman announced a unilateral decision to nullify the Zanzibari elections while vote-counting was underway. His action came after soldiers reportedly "stormed the collation centre" and evicted journalists and observers, and two days after CUF candidate Seif Sharif Hamad had announced that he had won the Zanzibar presidency with 52% of votes. The ZEC chair later announced that new elections would be held. The ZEC chief's decision raised questions over the credibility of the Zanzibari vote and spurred electoral violence in Zanzibar. A string of small bombings using homemade devices occurred days after the annulment, along with some youth protests. The ZEC's actions also cast a shadow over the Union elections, as the latter took place in concert with the Zanzibar polls and at the same polling stations. Tanzania's NEC, however, did not take account of the Zanzibari poll nullification in its vote tallies, and coun ted Zanzibari votes in determining the outcome of the presidential election. The NEC decision also came despite opposition calls for a recount of the Union presidential vote, based on alleged voting irregularities and vote-tallying fraud. While the NEC's Union decision did not draw international concern, the ZEC's nullification did, along with criticism and calls for its reversal. There were several late 2015 ad hoc dialogue and mediation efforts involving the CUF and parties interested in finding a resolution, including figures in the CCM and foreign missions. Details about the focus and outcomes of these efforts were not made public, however, and they resulted in no changes to the outcome. Instead, despite CUF opposition, on March 21, 2016, the ZEC held a rerun of the Zanzibar vote, which the CUF boycotted. The ZEC subsequently announced that the CCM candidate, Ali Mohamed Shein, had won the election—with 91% of votes—and that his party had also won a majority in the House of Representatives and local councils. In a joint declaration on the election, the United States, 14 European governments, and the European Union stated that We regret the Zanzibar Electoral Commission's decision to hold a rerun of the 25 October 2015 election, without a mutually acceptable and negotiated solution to the current political impasse. In order to be credible, electoral processes must be inclusive and truly representative of the will of the people. We reiterate our call on the Government of Tanzania to exercise leadership in Zanzibar, and to pursue a negotiated solution ... with a view to maintaining peace and unity in ... Tanzania. We commend once again the population of Zanzibar for having exercised calm and restraint throughout this process, and call on all parties and their supporters to re-start the national reconciliation process to find an inclusive, sustainable and peaceful resolution. As discussed elsewhere in this report, due to the outcome of the Zanzibar vote and due to concerns over freedom of expression, in March 2016, the U.S. MCC Board voted to suspend the MCC's partnership with Tanzania. Since the vote there have been periodic acts of aggression against putative opposition supporters by so-called "Zombies," informal pro-CCM youth militia, and in the latter half of 2016, several opposition politicians were reportedly arrested. The CUF advocates the creation of a caretaker interim government of national unity and that it conduct new, fully legitimate elections. President Magufuli is a former MP who previously held several government ministerial posts, notably including two stints as public works minister. He came to office with a generally positive reputation for public service, based especially on his infrastructure project leadership. He also had a reputation as a loyal, mainstream party member not allied to any particular factions, rather than as a charismatic leader. Magufuli's running mate, Samia Hassan Suluhu, a former minister of state in the vice president's office, became Tanzania's first female vice president. Upon taking office, Magufuli took a tough, proactive line against corruption and state agency inefficiency, promoted civic service, and advocated austerity and cost-saving measures. These actions initially drew a degree of public support—and humorous social media commentary centering on Magufuli's reputed penchant for thrift, frugality, and micromanagement—as well as provisional support from Western donors. His presidency has also been characterized by a more controversial form of populist, often top-down leadership by the president in diverse issue areas. While his emphasis on austerity has reportedly caused some apprehension within the political establishment and others who have traditionally influenced or benefitted from state funding, he reportedly has remained popular. His unilateral decisionmaking—often sans consultation with other relevant policymakers, absent the involvement of cabinet ministries and, in some cases, accompanied by procedural or legal irregularities—has, however, prompted observers to raise concerns about an autocratic, and even semiauthoritarian governance pattern under his presidency. Such concerns have deepened amid efforts by Magufuli's administration to prosecute critics, censor critical media outlets, and otherwise curtail freedom of expression. Corruption—a key Magufuli target—is a long-persistent problem in Tanzania. A 2012 public audit revealed widespread corruption in several ministries and state entities, and six cabinet ministers resigned in connection with the controversy that year. Other scandals have arisen since, including, notably, the illicit diversion by senior government officials of $122 million in central bank funds, ostensibly to pay for energy contracts, to overseas accounts—a finding which led international donors to suspend $490 million in budget support in October 2014 pending an investigation, and culminated in the resignation of three government ministers. Tanzania's ranking in Transparency International's Corruption Perception Index (CPI) has slipped in recent years (from 100 th in 2011 to 116 th in 2016, slightly up from its 119 th place ranking in 2014). While Tanzania is generally stable and peaceful, there are periodic, usually generally limited threats to state and public security. There have been sporadic attacks on tourists in Zanzibar attributed to Islamist radicals, and there have been several unattributed armed attacks on police stations in which weapons have been looted, as in 2015, or on police personnel (with seven killed in April 2017 in the Pwani region). There have also been occasional bombings of Christian churches, among other targets, that analysts have speculatively attributed to Islamist radicals. Tanzania has occasionally arrested Islamic extremists, including 10 alleged members of the Somali Al Qaeda-linked terrorist group Al Shabaab, in April 2015. In May 2015, Tanzanian authorities also arrested Jamil Mukulu, the leader of the Allied Democratic Forces (ADF), a rebel group of Ugandan origin that is made up of Islamist extremists whom Uganda claims have ties with Al Shabaab. In July 2015, Tanzania extradited Mukulu—who is also wanted in the Democratic Republic of the Congo, where the ADF is currently based—to Uganda. Tanzania has a mixed human rights record. Freedom House rates Tanzania as "partly free" due to various legal restrictions on the press and nongovernmental organization operations, media bias favoring the CCM, and crackdowns on opposition protests. According to Tanzania's independent, nonprofit Legal and Human Rights Centre (LHRC) and other sources, key issues include a lack of capacity and institutional weakness in providing access to justice, as well as the conduct of security and law enforcement agencies. The U.S. State Department, in its 2016 Country Report on Human Rights on Tanzania, states: The most widespread human rights problems in the country were use of excessive force by security forces, resulting in death and injury; restrictions on assembly and political expression; and gender-based violence, including rape, domestic violence, and female genital mutilation/cutting. Other major human rights problems included harsh and life-threatening prison conditions, lengthy pretrial detention, limits to freedom of expression on the internet, restrictions on religious freedom, restrictions on the movement of refugees, official corruption at many levels nationwide, child abuse, discrimination based on sexual orientation, mob killings and injuries, and societal violence against persons with albinism. Trafficking in persons, both internal and international, and child labor were also problems. The State Department also reports that while the government took some steps to "investigate and prosecute officials who committed abuses ... generally impunity in the police and security forces was widespread"; and that while "security forces reported to civilian authorities ... there were instances in which elements of the security forces acted independently of civilian control." According to various reports, a particular human rights challenge faced by Tanzania is witchcraft-related killings and mutilation. Albinos are a notable target of such acts by attackers who reportedly harvest their body parts for use or sale in traditional witchcraft rites. There have been multiple reports of such albino murders and attacks in recent years. The problem has attracted the attention of some Members of Congress supportive of efforts to end such acts. In March 2017, four Tanzanian albino children who have lost limbs in attacks and had been living in so-called "safe houses" in Tanzania arrived in the United States to receive medical treatment and a "respite from a homeland where they are persecuted and feared." Lesbian, gay, bisexual, and transgender (LGBT) persons also face discrimination. Homosexuality is illegal in Tanzania, and homosexuals and transgender persons have been the focus of threatening comments by government officials, as well as police harassment. In 2016 the Tanzanian government halted "U.S.-funded programs that provide testing, condoms and medical care to gays," according to the Washington Post , and in 2017 reportedly prohibited 40 private clinics from providing services HIV/AIDS "to 'key populations'—a category that includes gay men, transgender people and sex workers," according to National Public Radio. Tanzania's GDP stood at about $47.2 billion in 2016, and has grown at an estimated 6.6% annually, on average, over the past decade. This growth has been based largely on earnings from agricultural exports, such as coffee, tea, and cotton; tourism, which has steadily increased and is a key source of hard currency; and exports of gold, the price of which rose over the past decade and spiked in 2011, but has since declined. Gradual diversification into manufacturing is occurring, and development of uranium and gemstone mining is underway. Industry contributes about 26% of GDP. Tanzania also has coal, iron, and nickel resources, as well as a newly discovered massive reserve of helium, which remains critical to numerous technologies despite depleted worldwide supplies. The communications, transport, financial services, construction, and retail sectors are also growing rapidly. Services contribute about 43% of GDP. Agriculture, however, remains a mainstay of the economy, contributing about 31% of GDP. Roughly 68% and by some estimates up to 77% of the workforce engaged in agriculture in 2014, but agricultural growth has been relatively slow, at 3.1% between 2010 and 2015. The benefits of growth often have not reached the large rural population or been evenly distributed. Tanzania's per capita GDP, estimated at $970 in 2016, ranks low globally but higher than roughly half of countries in sub-Saharan Africa. Nearly 47% of Tanzanians live on $1.90 or less per day. Key barriers to economic development include poor infrastructure, low productivity growth, a high population growth rate, and a cumbersome and uncertain regulatory environment that generally deters foreign investment. Tanzania ranked 132 nd out of 190 countries surveyed in the World Bank's 2017 Doing Business index, notwithstanding marked recent improvements in ensuring access to credit. Tanzania's overwhelmingly youthful population, 71% of which is under the age of 30, poses a major challenge, as growing demand for health and education services could stir unrest. Since 2010, the discovery of large reserves of natural gas off the southern coast, in a region near far larger reserves in Mozambican territory, has increased foreign investment and raised the prospect of export revenue. The government estimates that the country has 57 trillion cubic feet of natural gas reserves, and it may also have additional onshore resources. Key firms that have been active in exploring and/or developing Tanzania's reserves have included U.S.-based ExxonMobil and several European firms, including Statoil (Norway), Eni (Italy), and BG Group (United Kingdom), as well as several smaller ones . Many Tanzanians have welcomed the discoveries, especially as the resources at issue, notably gas, are slated to be used in part for domestic electricity generation, potentially vastly increasing Tanzania's limited supply of power. There have been sometimes violent protests against a natural gas pipeline in the southern port city of Mtwara, however, due to local fears that gas revenues from the Mnazi Bay gas field along the shore zones south of the city may not benefit the gas-rich region. The sector has been the subject of substantial periodic political controversy. In 2015, for instance, the CCM-dominated parliament overwhelmingly passed an oil and gas development and regulation bill after the speaker of the parliament suspended 40 opposition MPs for shouting during an earlier debate on the matter. The bill was controversial because it has important implications for future revenue earnings, state-corporate relations, and the role of the sector in helping to spur development, and transparency advocates asserted that its passage was rushed without adequate public scrutiny. Despite such controversies, many Tanzanians are generally likely to benefit from gas development and gas-fueled electricity generation. Transmission of gas has begun along a 330-mile natural gas pipeline run by Tanzania's state-run Petroleum Development Corp (TPDC). The line links gas reserves in Mnazi Bay area, along the southern coast, to gas-fired power plants near the commercial capital, Dar es Salaam. The government hopes to greatly expand gas-fired electricity generation capacity. Tanzania is also expanding its use of significant national coal reserves to fuel power production, and plans to construct a geothermal power plant within the next decade. A planned cross-border oil pipeline, which will carry crude oil from Western Uganda to a port in northern Tanzania, is scheduled to be completed by 2020. The expansion of gas-fueled, coal-fired, and geothermal power generation is in part intended to diversify the country's hydroelectricity-dependent energy mix, which is periodically hamstrung by recurrent droughts. In late 2015, for instance, drought conditions caused all of Tanzania's hydroelectric plants, which provide a reported 35% of power supplies, to temporarily suspend production. The manner in which a key 2015 oil and gas bill was enacted may raise questions among some analysts regarding whether Tanzania has adequately developed its energy governance capacity, as may its mixed record of implementing the Extractive Industries Transparency Initiative (EITI), an international effort to foster transparent and accountable governance in resource-rich countries. Under EITI, countries voluntarily agree to abide by EITI reporting guidelines, most notably including the public release of government revenues from extractive industry firm payments. Tanzania was suspended by the EITI Board in September 2015 for failing to issue a mandatory EITI transparency report; that suspension was lifted in late 2015. Tanzania has since complied with EITI reporting requirements, and began a new process of "validation" (i.e., proof of compliance with EITI standards) under the 2016 EITI Standard , an updated set of benchmarks that compliant countries must meet. As noted earlier (see text box entitled "Magufuli: Priorities in Action"), increased national beneficiation from the mining sector is another key priority of the Magufuli administration. In July, the government extended the normal parliamentary session and successfully pushed through legislative changes fundamentally reshaping the mining sector. The changes allow the government to annul current contracts with firms if they are found to be detrimental to the national interest, abolish the use of international arbitration in dispute resolution, give the government a 16% ownership share in mining projects (with an acquisition option of up to 50% of a project's value), require local processing of minerals prior to export and the deposit of mining sector earnings in local banks, and marginally increase the royalty rate on multiple mined commodities. The changes come on the heels of several disputes between the government and foreign mining firms. Observers see the changes as likely to negatively affect levels of foreign investment in Tanzania's mining sector. Malawi and Tanzania have engaged in a long-standing dispute over competing sovereign claims to Lake Malawi (also known as Lake Nyasa); the dispute has periodically flared since the mid-1960s but never been resolved. The dispute reemerged in 2012, amid reports that the lake may contain deep-water fossil fuel reserves. Malawi has claimed the entire lake while Tanzania claims half, based on different interpretations of maps and the colonial administrative history of the lake. Regional efforts to mediate the dispute, which had stalled in recent years, have been facilitated by Mozambique's former president, Joaquim Chissano. The dispute recommenced in early 2016, when Malawi lodged a diplomatic protest with Tanzania's government after the latter published an official map showing the international border equally splitting the lake zone between the two countries. In May 2017, despite earlier statements that mediation would resume, Malawian President Peter Mutharika announced that Malawi would take the dispute to the International Court of Justice in the Hague, though the Court's jurisdiction would require the consent of both parties. Meanwhile, Malawi's government has allowed exploration for oil and gas in the lake to continue, drawing criticism from environmentalists and UNESCO. Some analysts contend that economic plans for the lake, including oil development and shipping projects, may remain stymied by uncertainty linked to the ongoing border dispute. Tanzania has for decades hosted refugees from various conflicts and political crises in the conflict-afflicted and densely inhabited countries in the Great Lakes region of central Africa—some for extended periods—and has played a mediational role in attempts to resolve such crises. In 2014, Tanzania also naturalized a large number of long-term Burundian refugees. In September 2016, Tanzania participated in the Leaders' Summit on Refugees, an event hosted by then-President Obama and intended to increase shared global efforts to aid refugees worldwide. At the summit, Tanzania agreed to "continue to receive persons running from wars, conflicts, political instability and persecution," as per its commitments under various international accords, among other related pledges. Observers have nonetheless periodically questioned Tanzania's commitment to these principles, noting that Tanzanian domestic sensitives over land access and the country's regional diplomatic ties have sometimes led the government to curtail protections for refugees and asylum seekers, and/or pressure them to return to their countries of origin. Since 2015, Tanzania has faced a new influx of refugees from Burundi in connection with a political and security crisis rooted in that country's disputed 2015 elections. The number of refugees from both Burundi has grown steadily since the start of the Burundi crisis in April 2015, and stood at 358,600 in early September 2017. Almost all of the recently arrived Burundian refugee population resides in the Kigoma Region, adjacent to Burundi, in three large camps supported by Tanzanian and international public and nongovernmental humanitarian and social services agencies. Tanzania also hosts a smaller number of refugees from the Democratic Republic of the Congo (DRC). The United States and other donors provide funding to support these camps (see U.S. aid section below). Despite its 2016 pledges at the Leaders' Summit on Refugees, in early 2017, the Tanzanian government stopped providing prima facie refugee recognition of Burundian refugees, according to UNHCR. In July 2017, during a visit to Tanzania—on his first foreign trip outside Burundi since a May 2015 putsch and his later controversial July 2015 reelection—Burundian President Pierre Nkurunziza urged all Burundians in Tanzania to repatriate. President Magufuli mirrored his statement, calling on the refugees to "voluntarily return home," and later in the month suspended further registrations and naturalizations of Burundian refugees. In late August, Magufuli again called for the UNHCR to voluntarily repatriate thousands of Burundian refugees, and a Burundian-Tanzanian-UNHCR coordinating group met to discuss the purportedly voluntary repatriation of nearly 12,000 Burundians. These moves have sparked criticism from human rights advocacy groups, which assert that Burundi's crisis is far from settled; Amnesty International, for instance, called for a halt to what it called "mounting pressure" on Burundian refugees "to return to their country where they would be at risk of death, rape and torture." Tanzania facilitated the landmark peace settlement that helped end Burundi's decade-long civil war in the 1990s, and it is involved in halting regional mediation efforts aimed at resolving the current Burundian crisis. In March 2016, the East African Community (EAC) appointed former Tanzanian President Benjamin Mkapa to facilitate an "inter-Burundian dialogue," though President Yoweri Museveni of Uganda technically remains the chief EAC mediator. After consultations, Mkapa set out a plan of action at an EAC summit in September 2016 and later presented Museveni with a more detailed roadmap. It provided for a series of engagements beginning in late 2016 and culminating in a "final agreement" in mid-2017, an outcome that was not achieved. Mkapa has so far been unable to convene fully representative government-opposition talks. This has been due to disagreements over who is entitled to participate and Burundian opposition doubts over Mkapa's credibility and neutrality, and what they see as his bias toward the Burundian government, based on Mkapa's repeated assertion that Nkurunziza's 2015 reelection—a highly contentious key factor driving the ongoing crisis—was "legitimate." In May 2017, an EAC summit heard a progress report on Mkapa's efforts and the broader dialogue, but took no substantive actions to enhance its conflict mitigation approach. Individual EAC leaders, including President Magufuli, did, however, issue statements opposing U.S. and EU targeted sanctions on Burundi, angering the Burundian opposition. An EAC summit communiqué also tied the EU's sanctions on Burundi, among other issues of concern, to an ongoing EU-EAC negotiation over a proposed EU-EAC regional Economic Partnership Agreement. The U.N. Security Council (UNSC) has continued to endorse Mkapa's efforts and the overall "inter-Burundian dialogue"—which, in an August 2017 statement, the UNSC called "the only viable process for a sustainable political settlement." The council also, however, stated that it "remains deeply concerned over the lack of progress in this dialogue" and a range of related human rights, political, and other developments inside Burundi. It also reiterated its "intention to pursue targeted measures against all actors, inside and outside Burundi, who threaten the peace and security of Burundi." The council has previously outlined similar concerns. China is among Tanzania's top international partners. The two countries have a long history of warm political relations and close trade and economic development cooperation, dating back to the early postcolonial period and, notably, China's construction in the 1970s of the Tanzania–Zambia Railway (TAZARA). China is Tanzania's largest trading partner, and several large Chinese firms are active there. China is also a key security partner for Tanzania; the two militaries share long ties and retain a close relationship. After Chinese President Xi Jinping took office in 2013, Tanzania was the first country he visited. The natural gas pipeline project noted above was financed by a $1.23 billion Chinese loan. Construction is also underway on a $10 billion megaproject at Bagamoyo, former President Kikwete's home town, which includes a multipurpose deep water port, special economic zone, and linked railway. The multiyear project is financed by China Merchants Holdings-International (CMHI), China's largest port operator, and Oman's State General Reserve Fund. CMHI is the designated construction manager and, according to some reports, may have multidecade concession rights to the facility. The Bagamoyo development—with a planned annual 20 million container throughput capacity—is projected to dwarf ports in Dar es Salaam and Mombasa, Kenya, and provide access to multiple countries in East and Southern Africa. In mid-2016, Tanzania's government also reported that China's Export-Import Bank had agreed to provide Tanzania with a $7.6 billion loan to fund construction of a railroad to boost linkages between Tanzania to its EAC neighbors. Other major deals in recent years include a $500 million housing project between Tanzania's SOE National Housing Corporation and China Railway Jianchang Engineering signed in 2013; several power project deals signed in 2013 worth more than $828 million; an integrated coal mine and power plant project; and an integrated iron ore mine and steel mill project worth a total investment of up to $3 billion. Tanzanian-Chinese bilateral trade reached a reported $4.67 billion in 2015, but fell to $4 billion in 2016. The balance of this trade varies considerably year to year, but in recent years has grown exponentially in favor of China (e.g., Chinese exports were almost 12 times larger than its imports from Tanzania in 2016). U.S.-Tanzanian trade, in comparison, is much lower, with U.S.-Tanzania trade totaling $278 million in 2015 and $309 million in 2016. Chinese-Tanzanian economic ties have periodically prompted domestic backlash among Tanzanians negatively affected by Chinese businesses, such as communities displaced during large construction projects or Tanzanian traders hurt by direct competition from Chinese retail rivals. Tanzania actively contributes to regional and international peace and security efforts. In addition to being a troop contributor to United Nations (U.N.) peacekeeping operations, with personnel deployed in multiple African countries and Lebanon, Tanzania hosts large numbers of refugees from the region, including from Burundi and the Democratic Republic of the Congo. The International Criminal Tribunal for Rwanda, which tries Rwandan genocide suspects, is located in the northern Tanzanian city of Arusha, as is the African Union's African Court on Human and Peoples' Rights, a continental court with a mandate to protect human rights. In September 2017, Tanzania drew negative attention after U.N. sanctions investigators reported that they were "investigating information by a Member State" that North Korea's Haegeumgang Trading Corporation was "repairing and upgrading the surface-to-air missile Pechora (S-125) systems" of the Tanzanian military, which was also reported to be "repairing and upgrading its P-12 air defence radar." Both systems originate in the Soviet bloc. Such actions may violate various provisions in U.N. Security Council sanctions on North Korea, including arms and related materiel embargoes and proliferation-related and potentially financial-transaction-related sanctions. The investigators reported that the "prohibited military-related contracts" between Tanzania and North Korea were reportedly worth €10.5 million. Tanzania had not responded to the panel's enquiries as of the date of the report's publication. U.S.-Tanzanian ties are robust and have grown in recent years, despite tensions since 2015 related to Tanzanian governance patterns, as discussed in this report's introduction. Another irritant in bilateral relations has been a contract dispute between TANESCO, the national power utility, and Symbion Power, a U.S. firm. Along with partners, Symbion received more than $110 million in MCC procurement awards to help improve Tanzania's electrical power sector and later reportedly expanded its business beyond its initial MCC contract. Notwithstanding these tensions, as of late 2016, the State Department portrayed the bilateral relationship as "an established partnership characterized by mutual respect, shared values, and aspirations for a more peaceful and prosperous future." Such sentiments had been reflected in cordial high-level engagements over several years. Former President Kikwete was the first African head of state to meet with former President Obama after Obama took office in 2009. Later, in 2013, then-President Obama visited Tanzania, and in 2014, President Kikwete attended the U.S.-Africa Leaders Summit. President Obama's 2013 trip followed prior high-profile visits (e.g., by then-Secretary of State Hillary Clinton in 2011 and then-President George W. Bush in 2008). How U.S.-Tanzanian relations may change under the Trump Administration, if at all, has yet to be determined but, as noted in the introduction of this report, they appear set to remain on a generally positive track. Tanzania is eligible for U.S. trade preferences, including apparel benefits, under the African Growth and Opportunity Act (AGOA, reauthorized under P.L. 114-27 ) and is a member of the East African Community (EAC) along with Burundi, Kenya, Rwanda, and Uganda. The EAC has taken several steps to promote regional integration: a customs union was formed in 2005, followed by a common market in 2010 and, in 2013, an agreement to establish a monetary union within the next decade. The bloc seeks to adopt a single currency by 2024. Many of its trade integration efforts have been supported under an Obama Administration-initiated initiative called Trade Africa. Tanzanian-U.S.-trade is moderate by global comparison. It hit a record $482 million in 2013, but later dropped. It stood at $310 million by 2016 (made up of nearly $153 million in U.S. imports from Tanzania and $157 million in U.S. exports). The proportion of U.S. imports from Tanzania that benefit from AGOA has risen markedly in recent years, reaching 24% in 2016. Top U.S. imports from Tanzania include precious stones, apparel, coffee, and cashews. U.S. exports are more diverse; top ones include machinery, used clothes, cereals, and aircraft and parts. In June 2017, the Office of the U.S. Trade Representative (USTR) initiated an out-of-cycle review of Tanzania's eligibility for AGOA trade benefits. It was launched in response to a petition by the Secondary Materials and Recycled Textiles Association (SMART), a U.S. used clothes exporting trade group whose member firms source used clothes in the United States, mostly from charity or other donations, and export them, mostly to developing countries. SMART asserts that a March 2016 EAC decision to initiate a phased-in ban on imports of used clothing and footwear, preceded by the imposition of large tariffs, has imposed a significant and "untenable" economic hardship on the U.S. used clothing industry. SMART outlined its concerns about EAC's actions at an August 2016 USTR annual AGOA eligibility hearing. A July 2017 out-of-cycle hearing spurred SMART's petition; Tanzanian and other EAC member country officials and other parties also testified. One expert at the hearing, Stephen Lande, head of Manchester Trade (a consulting firm), contended that that AGOA eligibility should not be determined based upon individual objections to "each and every trade restriction a country has," and that any decision to entirely revoke Tanzania's AGOA eligibility based on the complaint of an single industry group might cause disproportionate damage to overall trade and investment. USTR officials are to submit their out-of-cycle review recommendations to U.S. Trade Representative Robert E. Lighthizer, who is to then make his own recommendations to President Trump. USTR officials are also conducting a regular annual review of Tanzania's AGOA eligibility. They plan to announce the results of both reviews simultaneously, so that any resulting determinations on Tanzania's eligibility would come into effect in early January 2017, alongside the routine annual eligibility announcements for other AGOA-implementing countries. In 2012, U.S. and EAC officials agreed to pursue a trade and investment partnership dialogue potentially leading to a U.S.-EAC Investment Treaty and discuss a possible Trade Facilitation Agreement, among other ends. Toward such ends, the U.S. Department of Commerce opened a new office in Tanzania in 2014. In 2015, the United States and the EAC signed a cooperation agreement on technical cooperation to advance EAC implementation a the World Trade Organization (WTO) Agreement on Trade Facilitation, sanitary and phytosanitary trade capacity-building, and the reduction of technical barriers to trade. In late 2016, U.S. officials also launched a $194 million, five-year grant in support of the EAC. It centers on institutional capacity-building for the EAC's Secretariat, and increasing regional economic integration and U.S.-EAC member state trade and investment, enhancing the sustainable management of natural resources in the Lake Victoria Basin and Mara River ecosystems, and increasing access to integrated healthcare in border areas. The grant complements Trade Africa, a U.S. trade capacity-building and related assistance initiative aimed at increasing U.S.-Africa and intra-African trade and investment. It was initially focused primarily on the EAC and its member states, but has been expanded to other regions of Africa. U.S. assistance to Tanzania has focused primarily on health, food security, agricultural development, infrastructure, and environmental conservation. The State Department and USAID administer most of this aid. In addition, Tanzania implemented an MCC Compact between 2008 and 2013 (see below). Under the Obama Administration, the bulk of U.S. aid for Tanzania was channeled through several global presidential development initiatives—most of which were launched under the Obama Administration, most notably Feed the Future (FTF), the Global Health Initiative, and the Global Climate Change Initiative—as well as two initiatives launched by former President George W. Bush: the President's Emergency Plan for AIDS Relief (PEPFAR), the President's Malaria Initiative (PMI). Tanzania was also a focus country under the Obama Administration's African Peacekeeping Rapid Response Partnership (APRRP, see below) and its Partnerships for Growth (PFG) initiative. In practice, Tanzania's applied PFG goals largely centered on and have largely been subsumed under Power Africa, a presidential initiative launched under President Obama to vastly increase access to electricity in Africa. Power Africa is expected to continue under the Trump Administration. Tanzania is also a beneficiary of the regional Trade Africa initiative (see above). In mid-2016, Tanzania and USAID signed a five-year strategic agreement for continued development assistance to support Tanzania's transition toward middle income status by 2025, including through programs in the areas of health, agriculture, natural resource management, education, energy, and democratic governance. Like most African countries, Tanzania is also a participant in the U.S. Young African Leaders Initiative (YALI), initiated during the Obama Administration. YALI has been retained by the Trump Administration, albeit potentially at a reduced level. Tanzanians also participate in several other educational or professional State Department exchange programs, and there is a Peace Corps program in Tanzania with roughly 220 volunteers, who work in various areas, such as agriculture, education, and health, as of September 2017. Health funding has comprised the bulk of State Department/USAID aid, and accounted for $480.1 million, or nearly 88% of a total of $546.6 million (provisional estimate) in FY2017 bilateral aid. Health aid would be funded at $511.5 million (95.5% of total aid) under the Trump Administration's total bilateral $535.3 million FY2018 aid request. Such health aid has been largely devoted to fighting HIV/AIDS under PEPFAR, and HIV/AIDS-centered aid would make up about 92% of all FY2018 total health spending under the Trump Administration's FY2018 proposal. Antimalaria programs carried out under the President's Malaria Initiative (PMI) are another key focus of U.S. health programs, as are maternal and child health efforts, although both are funded at far lower levels than are HIV/AIDS programs. Tanzania is also a partner country under the Global Health Security Agenda (GHSA), which seeks to mitigate the impact of disease outbreaks, notably those that threaten global health. According to UNAIDS, in 2016 Tanzania had an adult HIV/AIDS prevalence rate of 4.7% and a total population of 1.4 million people living with the disease, and suffered 55,000 new infections but averted 1.1 million additional ones. The State Department's U.S. Global AIDS Coordinator reports that Tanzania's HIV/AIDS epidemic varies greatly by region (between 0.1% and 14.8%) and is higher in urban areas (7.2%) than in rural ones (4.3%) and by gender (male prevalence stands at 3.8% and that for females at 6.2%). Tanzania is making efforts to achieve the UNAIDS "90-90-90" target—the goal of ensuring that by 2020, 90% of people living with HIV are diagnosed, 90% of those diagnosed receive antiretroviral treatment (ART), and 90% of those in treatment have fully suppressed viral loads. It is making fair progress toward the "first 90" goal, as 70% of those with HIV are diagnosed, and is quickly progressing toward the second, as 88% of those diagnosed are in treatment. The overall estimated treatment rate (including those who are estimated to be HIV-positive but may not be diagnosed) is lower, at 62%. Data were insufficient to determine progress toward the third goal. Tanzania has also made substantial progress toward prevention of mother-to-child HIV transmission; 84% of pregnant women who needed antiretroviral therapy were receiving it. According to PEPFAR, key challenges relating to improved HIV/AIDS responses include "weak health infrastructure, shortages of health and social workers, high levels of stigma, and cumbersome government procurement systems." PEPFAR efforts support HIV/AIDS prevention, care, and treatment and related health systems and governance programs, and center on helping Tanzania to meet the UNAIDS 90-90-90 targets and diverse related goals outlined under its national HIV/AIDS multisectorial framework and other plans. Tanzania is one of 13 focus countries under the Trump Administration's PEPFAR Strategy for Accelerating HIV/AIDS Epidemic Control (2017-2020) , released by Secretary of State Rex Tillerson in September 2017. Key PEPFAR foci to date have included prevention of mother-to-child transmission (PMTCT) through antiretroviral therapy throughout pregnancy and breastfeeding for affected women. Others have included efforts to scale up ART coverage, expand access to and participation in voluntary medical male circumcision (VMMC), increase HIV counseling and testing (HCT), and enhance prevention through the provision of condoms. PEPFAR programs prioritize gender-differentiated strategies, given the higher female rate of infection, and pediatric treatment is another special priority. To decrease new infections and enhance epidemic control, PEPFAR efforts are also being shifted toward prioritizing responses in high-prevalence and high-burden geographic areas and population sub-groups facing high HIV/AIDS infection risks or prevalence rates. PEPFAR also supports efforts to counter cervical cancer through a public-private partnership called Pink Ribbon Red Ribbon (PRRR). Between FY2011 and 2015, an average of 29% of PEPFAR funds in Tanzania went to prevention, 21% to care, 34% to treatment, and 16% to health governance and system support. Agriculture development aid, which constituted $54 million of the Obama Administration's FY2017 request, has been the second-largest target of U.S. support in recent years, but funding would fall to $10 million under the Trump Administration's FY2018 request. Such aid has been channeled primarily through Feed the Future, a major global U.S. food security and agricultural economic growth initiative. In Tanzania, it has focused on improving agricultural productivity and rural infrastructure, including roads and irrigation; bolstering staple food and horticulture commodity value chain and marketing efficiency; improving access to nutrition for children and mothers; and improving private- and public-sector policymaking, including regarding land tenure. Roughly 80% of FTF resources are focused on southern Tanzania, an area that the government sees as having great untapped agricultural potential, while much of the balance is devoted to work in the Zanzibar region and selected areas of central and northern Tanzania. FTF activities have also involved collaboration with U.S. global health programming. Tanzania is also a participant in the New Alliance for Food Security and Nutrition, a Feed the Future-supported, G8-led global agricultural investment initiative in Africa. It has also received U.S. support under the Scaling Seeds and Other Technologies Partnership, a project of the Alliance for a Green Revolution in Africa, an international multistakeholder effort to boost African farm production. The future of FTF is uncertain. U.S. assistance has also supported strengthening of governance; infrastructure building (roads, power, water, and sanitation); economic growth; primary education; law enforcement capacity-building (see below); and biodiversity preservation. A range of U.S. bilateral and regional programs support Tanzanian efforts to combat wildlife trafficking. In mid-2015, the U.S. embassy in Tanzania launched a five-year project called the Promoting Tanzania's Environment, Conservation, and Tourism (PROTECT) Project, a $14.5 million, five-year contractor-implemented project. Its aim is to enhance conservation and combat wildlife poaching and trafficking nationwide by supporting capacity building centered on wildlife resource management policymaking and institutions and trafficking law enforcement and prosecution. It also aims to enhance cooperation between civil society and the government and support development of community capabilities relating to the management of wildlife management areas (WMAs, locally controlled natural areas). PROTECT activities are accompanied by $2.75 million in natural resource small grants supporting wildlife management innovation, incentives for private investment, and other purposes. A second, $14 million, five-year program called "Endangered Ecosystems Northern Tanzania Project," launched later in the year, aims to increase antipoaching incentives and directly support WMAs, communities, and tourism operations in order to improve wildlife management in northern Tanzania. Another is the Southern Highlands and Ruaha-Katavi Protection Program (SHARPP), an $8.5-million, five-year program launched by USAID in 2014, centering on Support for WMAs; livelihoods; habitat management; and elephant monitoring and protection. These efforts follow on similar ones in prior recent years. The U.S. Department of Labor (DOL) Bureau of International Labor Affairs also funds projects aimed at combatting child labor in Tanzania, particularly in agricultural and domestic service contexts. U.S. assistance to support Tanzania's hosting of refugees is administered by the State Department's Bureau of Population, Refugees, and Migration (PRM), which reports that U.S. funding for refugee support in Tanzania totaled roughly $1.2 million in FY2014, $16.7 million in FY2015, $36.2 million in FY2016, and $12 million in FY2017 to date, with more planned. In September 2013, Tanzania completed a $698 million, five-year MCC compact. Awarded in 2008, this compact sought to reduce poverty and stimulate economic growth through targeted investments in roads and access to electrical services and potable water. In late 2014, the MCC agreed to provide an additional $9.78 million to support further feasibility studies and other work linked to the development of a second compact focused on the power sector. In June 2015 the MCC Board stated that a second compact "will not be considered for approval until, among other pending items," Tanzania's government "makes progress on energy sector reform commitments made in 2014." The agency stated that once a compact was prepared, the MCC would again "scrutinize the government's track record on good governance, including control of corruption and freedom of expression." In March 2016, the MCC suspended negotiations toward a second compact that would reportedly have been worth $472 million. It did so on the basis that Tanzania had "moved forward with a new election in Zanzibar that was neither inclusive nor representative, despite the repeated concerns of the U.S. Government and the international community." Another issue was that Tanzania had "not taken measures to ensure freedom of expression and association are respected in the implementation of the Cybercrimes Act," which had also been the focus of repeated U.S. expressions of concern. In addition to stating that the elections in Zanzibar had not been credible, the Board stated that "Tanzania has taken no measures to ensure freedom of expression and association are respected in the implementation of the Cybercrimes Act." U.S. security cooperation and assistance has grown since the 1998 Al Qaeda bombing of the U.S. Embassy in Dar es Salaam, but it remains limited compared to that pursued with Tanzania's East African neighbors. Peacekeeping support is a top main focus of military cooperation and aid ties, and expanded in FY2014-FY2016 under APRRP. That initiative's future is uncertain, as the Trump Administration has not requested funding to continue it. Tanzanian troops have also received training under the U.S. Global Peace Operations Initiative (GPOI) and its train-and-equip African Contingency Operations Training and Assistance (ACOTA) program, which seeks to increase available international peacekeeping troops. Such assistance is complemented by a U.S. International Military Education and Training (IMET) program, which supports military professionalization and institutional reform in the Tanzanian military. Tanzania receives some counterterrorism assistance through the State Department-led, multicountry Partnership for Regional East Africa Counterterrorism (PREACT). It also hosts the regional East and Southern Africa Anti-Money Laundering Group, in which the United States has observer status, and receives U.S. regional funding to combat terrorist financing. Smaller U.S. security aid programs center on strengthening border security and improving police capacity to deter crime and terrorism. Some recent military-to military or U.S. military activities, all in 2016, have included the following: U.S. and Tanzanian participation, with other partner nations, in Eastern Accord 2016, an annual, combined, joint military exercise that took place in Tanzania and centered on a simulated peacekeeping operation command post exercise. The Tanzania military's hosting of the U.S.-aided African Land Forces Summit (ALFS), a seminar of land military chiefs from across Africa focused on developing cooperative solutions to regional challenges and threats. Specialized training of Tanzanian game scouts by U.S. military personnel on "surveillance and patrol techniques, arrest and detention procedures, search and seizure, crime scene investigation, first aid, human rights and rules of engagement" aimed at enhancing their ability to counter wildlife poaching and trafficking. The United States and Tanzania have increasingly cooperated in a limited number of criminal cases and with respect to joint efforts to build Tanzania's law enforcement capabilities. Among the most notable recent cases, cooperation occurred between 2016 and 2017. In May 2017, a Tanzanian named Ali Khatib Haji Hassan (a.k.a. "Shkuba") and two associates were extradited to the United States to face a U.S. federal indictment brought against them by a Houston, TX, grand jury charging them with conspiracy to possess and then distribute heroin between 2010 and 2015. In March 2016, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) had designated Hassan and his trafficking organization as significant foreign narcotics traffickers under the Foreign Narcotics Kingpin Designation Act (Kingpin Act). Recent U.S. law enforcement capacity training has focused on such activities as the following: canine training by U.S. Customs and Border Protection (CBP) aimed at detecting illegal drugs and ivory at ports and airports, as well as related investigations and prosecutions; anticorruption training of Tanzanian prosecutors and investigators by the U.S. Embassy's Office of Overseas Prosecutorial Development, Assistance and Training (OPDAT); and wildlife crime scene investigations and evidence collection training by USAID and the U.S. Fish and Wildlife Service (FWS), in at least one case facilitated by the conservation and antipoaching organization the PAMS Foundation, whose cofounder was murdered in 2017 (see above). Tanzania is likely to remain a generally stable but poor developing country for the foreseeable future. Increasing multiparty competition may contribute to gradual growth in demand for political change, democratic accountability, improved governance, and greater political pluralism—but potentially also to increased political tension. Growing access to information, notably via mobile phones, may spur similar trends by increasing exposure to information on current events, and global social and governance norms. It may also contribute to market growth through increased information to pricing data and improved social services. Such changes, along with continuing infusions of foreign assistance, including from the United States, and gradually improving public infrastructure and government services, are likely to spur increasing economic activity, production, and trade, thus improving quality of life for the Tanzanian people. The United States, while expressing periodic concern over issues such as corruption, appears likely—as suggested by bilateral relations trends and aid levels in recent years—to continue to support the strengthening of Tanzania's democratic system and the socioeconomic development of its people, and to look to Tanzania as a key development partner in East and Southern Africa.
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Tanzania is an East African country comprising a union of Tanganyika, the mainland territory, and the semiautonomous Zanzibar archipelago. The United States has long considered Tanzania a partner in economic development and, increasingly, in regional security efforts. With nearly 54 million people, Tanzania is one of the largest countries in Africa by population and is endowed with substantial natural resource wealth and agricultural potential. Over the past decade, it has experienced robust economic growth based largely on favorably high gold prices and tourism; growth has averaged nearly 7% annually. The ongoing development of large reserves of offshore natural gas discovered in 2010 has raised the prospect of substantial foreign investment inflows and export revenue. Nevertheless, corruption and poor service delivery have hindered efforts to curb widespread poverty, and extensive development challenges remain. Since 1977, Tanzanian politics have been dominated by the ruling Chama Cha Mapinduzi (CCM, Party of the Revolution), created through the merger that year of the single parties that had controlled the mainland and Zanzibar since 1964. Opposition parties face periodic harassment and de facto restrictions on their activities. President John Magufuli, who leads the CCM, was elected in late October 2015 and is serving his first five-year term in office. His predecessor, Jakaya Kikwete, also of the CCM, assumed power in 2005 and won reelection in 2010, but was constitutionally barred from running for a third term. The 2015 polls featured a close contest between the CCM and a coalition of the leading opposition parties. Tanzania is generally stable and peaceful, despite periodic threats to public safety. These include sporadic attacks on tourists in Zanzibar, several unattributed armed attacks on police, and occasional bombings of Christian churches and other targets. Tanzania has occasionally arrested suspected Islamic extremists, as in April 2015, when a group of 10 alleged members of the Somali Al Qaeda-linked terrorist group Al Shabaab were taken into custody. U.S.-Tanzanian relations are cordial, but have suffered tensions over the contentious 2015/2016 election in Zanzibar, restrictions on civil liberties, and other issues. President Kikwete was the first African head of state to meet with former President Obama after the latter took office, and President Obama stated that a "shared commitment to the development and the dignity of the people of Tanzania" underpins bilateral ties. Tanzania also maintains close economic and political ties with China. Under the Obama Administration, aid cooperation was generally robust. How ties and assistance cooperation may proceed under the Administration of President Donald Trump and during the 115th Congress has yet to be determined. U.S. aid for Tanzania has focused primarily on health, food security, agricultural development, and infrastructure, largely under multiple major presidential initiatives. U.S. assistance has also supported Tanzania's hosting of large numbers of refugees from the region. Tanzania is eligible for African Growth and Opportunity Act (AGOA) trade benefits and in 2013 completed a $698 million Millennium Challenge Corporation (MCC) compact focused on poverty reduction and economic growth. The MCC has since suspended activity in support of a possible second compact, citing governance concerns. U.S. security assistance increased after the 1998 Al Qaeda bombing of the U.S. Embassy in Dar es Salaam. Tanzania was one of six initial participants in the Obama Administration's African Peacekeeping Rapid Response Partnership (APRRP), which aims to build the peacekeeping capacity of African militaries. Tanzania is a troop contributor to United Nations (U.N.) peacekeeping operations in multiple African countries and Lebanon.
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The Family and Medical Leave Act (FMLA, P.L. 103-3 ) requires covered employers to provide job-protected leave to eligible employees. The act allows employees to take up to 12 weeks of leave during any 12-month period to care for a newborn, adopted, or foster child; to care for a family member with a serious health condition; or because of the employee's own serious health condition. The act allows employees to take up to 12 weeks of leave for reasons called "qualifying exigencies" when a family member who is in the Armed Forces or National Guard is deployed overseas. An employee may also take up to 26 weeks of leave during a single 12-month period to care for a military servicemember who has been seriously injured while on active duty. This report begins with a brief description of the FMLA. Proposals have been made to expand or limit the FMLA. To help identify some of the potential effects of these proposals, the report analyzes data on changes over time in the percentage of employees ages 18 and over who meet some of the main employee eligibility criteria for FMLA leave. The report then compares selected characteristics of employees who may be eligible for FMLA leave with employees who are likely ineligible for leave. The report also compares the use of leave for FMLA-related reasons by employees who may be eligible for leave and employees who are likely ineligible for leave. The report ends with a discussion of several FMLA policy issues. In recent Congresses, legislation has been introduced that would amend the FMLA to expand employee eligibility or employer coverage, allow eligible employees to take leave to care for additional family or household members, and expand the types of FMLA leave. Other proposals would limit access to FMLA leave. The FMLA was enacted in 1993. As amended, the act requires covered employers to provide eligible employees with two types of job-protected leave: regular leave and military family leave. Military family leave consists of qualifying exigency leave and military caregiver leave. Under the FMLA, an eligible employee is an employee who has worked for an employer for at least 12 months (the 12 months need not be consecutive) and for a minimum of 1,250 hours in the 12 months preceding the start of FMLA leave. An employee must be employed at a worksite where the employer has at least 50 employees or there are at least 50 employees who work for the employer within 75 miles of the employee's worksite. The FMLA covers both private and public sector employers. Private employers who employed at least 50 employees for at least 20 weeks in the preceding or current calendar year are covered by the FMLA. Public employers are covered regardless of the number of employees. Although the FMLA covers public employers of all sizes, to be eligible for leave, public employees must meet the above employee eligibility requirements. After returning from FMLA leave, employees generally have the right to return to the same, or an equivalent, job with the same pay, benefits, and working conditions. FMLA leave is generally unpaid leave. But, an employee may substitute paid leave for FMLA leave. Private employers may require an employee to substitute paid leave for unpaid FMLA leave. Federal agencies cannot require employees to substitute paid leave for unpaid FMLA leave. When paid leave is substituted for unpaid FMLA leave, the employee receives pay while on leave and receives the job protections of the FMLA. While an employee is on FMLA leave, an employer must maintain the employee's group health insurance coverage. An eligible employee may take up to 12 weeks of leave during any 12-month period for the birth and care of a child; to care for an adopted or foster child; to care for a spouse, child under the age of 18, or parent with a serious health condition; or if the employee is unable to work because of the employee's own serious health condition. The 12 weeks of FMLA leave may be continuous or "intermittent." The FMLA requires an employer to allow an employee to take intermittent leave or work part-time if the employee has a medical need for leave. Although it is not required by the FMLA, an employer may voluntarily allow an employee to take intermittent leave or work part-time due to the birth of a child or to care for an adopted or foster child. Covered employers must allow eligible employees to take two types of military family leave. First, eligible employees may take up to 12 weeks of leave during a 12-month period for a "qualifying exigency." Eligible employees include the spouse, son or daughter of any age, or parent of a member of the regular Armed Forces who is deployed to a foreign country or a member of the National Guard or Reserves who has been called to active duty and is deployed to a foreign country. A qualifying exigency includes a "short notice deployment" (which is a notice that a member of the employee's family will be deployed in seven days or less); time for the employee to arrange for childcare, make financial or legal arrangements, or attend official ceremonies; or up to five days of leave to spend time with a member of the military who is on temporary leave for rest and recuperation during a deployment. Second, eligible employees may take up to 26 weeks of military caregiver leave during a single 12-month period. An employee who is the spouse, son or daughter of any age, parent, or next of kin of a covered servicemember may take military caregiver leave to care for a servicemember who has suffered a serious injury or illness while on active duty. A covered servicemember is either a current member of the regular Armed Forces or the National Guard or Reserves or a veteran who was a member of the regular Armed Forces or National Guard or Reserves during the five years before the date on which the veteran receives treatment. Special FMLA rules apply to airline pilots, flight attendants, and other airline crewmembers. A member of an airline flight crew is eligible for FMLA leave if he or she worked (a) at least 504 hours during the previous 12-month period for the employer and (b) at least 60% of the minimum number of hours that the employee was scheduled to work in any given month or, for an employee who is in "reserve status," at least 60% of the hours that an employee was paid for any given month. The hours that airline flight crews work include the hours spent in flight and the hours that a crewmember is on duty but not in flight. The hours that a crewmember is on duty may include hours between flights or hours during which a crewmember is on reserve status waiting to be called to duty. Proposals have been made to expand or restrict employee eligibility for FMLA leave. One proposal would eliminate the requirement that employees must work 1,250 hours or more during the preceding 12 months for the same employer. Other proposals would expand employer coverage to include more employers or allow leave to care for additional members of an employee's family or household. A proposal aimed at restricting employee eligibility would narrow the definition of a serious health condition. To assist Congress in evaluating how these proposals may affect the availability of FMLA leave, this section analyzes data from two household surveys: The Annual Social and Economic (ASEC) supplement to the monthly Current Population Survey (CPS) and a survey of employees conducted in 2012 by Abt Associates for the U.S. Department of Labor (DOL). Data from the ASEC supplement are used to estimate the number of employees who may or may not be eligible for FMLA leave, while data from the 2012 DOL employee survey are used to examine the use of leave for FMLA-related reasons by employees who may or may not be eligible for leave. Data from the ASEC supplement for the years 1993 to 2011 are used to estimate the number of employees ages 18 and over who may be eligible for FMLA leave. The ASEC supplement is a nationally representative survey that is conducted each year. Data from the supplement can be used to determine if employees worked 1,250 hours or more during the previous calendar year and worked for an employer with 50 or more employees. Data from the supplement can also be used to compare the characteristics of workers who may or may not be eligible for FMLA leave. A disadvantage of the ASEC supplement is that it does not ask respondents if they are eligible for FMLA leave. (See the Appendix for more information on the data used in this report.) Using data from the ASEC supplement, employees are categorized as "may be eligible" for FMLA leave if they worked at least 1,250 hours in the previous calendar year and worked for an employer with 50 or more employees. This methodology is subject to certain limitations. First, to be eligible for FMLA leave an employee must have worked 1,250 or more hours for at least 12 months for his or her current employer. Data from the ASEC supplement may show that an employee worked more than 1,250 hours in the previous calendar year, but eligibility for FMLA leave is based on the number of hours worked during the 12 months before the start of FMLA leave. In addition, if a person worked for more than one employer, he or she may not have worked for more than 1,250 hours for his or her current employer. On the other hand, an employee who worked 1,250 hours or more during the previous year for his or her current employer may not have worked for that employer for 12 months. To be eligible for FMLA leave an employee must work for an employer with at least 50 employees working within 75 miles of the employee's worksite. The ASEC supplement asks employees how many persons work for their employer, but it does not ask how many persons are employed by their employer within 75 miles of the employee's worksite. Information on the number of employees who work for employers with 50 or more employees is only available from the ASEC supplement beginning in 2010. Therefore, for years before 2010, it is not possible to estimate how many persons worked for employers with 50 or more employees. For that reason, the estimates in this section, for the years 1993 to 2011, of the number of employees who may be eligible for FMLA leave include all employees, regardless of the size of their employer. Changes over time in the percentage of employees who work for employers with 50 or more employees could affect the estimates of the number of employees ages 18 and over who may be eligible for FMLA leave. For example, according to data published by the Small Business Administration (SBA), from 2000 to 2010, the percentage of employees in the private sector who worked for firms with 50 or more employees increased from 70.4% to 71.3%. If information were available from the ASEC supplement for the years before 2010 of the number of employees who worked for employers with 50 or more employees, this information could affect the change in the number of employees who may be eligible for FMLA leave. Data from the 2012 DOL employee survey are used to compare the use of FMLA leave by employees who may or may not be eligible for FMLA leave. These comparisons are also for employees ages 18 and over. The DOL survey was conducted from February to June 2012 and covers the period from January 2011 to June 2012. The DOL employee survey asked employees if they took family or medical leave in the past year. The sample for the survey was smaller than the sample for the ASEC supplement, which limits the comparisons that can be made between workers who took or did not take leave for FMLA-related reasons. In the DOL survey, employees are categorized as "may be eligible" for FMLA leave if they were employed at a worksite with at least 50 workers employed by the employer within 75 miles of the worksite, worked for the employer for 12 consecutive months, and worked at least 1,250 hours for that employer in the past year. However, an employee who did not work for his or her employer for 12 consecutive months may have worked for that employer for 12 nonconsecutive months and, therefore, may have been eligible for FMLA leave. Demographic, social, and economic changes can affect the number of employees who may be eligible for FMLA leave. Some of these changes may reflect longer-term trends, while others may be due to shorter-term factors. For example, the size of the U.S. population is increasing, but it is also getting older. Also, the labor force participation rate for men has decreased in recent decades. After rising for several decades, the labor force participation rate for women has been falling since about 1999. Employment and hours worked generally rise during an economic expansion. But, during a recession, employers may lay off workers and reduce the average number of hours worked. Thus, the number of employees who may be eligible for FMLA leave may change over the course of the business cycle. An analysis of employees ages 18 and over shows that, from 1993 to 2000, the percentage of employees who worked 1,250 hours or more in the preceding year increased by 4.4 percentage points (after rounding, from 76.8% to 81.3%). From 2006 to 2011, the percentage of employees who worked 1,250 hours or more fell by 2.7 percentage points (from 82.0% to 79.3%). See Figure 1 . From 1993 to 2000, the percentage of employees ages 18 and over who may have been eligible for FMLA leave may have increased because of both longer-term and shorter-term changes. First, the economic expansion of the 1990s was the longest expansion since business cycle data were first collected at the end of the 19 th century. More people were working in 2000 than in 1993. The total number of jobs increased by 20.9 million (from 110.8 million to 131.8 million, after rounding). Although the average number of hours worked per week by private nonfarm workers was the same in 2000 as in 1993 (34.3 hours), more workers were employed full-time, year-round (63.1% in 1993 and 69.4% in 2000). The decline, from 2006 to 2011, in the percentage of employees who may have been eligible for FMLA leave, may also have been due to both longer-term and shorter-term changes. The recession that officially began in December 2007 and ended in June 2009 was the longest and one of the deepest since the Great Depression of the 1930s. From 2006 to 2011, the number of jobs fell by 4.6 million (from 136.1 million to 131.5 million). The average number of hours worked was falling before, and continued to fall after, the recession (from 34.3 hours in 2000 to 33.6 hours in 2008 and 33.4 hours in 2010). The number of employees working full-time, year round fell from 70.4% in 2006 to 67.4% in 2011. According to the 2012 DOL employee survey, among all employees who took medical leave in the previous year, the most common reason for taking leave was for the employee's own illness. An estimated 56.6% of employees said that the reason for their most recent use of medical leave was for their own illness. The percentage of employees who take medical leave for their own illness may have been affected by two longer-term demographic trends. First, from 1993 to 2011, among employees who may have been eligible for FMLA leave, the percentage who were married fell by 3.2 percentage points (after rounding, from 61.9% to 58.6%). The percentage of eligible employees who had never been married increased by 3.0 percentage points (from 22.8% to 25.8%). Thus, the percentage of employees eligible for FMLA leave with a spouse has fallen. Second, from 1993 to 2011, among employees who may have been eligible for FMLA leave, the percentage who had children under the age of 18 fell by 5.4 percentage points (after rounding, from 26.8% to 21.5%). To further understand the potential impact of proposals to expand or limit the availability of FMLA leave, this section uses data from the ASEC supplement for 2011 to compare employees who may or may not have been eligible for leave. This information is then compared to data from the 2012 DOL employee survey, which provides estimates of the percentage of employees who took leave for FMLA-related reasons in the past year. The latter estimates are provided for employees who may have been eligible for FMLA leave and for employees who were likely ineligible for leave. Using data from the ASEC supplement, Table 1 shows the estimated percentages of employees who may have been eligible or ineligible for FMLA leave. Unlike the data in Figure 1 , the estimates of the number of employees who may have been eligible for FMLA leave include employees who worked at least 1,250 hours in the previous year and worked for an employer with at least 50 employees. Employees who are categorized as ineligible for FMLA leave worked fewer than 1,250 hours, worked for an employer with fewer than 50 employees, or both. Columns 1 through 3 of Table 1 show the estimated number of wage and salary workers who may have been eligible or were likely ineligible for FMLA leave. The table shows two different percentage calculations. In columns 4 through 6, the percentage calculations, by row, show the percent of employees who may have been eligible and the percent who were likely ineligible for FMLA leave. In columns 7 through 9, the percentage calculations, by column, show the percent of employees by characteristic who may or may not have been eligible for FMLA leave. Using data from the 2012 DOL employee survey, Table 2 shows, for both eligible and ineligible employees, the percentage of employees who used leave in the past year for FMLA-related reasons. Employees who may have been eligible for FMLA leave were employed at a worksite with at least 50 workers employed within 75 miles of the worksite, worked for their current employer for at least 12 consecutive months, and worked at least 1,250 hours in the past year for that employer. The estimates in Table 1 and Table 2 are for employees ages 18 and over. All estimates are for wage and salary workers in the private and public sectors. The estimates do not include self-employed workers. Their jobs are presumably protected after returning from family or medical leave. The remainder of this section summarizes the data in Table 1 and Table 2 . All Employees . Estimates from both the ASEC supplement and the 2012 DOL employee survey indicate that a majority of employees are eligible for FMLA leave. Data from the ASEC supplement show that, in 2011, an estimated 80.9 million wage and salary employees (56.5%) may have been eligible for FMLA leave because they worked 1,250 hours or more for an employer with at least 50 employees. An estimated 62.3 million employees (43.5%) were likely ineligible for leave. Data from the DOL employee survey show that approximately 59.2% of employees may have been eligible, and 40.8% ineligible, for FMLA leave. Data from the 2012 DOL employee survey show that an estimated 15.9% of eligible employees took leave for FMLA-related reasons in the past year, compared to 10.2% of ineligible employees who took leave for FMLA-related reasons. Gender . In 2011, among employees who may have been eligible for FMLA leave, a majority were men (52.9%). Men were also more likely than women to be eligible for leave (57.2% compared to 55.6%). However, the DOL employee survey shows that women were more likely than men to take leave for FMLA-related reasons. Among employees eligible for leave, 17.9% of women and 14.1% of men took leave in the past year. Age . Employees between the ages of 34 and 49 were more likely than younger or older workers to be eligible for FMLA leave. While 62.7% of workers ages 34 to 49 may have been eligible for leave, 48.5% of workers ages 18 to 33 and 57.9% of workers ages 50 to 82 may have been eligible for leave. Based on the DOL employee survey, among workers likely eligible for FMLA leave, older workers were more likely than younger workers to have taken leave in the past year; 17.8% of workers 50 and over took leave, compared to 15.6% of workers ages 34 to 49 and 14.7% of workers ages 18 to 33. By contrast, among employees likely ineligible for leave, younger workers were more likely than older workers to have taken leave; 11.2% of workers ages 18 to 33 took leave, compared to 10.0% of workers ages 34 to 49 and 9.2% of workers ages 50 and over. Marital S tatus . Almost three-fifths (58.8%) of employees who may have been eligible for FMLA leave were married. Married workers were also more likely (60.4%) than workers who have never been married (48.1%) to be eligible for leave. An estimated 58.8% of employees who were widowed, divorced, or separated may have been eligible for leave (see Table 1 ). Among employees who were likely eligible for leave, married workers were more likely than unmarried workers to have taken leave in the past year: 16.8% and 14.9%, respectively. Among employees likely ineligible for leave, equal percentages of married (10.2%) and unmarried (10.1%) workers took leave (see Table 2 ). Differences in the use of leave between married and unmarried workers may not fully account for the need for leave. For married couples, one spouse may not be working or may be working part-time. He or she may, therefore, be available to care for a newborn, adopted, or foster child or to care for a child with a serious health condition. For single employees, there may not be anyone else in the household who can care for a newborn child or a child with a serious health condition. Children Under the Age of 18 in the Household . In 2011, approximately 29.1 million, or 20.4%, of employees had children under the age of 18 in the household. Among these employees, an estimated 60.5% may have been eligible for FMLA leave. Among employees with children, married employees (62.6%) and employees who were widowed, divorced, or separated (60.5%) were more likely than employees who had never been married (52.1%) to be eligible for leave. Among employees with children, those who had never been married represented a disproportionate share of employees who were likely ineligible for FMLA leave. Among employees with children, an estimated 16.3% had never been married. But, these employees accounted for approximately 19.8% of employees who were likely ineligible for leave. According to the DOL employee survey, in the past year, employees with children in the household were more likely than employees with no children to have taken leave for FMLA-related reasons. This was the case both among employees who may have been eligible for leave (19.5% versus 13.2%) and employees who were likely ineligible for leave (13.4% versus 7.7%). Race . Almost four-fifths (79.4%) of employees who may have been eligible for FMLA leave were white. But, African American employees (61.4%) were more likely than white employees (55.9%) or employees of other races (55.6%) to have been eligible for leave. Among employees who were likely eligible for FMLA leave, roughly equal percentages of whites (16.0%) and nonwhites (15.6%) took leave in the past year. By contrast, among employees who were likely ineligible for leave, whites (11.1%) were more likely than nonwhites (7.7%) to have taken leave. One reason why African Americans may have been more likely than white employees to be eligible for FMLA leave is that 19.8% of African Americans worked in the public sector, compared to 15.6% of whites. Public sector employees are more likely than private sector employees to be eligible for FMLA leave. (See the paragraph below on the "Private and Public Sectors.") Ethnicity . An estimated 86.4% of employees who may have been eligible for FMLA leave were non-Hispanic. Non-Hispanics were also more likely than Hispanics to be eligible for leave (57.6% compared to 50.4%). Education . Among employees who may have been eligible for FMLA leave, an estimated 39.3% had a Bachelor's, advanced, or professional degree. But, these employees were significantly more likely than employees with less education to be eligible for leave. An estimated 70.2% of employees with a post-graduate degree and 64.6% of employees with a Bachelor's degree may have been eligible for leave. By contrast, just over half of employees with an Associate's degree or some college (53.5%) or a high school diploma (53.4%) may have been eligible for leave. Employees with less than a high school diploma were the least likely (38.4%) to have been eligible for leave. Although workers without a college degree were less likely than other workers to have been eligible for leave, they were more likely to have taken leave in the past year. This was the case both among employees who may have been eligible for leave and employees who were likely ineligible for leave. Among employees who may have been eligible for FMLA leave, 16.5% of employees with a high school degree or less and 18.5% of employees with some college took leave, compared to 13.7% of employees with a Bachelor's or advanced degree. Among employees who were likely ineligible for leave, 11.0% of employees with a high school degree or less and 9.9% of employees with some college took leave, compared to 8.9% of employees with a Bachelor's or advanced degree. Private and Public Sectors . Almost four-fifths (77.6%) of employees who may have been eligible for FMLA leave worked in the private sector. But public sector employees (i.e., federal, state, or local governments) were more likely to be eligible for leave. While 91.0% of federal, 80.5% of state, and 73.5% of local government employees may have been eligible for leave, 52.1% of private-sector employees may have been eligible for leave. Industry . Employee eligibility for FMLA leave varies significantly by industry. The industry with the highest percentage of employees who may have been eligible for leave was Public Administration (84.0%). While an estimated 76.1% of employees in the Mining industry may have been eligible for leave, these employees accounted for only 0.8% of all employees who may have been eligible for leave. Other industries with above average percentages of employees who may have been eligible for leave included Information (71.6%), Manufacturing (71.5%), Educational Services (69.9%), Transportation and Utilities (68.9%), Financial Activities (65.1%), and Health Services (63.7%). Industries with below-average percentages of employees who may have been eligible for leave were Wholesale and Retail Trade (53.1%), Professional and Business Services (46.8%), Leisure and Hospitality (38.5%), Social Assistance (37.6%), Construction (33.1%), Agriculture, Forestry, Fishing, and Hunting (26.0%), and Other Services (22.0%). Occupation. The percentage of employees who may be eligible for FMLA leave also varies significantly by occupation. The occupations with the highest percentages of employees who may have been eligible for leave were employees in Professional and Related occupations (67.3%) and Management, Business, and Financial occupations (65.0%), and Production occupations (63.7%). Occupations with lower shares of employees who may have been eligible for leave were Sales and Related (49.1%), Services (43.1%), Construction and Extraction (36.0%), and Farming, Fishing, and Forestry occupations (28.5%). Annual Wages and Salary . The percentage of employees who may be eligible for FMLA leave increases with earnings. An estimated 39.8% of employees with annual wages and salary of less than $35,000 may have been eligible for leave, compared to 73.4% of employees with earnings of $35,000 to $75,000 and 77.8% of employees with earnings of more than $75,000. Results from the DOL employee survey show that, among employees who may have been eligible for FMLA leave, those with higher family incomes were more likely to have taken leave in the past year. An estimated 17.4% of employees with family incomes of more than $75,000 took leave in the past year, compared to 15.2% of employees with family incomes of less than $35,000. On the other hand, among employees who were likely ineligible for leave, those with lower incomes (13.9% of those with incomes below $35,000) were more likely than those with higher incomes (8.0% of those with incomes above $75,000) to have taken leave. The U.S. workforce and American family were changing in the years before the FMLA was enacted in 1993. The labor force participation rate of women had been rising steadily, more married women with children were working, and more families were headed by single parents. For employees who did not have job-protected family or medical leave, the FMLA was a response to these changes. Other policymakers may question whether the leave employers are required to allow under the FMLA is a proper role for the federal government. Some may believe that this is an issue that should be left to the states, a matter between individual employees and their employer, or a subject for collective bargaining. Instead of mandated leave, some policymakers may favor government incentives to encourage employers to provide family and medical leave. Supporters of the FMLA have proposed amendments to the act that would expand employee coverage. Some of these suggestions would make it easier for employees to qualify for leave, allow employees to take leave to care for more members of their family or household, expand the types of leave, or expand employer coverage to include employees of smaller employers. On the other hand, others have proposed changes in the law that would narrow the definition of a serious health condition or curtail the use of intermittent leave for a chronic health condition. This section examines some of these proposals. The discussion in this section uses data from different sources. These include responses from the 2012 DOL employee survey discussed in the previous section, a 2012 survey of 1,812 employers conducted by Abt Associates for DOL, and information collected by the Society for Human Resource Management (SHRM). The FMLA is intended to help employees balance work and family life. Proponents of the objectives of the FMLA have suggested ways to expand employee eligibility. These proposals would (1) eliminate the requirement that employees must work 1,250 hours or more during the preceding 12 months for the same employer, (2) prorate the 12 weeks of leave based on the number of hours worked, (3) eliminate or reduce the requirement that employees must work for the same employer for at least 12 months, and (4) lower employee eligibility from the current threshold of 50 employees who work within 75 miles of an employee's worksite. Other proposals would allow eligible employees to take leave to care for additional members of the family or household. These additional persons may include grandparents, grandchildren, nondisabled children ages 18 or older, domestic partners, or same-sex spouses. Some employers may oppose an expansion of employee eligibility for FMLA leave. Such an expansion could increase employer administrative and operating costs. Employers may need to make additional adjustments to work schedules if more employees become eligible for, and take, FMLA leave. To maintain the same level of output of goods and services, some employers may need to hire more workers or pay more workers for overtime. Employers must continue health insurance coverage while employees are on FMLA leave, which could increase employer costs if more employees take FMLA leave. An expansion of FMLA coverage could create an incentive for employers to hire more part-time workers, who may not be eligible for FMLA leave. Some proposals to amend the FMLSA would expand the reasons for which employees could take FMLA leave. One proposal would allow employees to take "parental leave," where employees could take limited amounts of leave to attend parent-teacher conferences, participate in their children's educational and extracurricular activities, or take children (or other family members) to routine medical or dental appointments. Other proposals would allow employees to take leave to participate in activities that result from domestic violence or because of a death in the family. Using data from the 2012 DOL employer survey, Table 3 shows the percentage of employers that offer parental leave to their employees. An employer is defined as a unique worksite. A firm may have one or more worksites. Column 1 shows the percentage of all worksites that offered parental leave. Column 2 shows the percentage of worksites with FMLA-eligible employees, which are worksites with at least 50 employees within 75 miles of the worksite. Table 3 shows that, compared to all worksites, employers with FMLA-eligible employees are more likely to offer parental leave. Again, for the reasons discussed above, some employers may oppose an expansion of the FMLA to cover additional types of leave. FMLA leave is generally unpaid leave. Some policymakers favor legislation to provide employees with paid leave. These proposals may not involve amendments to the FMLA, however. At least three approaches have been suggested to provide employees with paid time off while taking leave for reasons covered by the FMLA. One approach would require employers to provide leave with pay to employees to care for their own health or the health of other eligible individuals. Two different methods have been proposed: one would require employers to offer their employees a paid sick leave benefit. The other would use a payroll tax to fund a wage-replacement program for eligible employees while on leave. A second approach would create a grant program to assist states interested in supplementing the income of individuals who take leave for family-related reasons. A final approach would amend the Fair Labor Standards Act (FLSA). Private sector employers would be required to pay an overtime premium to hourly employees who work more than 40 hours in a week. Instead of paying employees in cash for overtime, employers would be allowed to offer them compensatory time, which employees could use as they choose. Requiring employers to provide paid leave may raise a number of concerns. First, many employers already provide their employees with paid leave. These paid leave programs may not be subject, however, to minimum federal standards. Table 4 shows the percentage of employers who offer different types of paid leave. Compared to all worksites, employers with FMLA-eligible employees are more likely to offer paid leave. Those employers that do not offer paid sick leave may oppose a federal mandate that would require them to provide it. Some employees may oppose a payroll tax to fund a program for paid leave. Some employers and employees may not favor a federal program to provide employees with paid leave, even if the cost is offset by a reduction in taxes or spending elsewhere. For instance, as may be the case if employee eligibility for FMLA leave were expanded, legislation to require employers to offer paid leave may raise concerns about the potential effects on employer administrative and operating costs. Some may argue that government-required paid leave is not a federal, but a state, issue or that it is an issue that should be left to negotiations during collective bargaining. Instead of mandated paid leave, some policymakers may prefer government incentives to encourage employers to provide such leave. For their part, some employees may prefer to choose the types of benefits they receive. Requiring employers to offer paid leave may result in the substitution of paid leave for some other type of compensation (whether other benefits or wages) that some workers may prefer. To make FMLA leave available to more employees, some have suggested an expansion of employer coverage. Currently, the FMLA covers private sector employers who employed at least 50 employees for at least 20 weeks in the preceding or current calendar year. Proposals have been made to expand employer coverage to include employers with, perhaps, 25 or 15 employees. According to the report on the 2012 DOL employee survey, an estimated 59.2% of employees may be eligible for FMLA leave. According to the report, if the threshold for employer coverage were lowered from 50 to 30 employees, approximately 63.2% of employees could be eligible for leave. If the threshold were lowered to 20 employees, approximately 66.6% of employees could be eligible for leave. In addition to the questions that could be raised about expanding employee eligibility or the types of FMLA leave, expanding FMLA coverage to smaller employers may raise other concerns. In particular, smaller employers may have less flexibility than larger employers in adjusting to employee absences (of up to 12 weeks, or up to 26 weeks for military caregiver leave). The absence of one or more employees may impose a greater burden on smaller than larger employers. Concerns have been raised about the administration of FMLA leave. In particular, some have argued that DOL regulations have expanded the meaning of a serious health condition beyond the intent of Congress and that the application of intermittent leave imposes undue administrative burdens on employers. The 2012 DOL survey of employers asked covered employers how easy or difficult it is to comply with the FMLA. These findings are shown in Table 5 . The data in column 1 are for covered worksites, which are employers that reported that they were covered by the FMLA. Because some of these employers did not have 50 workers employed within 75 miles, column 2 is a subset of covered worksites. These are employers who reported that they were covered by the FMLA and had at least 50 employees employed within 75 miles. Among all covered employers, 65.5% reported that it was "very" or "somewhat" easy to comply with the FMLA. A larger percentage, 75.3%, of employers with FMLA-eligible employees reported that it was very or somewhat easy to comply with the FMLA. Conversely, among all employers, 6.1% said that it was "very" or "somewhat" difficult to comply with the FMLA, compared to 14.6% of employers with FMLA-eligible employees. Currently, regulations define a serious health condition as an illness, impairment, injury, or mental or physical condition that involves: inpatient care, which means an overnight stay in a hospital, hospice, or residential mental facility; or continuing treatment by a health care provider, which includes (1) a period of incapacity of more than three consecutive days and any subsequent treatment or period of incapacity due to the same condition; (2) any period of incapacity due to pregnancy or for prenatal care; (3) any period of incapacity or treatment due to a chronic serious health condition that requires visits at least twice a year for treatment by (or under the supervision of) a health care provider, continues over an extended period, and may cause episodic (rather than continuing) periods of incapacity (e.g., asthma or diabetes); (4) a period of incapacity that is permanent or long-term due to a condition for which treatment may not be effective (e.g., Alzheimer's disease or terminal stages of a disease); and (5) any period of absence to receive multiple treatments (including any period of recovery there from) by a health care provider for a condition that likely would result in incapacity of more than three consecutive days absent medical intervention (e.g., chemotherapy, physical therapy for severe arthritis, or dialysis for kidney disease). Some have argued that DOL regulations expanded the meaning of a serious health condition beyond the kinds of health problems envisioned by lawmakers. For example, the U.S. Chamber of Commerce has said that it supports reforms of the FMLA, including "restoring the original definition of 'serious health condition' to clarify that the FMLA does not cover minor ailments such as the common cold.... " At a February 2008 hearing before the Subcommittee on Children and Families of the Senate Committee on Health, Education, Labor, and Pensions, Katheryn Elliott, Assistant Director of Employee Relations at Central Michigan University, stated: Although Congress intended medical leave under the FMLA to be taken only for serious health conditions, SHRM [Society for Human Resource Management] members regularly report that individuals use this leave to avoid coming to work even when they are not experiencing a serious health condition. Changes in the FMLA have been proposed to remedy this possible problem. One suggestion is that the law should be amended to explicitly state that an illness, injury, impairment, or condition for which treatment and recovery are brief (e.g., fewer than 7 or 14 days) does not constitute a serious health condition. It has also been suggested that the FMLA should be amended to provide specific examples of serious health conditions. But, others contend that an overnight stay in a hospital is an indicator of a serious health condition. For instance, at a 1999 hearing before the Subcommittee on Children and Families of the Senate Committee on Health, Education, Labor, and Pensions, the Deputy Administrator of the DOL's Wage and Hour Division expressed concern that, under a narrower definition of serious health condition, some illnesses that "everyone would agree are normally not serious conditions" could never warrant FMLA leave. He argued that the flu—an often-used example of a nonserious condition for which FMLA leave can be taken—kills tens of thousands of people each year. According to the 2012 DOL survey of employers, 17.4% of those with FMLA-eligible employees said it was "very" or "somewhat" difficult to determine if a health condition was a serious health condition. By contrast, 70.0% of employers with FMLA-eligible employees said it was "very" or "somewhat" easy to determine if a health condition was a serious health condition. Among employers with FMLA-eligible employees, employers suspected that 2.9% of leave involved the misuse of the FMLA. According to DOL's 2012 employee survey, among employees who took leave, 85.7% of the most recent leave taken required a doctor's care, and 46.9% of that leave required an overnight stay in a hospital. Some have argued that the use of intermittent leave under the FMLA is both difficult to administer and disruptive to both employers and other employees. One argument against intermittent leave is that it can be difficult for employers to respond to employee absences, especially when employees provide little advance notice. Others maintain that intermittent leave may lead to the misuse of FMLA leave. According to FMLA regulations, employers must account for intermittent or part-time leave in the smallest increment that the employer uses to account for other types of leave. But, an employer must account for FMLA leave in increments of no more than an hour. The 2012 DOL employee survey defined intermittent leave as two or more episodes of FMLA-related leave for the same condition in the previous year. Among FMLA-eligible employees, 35.3% said they had taken leave five or more times for the same condition. By contrast, 26.6% of ineligible employees said they had taken leave at least five times in the past year. FMLA-eligible employees took leave an average of 4.8 times, compared to an average of 5.0 times among ineligible employees. Most intermittent leave was for six days or more. Among FMLA-eligible employees, 75.9% of the most recent absences were for six days or more, compared to 73.1% among ineligible employees. Among FMLA-eligible employees, an estimated 2.5% of the most recent absences were for a day or less, compared to an estimated 0.0% for ineligible employees. According to a 2007 SHRM report, 80% of human resources (HR) professionals reported that tracking intermittent leave was the most difficult part of the FMLA to administer. According to the 2012 DOL survey of employers, 31.3% of all employers said it was "very" or "somewhat" difficult to deal with planned intermittent leave, but 50.9% said it was very or somewhat difficult to deal with unplanned intermittent leave. Among employers with FMLA-eligible employees, 35.8% said it was very or somewhat difficult to deal with planned intermittent leave. But, 59.3% of employers said it was very or somewhat difficult to deal with unplanned intermittent leave. In order to lessen the record-keeping burden for employers, some have suggested that the minimum increment of leave be increased. Others have countered that expanding the increment would substantially penalize leave-takers by withholding, for example, half a day's pay when the employee only needs to be absent for an hour or less. The size of the penalty could potentially discourage some employees from taking intermittent leave. Concerns have been raised about effect of the FMLA on employees who must fill in for employees who are on leave. These effects may differ if FMLA leave is intermittent or for a longer period. The burden on co-workers could also change if FMLA leave is expanded. In the above-mentioned 2007 report, SHRM reported that 66% of HR professionals said that there are morale problems when employees are asked to cover for employees who take FMLA leave. The HR professionals also reported that employees may be more likely to have a negative view of FMLA leave when it is taken intermittently as opposed to leave taken to care for a newborn or newly placed adopted or foster child or for a catastrophic health condition. According to the 2012 DOL survey of employers, the most common response when an employee is taking leave for a week or more is to assign work temporarily to other employees. Among all employers, 64.5% said that they assigned work to other employees, while 17.8% said that they put work on hold until the employee returned to work. Among employers with FMLA-eligible employees, 83.3% said that they assigned work to other employees, but 6.3% said that they hired a temporary worker. The 2012 DOL employee survey asked employees how their work changed when their coworkers took leave. The responses were virtually the same among all employees and FMLA-eligible employees. Among all employees 51.0% said there was no change in their work, 34.1% said they took on more duties, 26.0% said they worked more hours, and 25.7% said they took on different job responsibilities. Among FMLA-eligible employees, 53.3% said there was no change, 34.3% said they took on more duties, 24.5% said they worked more hours, and an identical 25.7% said they took on different responsibilities. This appendix provides additional information on the data and methodology used in this report. Annual Social and Economic Supplement to the Monthly Current Population Survey This report uses data from the Annual Social and Economic (ASEC) supplement to the monthly Current Population Survey (CPS). The CPS is a household survey conducted by the U.S. Census Bureau for the Bureau of Labor Statistics (BLS). The sample for the ASEC supplement is representative of the civilian, noninstitutional population of the United States. The sample for the supplement includes members of the Armed Forces living in civilian housing units on a military base or in a household not on a military base. The sample does not include persons living in institutions (such as psychiatric hospitals, nursing homes, or correctional facilities). Approximately 76,000 households are interviewed for the supplement. In this report, data from the ASEC supplement are for employees ages 18 and over. For 2011, the survey includes 91,349 wage and salary workers ages 18 and over. When weighted to represent the noninstitutional U.S. population, the sample represents 143.2 million wage and salary workers. The ASEC supplement collects information on the longest job a person held during the previous calendar year. In this report, data by sector, occupation, and industry are for the longest job a person held in the previous year. From 1993 to 2011, job growth in Health Services accounted for over three-fifths of the increase in jobs in the major industry of Educational and Health Services. Therefore, in this report, the Educational and Health Services industry is separated into three industries: Health Services, Educational Services, and Social Assistance. The ASEC supplement asks respondents how many persons worked for their employer at their longest job. Data on the number of weeks worked and usual hours worked are for all jobs held during the previous year. In the ASEC supplement, wages and salary are defined as money earnings received by persons who are employees (i.e., wage and salary workers). Money earnings include wages, salary, commissions, tips, piece-rate pay, and bonuses. Earnings are before taxes or other deductions. Employees with children under the age of 18 in the household include employees who have a child under the age 18 who has a child of his or her own. Otherwise, employees under the age of 18 with children are not included in the analysis. U.S. Department of Labor 2012 Surveys of Employers and Employees In 2012, Abt Associates of Cambridge Associates, under contract with the U.S. Department of Labor, conducted surveys of employers and employees to determine employee eligibility and use of FMLA-related leave. According to the final report, the definition of leave used in the surveys "aligns" with the types of leave covered by the FMLA. The DOL employee survey consisted of 2,852 completed interviews and includes employees 18 and over who were employed for pay in the previous 12 months. The worksite survey consisted of 1,812 completed interviews and included employers who had at least 50 employees on the payroll at the time of the survey. The employee survey included both private and public sector employees, while the employer survey included only private sector worksites. The interviews were conducted between February and June 2012.
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The Family and Medical Leave Act (FMLA) requires covered employers to allow eligible employees to take up to 12 weeks of leave during any 12-month period to care for a newborn, adopted, or foster child; to care for a family member with a serious health condition; or because of the employee's own serious health condition. The act allows eligible employees to take up to 12 weeks of leave because of "qualifying exigencies" when a family member who is in the Armed Forces or National Guard is deployed overseas. An employee may also take up to 26 weeks of leave during a single 12-month period to care for a servicemember who was seriously injured while on active duty. To assist Congress in evaluating proposals to expand or limit the availability of FMLA leave, this report uses data from two household surveys. The Annual Social and Economic (ASEC) supplement to the monthly Current Population Survey (CPS) is used to estimate the number of employees who may or may not be eligible for FMLA leave. Data from a 2012 survey conducted for the U.S. Department of Labor (DOL) are used to compare the use of leave for FMLA-related reasons by employees who may or may not be eligible for leave. An analysis of employees ages 18 and over shows that a majority of employees may be eligible for FMLA leave. Based on responses from 91,349 employees to the ASEC supplement, in 2011 an estimated 56.5% of employees were likely eligible for FMLA leave. According to the 2012 DOL survey of 2,852 employees, approximately 59.2% of employees may be eligible for FMLA leave. According to the 2012 DOL employee survey, an estimated 15.9% of employees who may have been eligible for FMLA leave used leave for FMLA-related reasons in the year before they were surveyed. By contrast, approximately 10.2% of employees who were likely ineligible for FMLA leave took leave for FMLA-related reasons. According to the ASEC supplement, in 2011 men were more likely than women to be eligible for FMLA leave (57.2% compared to 55.6%). However, according to the 2012 DOL employee survey, women were more likely than men to take leave for FMLA-related reasons. Among employees who were likely eligible for leave, 17.9% of women and 14.1% of men took leave in the past year. Employees between the ages of 34 and 49 were more likely (62.7%) than younger (48.5%) or older (57.9%) workers to be eligible for FMLA leave. But, workers ages 50 and over were more likely (17.9%) to have taken leave in the past year for FMLA-related reasons. Married employees were more likely (60.4%) than employees who were not married to be eligible for FMLA leave. Married workers were also more likely (16.8%) than unmarried workers to have taken FMLA-related leave in the past year. For a majority of employees (56.6%), the most recent medical reason for taking leave was for the employee's own illness. Employees with a Bachelor's or advanced degree were more likely than other employees to be eligible for FMLA leave. By contrast, employees with a high school degree or less were more likely than other employees to have taken FMLA-related leave in the past year. An estimated 91.0% of federal, 80.5% of state, and 73.5% of local government employees may be eligible for FMLA leave, compared to 52.1% of private-sector employees. The percentage of employees who may be eligible for FMLA leave increased with annual earnings. On the other hand, among employees who were likely ineligible for FMLA leave, the percentage who took leave for FMLA-related reasons in the past year was higher among employees with lower incomes. Approximately 75.3% of employers with FMLA-eligible employees report that it is "very" or "somewhat" easy to comply with the FMLA, while 14.6% report that it is "very" or "somewhat" difficult to comply with the FMLA. In the years before 1993, when the FMLA was enacted, the U.S. workforce and American family had changed. The labor force participation rate for women had been rising steadily, more married women with children were working, and more families were headed by single parents. For employees who did not have job-protected family or medical leave, the FMLA was intended to address these changes. Since it was enacted, supporters of the FMLA have proposed different ways to expand the program. Among the changes are proposals to expand employee eligibility, cover more employers, allow eligible employees to take leave to care for more family or household members, or expand the types of FMLA leave. On the other hand, others have proposed changes that would narrow the definition of a serious health condition or curtail the use of intermittent leave for a chronic health condition. In general, those who favor expanding the FMLA argue that these changes would further the objectives of the act. For a number of reasons, some employers and policymakers may oppose an expansion of FMLA leave. For instance, expansion could increase employer administrative and operating costs. If additional employees become eligible for, and take, FMLA leave, employers may have to make more adjustments to work schedules. In order to maintain the same level of output of goods or services, some employers may need to hire more workers or pay more workers for overtime. An expansion of FMLA leave could create an incentive for employers to hire more part-time workers. Extending FMLA coverage to smaller employers could impose greater costs on those employers than on larger employers.
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The United States has been party to multilateral and bilateral agreements addressing the status of U.S. Armed Forces while present in a foreign country. These agreements, commonly referred to as Status of Forces Agreements (SOFAs), generally establish the framework under which U.S. military personnel operate in a foreign country. SOFAs provide for rights and privileges of covered individuals while in a foreign jurisdiction and address how the domestic laws of the foreign jurisdiction apply to U.S. personnel. SOFAs may include many provisions, but the most common issue addressed is which country may exercise criminal jurisdiction over U.S. personnel. The United States has agreements where it maintains exclusive jurisdiction over its personnel, but more often the agreement calls for shared jurisdiction with the receiving country. A SOFA is not a mutual defense agreement or a security agreement, and generally does not authorize specific exercises, activities, or missions. SOFAs are peacetime documents and therefore do not address the rules of war, the Laws of Armed Conflict, or the Laws of the Sea. The existence of a SOFA does not affect or diminish the parties' inherent right of self-defense under the law of war. In the event of armed conflict between parties to a SOFA, the terms of the agreement would no longer be applicable. The United States is currently party to more than 100 agreements that may be considered SOFAs. While a SOFA as a stand-alone document may not exist with a particular country, that does not necessarily mean that the status of U.S. personnel in that country has not been addressed. Terms commonly found in SOFAs may be contained in other agreements with a partner country and a separate SOFA not utilized. As contracts, SOFAs may be subject to amendment or cancellation. With the exception of the multilateral SOFA among the United States and North Atlantic Treaty Organization (NATO) countries, a SOFA is specific to an individual country and is in the form of an executive agreement. The Department of State and the Department of Defense, working together, identify the need for a SOFA with a particular country and negotiate the terms of the agreement. The NATO SOFA is the only SOFA that was concluded as part of a treaty. The Senate approved ratification of the NATO SOFA on March 19, 1970, subject to reservations. The resolution included a statement that nothing in the Agreement diminishes, abridges, or alters the right of the United States to safeguard its own security by excluding or removing persons whose presence in the United States is deemed prejudicial to its safety or security, and that no person whose presence in the United States is deemed prejudicial to its safety or security shall be permitted to enter or remain in the United States. The Senate reservations to the NATO SOFA include four conditions: (1) the criminal jurisdiction provisions contained in Article VII of the agreement do not constitute a precedent for future agreements; (2) when a servicemember is to be tried by authorities in a receiving state, the commanding officer of the U.S. Armed Forces in that state shall review the laws of the receiving state with reference to the procedural safeguards of the U.S. Constitution; (3) if the commanding officer believes there is danger that the servicemember will not be protected because of the absence or denial of constitutional rights the accused would receive in the United States, the commanding officer shall request that the receiving state waive its jurisdiction; and, (4) a representative of the United States be appointed to attend the trial of any servicemember being tried by the receiving state and act to protect the constitutional rights of the servicemember. The NATO SOFA is a multilateral agreement that has applicability among all the member countries of NATO. As of June 2007, 26 countries, including the United States, have either ratified the agreement or acceded to it by their accession into NATO. Additionally, another 24 countries are subject to the NATO SOFA through their participation in the NATO Partnership for Peace (PfP) program. The program consists of bilateral cooperation between individual countries and NATO in order to increase stability, diminish threats to peace, and build strengthened security relationships. The individual countries that participate in the PfP agree to adhere to the terms of the NATO SOFA. Through the NATO SOFA and the NATO PfP, the United States has a common SOFA with approximately 58 countries. Then-Secretary Rice and Secretary Gates stated that the United States has agreements in more than 115 countries around the world. The NATO SOFA and NATO PfP SOFA account for roughly half of the SOFAs to which the United States is party. Department of Defense Directive 5525.1 provides policy and information specific to SOFAs. The Department of Defense policy is "to protect, to the maximum extent possible, the rights of U.S. personnel who may be subject to criminal trial by foreign courts and imprisonment in foreign prisons." The directive addresses the Senate reservations to the NATO SOFA by stating even though the reservations accompanying its ratification only apply to NATO member countries where it is applicable, comparable reservations shall be applied to future SOFAs. Specifically, the policy states that "the same procedures for safeguarding the interests of U.S. personnel subject to foreign jurisdiction" be applied when practicable in overseas areas where U.S. forces are stationed. There are no formal requirements governing the content, detail, and length of a SOFA. A SOFA may address, but is not limited to, criminal and civil jurisdiction, the wearing of uniforms, taxes and fees, carrying of weapons, use of radio frequencies, license requirements, and customs regulations. The United States has concluded SOFAs as short as one page and in excess of 200 pages. For example, the United States and Bangladesh exchanged notes providing for the status of U.S. Armed Forces in advance of a joint exercise in 1998. The agreement is specific to one activity/exercise, consists of five clauses, and is contained in one page. The United States and Botswana exchanged notes providing for the status of forces "who may be temporarily present in Botswana in conjunction with exercises, training, humanitarian assistance, or other activities which may be agreed upon by our two governments." The agreement is similar in its scope to the agreement with Bangladesh and is contained in one page. In contrast, in documents exceeding 200 pages, the United States and Germany entered into a supplemental agreement to the NATO SOFA, as well as additional agreements and exchange of notes related to specific issues. The issue most commonly addressed in a SOFA is the legal protection from prosecution that will be afforded U.S. personnel while present in a foreign country. The agreement establishes which party to the agreement is able to assert criminal and/or civil jurisdiction. In other words, the agreement establishes how the domestic civil and criminal laws are applied to U.S. personnel while serving in a foreign country. The United States has entered agreements where it maintains exclusive jurisdiction, but the more common agreement results in shared jurisdiction between the United States and the signatory country. Exclusive jurisdiction is when the United States retains the right to exercise all criminal and disciplinary jurisdiction for violations of the laws of the foreign nation while the individual is present in that country. Shared jurisdiction occurs when each party to the agreement retains exclusive jurisdiction over certain offenses, but also allows the United States to request that the host country waive jurisdiction in favor of the United States exercising criminal and disciplinary jurisdiction. The right to exert jurisdiction over U.S. personnel is not solely limited to when an individual is located on a military installation. It may cover individuals off the installation as well. The right to exert jurisdiction can result in complete immunity from the laws of the receiving country while the individual is present in that country. The United States entered into an agreement regarding military exchanges and visits with the Government of Mongolia. As part of the agreement, Article X addresses criminal jurisdiction of U.S. personnel located in Mongolia. The language of the agreement provides, "United States military authorities shall have the right to exercise within Mongolia all criminal and disciplinary jurisdiction over United States [p]ersonnel conferred on them by the military laws of the United States. Any criminal offenses against the laws of Mongolia committed by a member of the U.S. forces shall be referred to appropriate United States authorities for investigation and disposition." The agreement allows the Government of Mongolia to request the United States to waive its jurisdiction in cases of alleged criminal behavior unrelated to official duty. There is no requirement for the United States to waive jurisdiction, only to give "sympathetic consideration" of any such request. The NATO SOFA, applicable to all member countries, is an example of shared jurisdiction. Article VII provides the jurisdictional framework. The SOFA allows for a country not entitled to primary jurisdiction to request the country with primary jurisdiction waive its right to jurisdiction. There is no requirement for the country to waive jurisdiction, only that it gives "sympathetic consideration" of the request. Under the shared jurisdiction framework, each of the respective countries is provided exclusive jurisdiction in specific circumstances, generally when an offense is only punishable by one of the country's laws. In that case, the country whose law has been offended has exclusive jurisdiction over the offender. When the offense violates the laws of both countries, concurrent jurisdiction is present and additional qualifications are used to determine which country will be allowed to assert jurisdiction over the offender. While the NATO SOFA provides extensive language establishing jurisdiction, the United States has entered numerous SOFAs that appear to have a very basic rule for determining jurisdiction. Some agreements contain a single sentence stating that U.S. personnel are to be afforded a status equivalent to that accorded to the administrative and technical staff of the U.S. Embassy in that country. The Vienna Convention on Diplomatic Relations of April 18, 1961 establishes classes of personnel, each with varying levels of legal protections. Administrative and technical staff receive, among other legal protections, "immunity from the criminal jurisdiction of the receiving State." Therefore, a SOFA which treats U.S. personnel as administrative and technical staff confers immunity from criminal jurisdiction while in the receiving country. SOFAs do not generally authorize specific military operations or missions by U.S. forces. While SOFAs do not generally provide authority to fight, the inherent right of self-defense is not affected or diminished. U.S. personnel always have a right to defend themselves, if threatened or attacked, and a SOFA does not take away that right. Language is often found within the SOFA that defines the scope of applicability of the agreement. For example, the SOFA with Belize expressly applies to U.S. personnel "who may be temporarily in Belize in connection with military exercises and training, counter-drug related activities, United States security assistance programs, or other agreed purposes." The United States had previously entered into two different agreements with Belize related to military training and the provision of defense articles. The SOFA itself does not authorize specific operations, exercises, or activities, but provides provisions addressing the legal status and protections of U.S. personnel while in Belize. Under the terms of the agreement, U.S. personnel are provided legal protections as if they were administrative and technical staff of the U.S. Embassy. While understandings regarding the assertion of legal jurisdiction are generally a universal component of a SOFA, more detailed administrative and operational matters may be included as well. A SOFA may address, for example, the wearing of uniforms by armed forces while away from military installations, taxes and fees, carrying of weapons by U.S. personnel, use of radio frequencies, driving license requirements, and customs regulations. A SOFA provides the legal framework for day-to-day operations of U.S. personnel while a foreign country. Most SOFAs are bilateral agreements; therefore they may be tailored to the specific needs of the personnel operating in that country. In support of U.S. foreign policy, the United States has concluded agreements with foreign nations related to security commitments and assurances. These agreements may be concluded in various forms including as a collective defense agreement (obligating parties to the agreement to assist in the defense of any party to the agreement in the event of an attack upon it), an agreement containing a consultation requirement (a party to the agreement pledges to take some action in the event the other country's security is threatened), an agreement granting the legal right to military intervention (granting one party the right, but not the duty, to militarily intervene within the territory of another party to defend it against internal or external threats), or other non-binding arrangements (unilateral pledge or policy statement). SOFAs are often included, along with other types of military agreements (i.e., basing, access, and pre-positioning), as part of a comprehensive security arrangement. A SOFA may be based on the authority found in previous treaties, congressional action, or sole executive agreements comprising the security arrangement. The following sections provide a historical perspective on the inclusion of a SOFA as part of comprehensive bilateral security arrangements by the United States with Afghanistan, Germany, Japan, South Korea, and the Philippines. The arrangements may include a stand-alone SOFA or other agreements including protections commonly associated with a SOFA. Following the terrorist attacks of September 11, 2001, the United States initiated Operation Enduring Freedom to combat Al Qaeda and prevent the Taliban regime in Afghanistan from providing them with safe harbor. Shortly thereafter, the Taliban regime was ousted by U.S. and allied forces, and the United States thereafter concluded a number of security agreements with the new Afghan government. In 2002, the United States and Afghanistan, by an exchange of notes, entered into an agreement regarding economic grants under the Foreign Assistance Act of 1961, as amended. Additionally, the agreement allows for the furnishing of defense articles, defense services, and related training, pursuant to the United States International Military and Education Training Program (IMET), from the U.S. government to the Afghanistan Interim Administration (AIA). The Foreign Assistance Act of 1961 is "an act to promote the foreign policy, security, and general welfare of the United States by assisting peoples of the world in their efforts toward economic development and internal and external security, and for other purposes." Part I of the act, addressing international development, established policy "to make assistance available, upon request, under this part in scope and on a basis of long-range continuity essential to the creation of an environment in which the energies of the peoples of the world can be devoted to constructive purposes, free of pressure and erosion by the adversaries of freedom." Part II of the act, addressing international peace and security, authorizes "measures in the common defense against internal and external aggression, including the furnishing of military assistance, upon request, to friendly countries and international organizations." The act authorizes the President "to furnish military assistance on such terms and conditions as he may determine, to any friendly country or international organization, the assisting of which the President finds will strengthen the security of the United States and promote world peace and which is otherwise eligible to receive such assistance." The authorization to provide defense articles and services, noncombatant personnel, and the transfer of funds is codified at 22 U.S.C. Section 2311. While this authorization permits the President to provide military assistance, it limits it to "assigning or detailing members of the Armed Forces of the United States and other personnel of the Department of Defense to perform duties of a noncombatant nature ." An agreement exists regarding the status of military and civilian personnel of the U.S. Department of Defense present in Afghanistan in connection with cooperative efforts in response to terrorism, humanitarian and civic assistance, military training and exercises, and other activities. Such personnel are to be accorded "a status equivalent to that accorded to the administrative and technical staff" of the U.S. Embassy under the Vienna Convention on Diplomatic Relations of 1961. Accordingly, U.S. personnel are immune from criminal prosecution by Afghan authorities, and are immune from civil and administrative jurisdiction except with respect to acts performed outside the course of their duties. In the agreement, the Islamic Transitional Government of Afghanistan (ITGA) explicitly authorized the U.S. government to exercise criminal jurisdiction over U.S. personnel, and the Government of Afghanistan is not permitted to surrender U.S. personnel to the custody of another State, international tribunal, or any other entity without consent of the U.S. government. Although the agreement was signed by the ITGA, the subsequently elected government of the Islamic Republic of Afghanistan assumed responsibility for ITGA's legal obligations and the agreement remains in force. The agreement does not appear to provide immunity for contract personnel. The agreement with Afghanistan does not expressly authorize the United States to carry out military operations within Afghanistan, but it recognizes that such operations are "ongoing." Congress authorized the use of military force there (and elsewhere) by joint resolution in 2001, for targeting "those nations, organizations, or persons [who] planned, authorized, committed, or aided the terrorist attacks that occurred on September 11, 2001." The U.N. Security Council implicitly recognized that the use of force was appropriate in response to the September 11, 2001, terrorist attacks, and subsequently authorized the deployment of an International Security Assistance Force (ISAF) to Afghanistan. Subsequent U.N. Security Council resolutions provide a continuing mandate for ISAF, calling upon it to "work in close consultation with" Operation Enduring Freedom (OEF—the U.S.-led coalition conducting military operations in Afghanistan) in carrying out the mandate. While there is no explicit U.N. mandate authorizing the OEF, Security Council resolutions appear to provide ample recognition of the legitimacy of its operations, most recently by calling upon the Afghan government, "with the assistance of the international community, including the International Security Assistance Force and Operation Enduring Freedom coalition, in accordance with their respective designated responsibilities as they evolve, to continue to address the threat to the security and stability of Afghanistan posed by the Taliban, Al-Qaida, other extremist groups and criminal activities." In 2004, the United States and Afghanistan entered an acquisition and cross-servicing agreement, with annexes. An acquisition and cross-servicing agreement (ACSA) is an agreement providing logistic support, supplies, and services to foreign militaries on a cash-reimbursement, replacement-in-kind, or exchange of equal value basis. After consultation with the Secretary of State, the Secretary of Defense is authorized to enter into an ACSA with a government of a NATO country, a subsidiary body of NATO, or the United Nations Organization or any regional international organization of which the United States is a member. Additionally, the Secretary of Defense may enter into an ACSA with a country not included in the above categories, if, after consultation with the Secretary of State, a determination is made that it is in the best interests of the national security of the United States. If the country is not a member of NATO, the Secretary of Defense must submit notice, at least 30 days prior to designation, to the Committee on Armed Services and the Committee on Foreign Relations of the Senate and the Committee on Armed Services and the Committee on Foreign Affairs of the House of Representatives. On May 23, 2005, President Hamid Karzai and President Bush issued a "joint declaration" outlining a prospective future agreement between the two countries. It envisions a role for U.S. military troops in Afghanistan to "help organize, train, equip, and sustain Afghan security forces" until Afghanistan has developed its own capacity, and to "consult with respect to taking appropriate measures in the event that Afghanistan perceives that its territorial integrity, independence, or security is threatened or at risk." The declaration does not mention the status of U.S. forces in Afghanistan, but if an agreement is concluded pursuant to the declaration, it can be expected a status of forces agreement would be included. In August 2008, shortly after U.S. airstrikes apparently resulted in civilian casualties, President Karzai called for a review of the presence of all foreign forces in Afghanistan and the conclusion of formal SOFAs with the respective countries. However, to date, it appears unclear whether the parties have entered into formal negotiations that might lead to an updated SOFA. On December 16, 2010, the Obama Administration, as part of its Afghanistan-Pakistan annual review, stated that it, as part of the NATO coalition, remains committed to a long-term partnership with Afghanistan. As such, the Administration maintained that U.S. forces would commence a transfer of security responsibility to the Afghan government in 2011 and conclude the transfer in 2014. It remains unclear if the United States intends to enter into strategic and security agreements, like those utilized in Iraq, during the announced period of transition. On February 10, 2011, Representative Lynn Woolsey introduced H.R. 651 , the United States-Afghanistan Status of Forces Agreement (SOFA) Act of 2011. The bill requires, 90 days after enactment, the President to "seek to negotiate and enter into a bilateral status of forces agreement" with Afghanistan. Additionally, if enacted, the bill requires that the concluded agreement must explicitly state that the presence of U.S. forces in Afghanistan is temporary, permanent basing is prohibited, and all troops must withdraw from the country within one year of the agreement. In 1951, prior to Germany becoming a member of NATO, the United States and Germany entered into an agreement related to the assurances required under the Mutual Security Act of 1951. Germany subsequently joined NATO in 1955 and, in the same year, concluded an agreement related to mutual defense assistance, obligating the United States to provide "such equipment, materials, services, or other assistance as may be agreed" to Germany. Four years after Germany joined NATO, the countries entered into an agreement implementing the NATO SOFA of 1953. The agreement provided additional supplemental agreements, beyond those contained in the NATO SOFA, specific to the relationship between the United States and Germany. The implementation and supplemental agreements to the NATO SOFA are in excess of 200 pages and cover the minutiae of day-to-day operations of U.S. forces and personnel in Germany. Prior to the current security arrangements between the United States and Japan, the countries, in 1952, concluded a security treaty and an accompanying administrative agreement. The administrative agreement covered, among other maters, the jurisdiction of the United States over offenses committed in Japan by members of the U.S. forces, and provided that the United States could waive jurisdiction in favor of Japan. One provision established that the United States retained jurisdiction over offenses committed by a servicemember arising out of any act or omission done in the performance of official duty. In 1957, a member of the U.S. Army was indicted in the death of a Japanese civilian while participating in a small unit exercise at Camp Weir range area in Japan. The United States claimed that the act was committed in the performance of official duty, but Japan insisted that it was outside the scope of official duty and therefore Japan had primary jurisdiction to try the member. After negotiations, the United States acquiesced and agreed to turn the member over to Japanese authorities. In an attempt to avoid trial in the Japanese Courts, the member sought a writ of habeas corpus in the United States District Court for the District of Columbia. The writ was denied, but the member was granted an injunction against delivery to Japanese authorities to stand trial. The United States appealed the injunction to the U.S. Supreme Court. In Wilson v. Girard, the Supreme Court first addressed the jurisdictional provisions contained in the administrative agreement. The Court determined that by recommending ratification of the security treaty and subsequently the NATO SOFA, the Senate had approved the administrative agreement and protocol (embodying the NATO provisions) governing jurisdiction to try criminal offenses. The Court held that "a sovereign nation has exclusive jurisdiction to punish offenses against its laws committed within its border, unless it expressly or impliedly consents to surrender its jurisdiction" and that Japan's "cession to the United States of jurisdiction to try American military personnel for conduct constituting an offense against the laws of both countries was conditioned" by provisions contained in the protocol calling for "sympathetic consideration to a request from the other State for a waiver of its right in cases where that other State considers such waiver to be of particular importance." The Court concluded that the issue was then whether the Constitution or legislation subsequent to treaty prohibited carrying out of the jurisdictional provisions. The Court found none and stated that "in the absence of such encroachments, the wisdom of the arrangement is exclusively for the determination of the Executive and Legislative Branches." The Treaty of Mutual Cooperation and Security Between the United States of America and Japan was concluded in 1960 and subsequently amended on December 26, 1990. Under Article VI of the Treaty, the United States is granted "the use by its land, air and naval forces of facilities and areas in Japan" in order to contribute "to the security of Japan and maintenance of international peace and security in the Far East[.]" Article VI provides further that the use of facilities and the status of U.S. Armed Forces will be governed under a separate agreement, much like the previous security treaty concluded in 1952. A SOFA, as called for under Article VI of the Treaty, was concluded as a separate agreement pursuant to and concurrently with the Treaty in 1960. The SOFA addresses the use of facilities by the U.S. Armed Forces, as well as the status of U.S. forces in Japan. The agreement has been modified at least four times since the original agreement. In 1954 the United States and the Republic of Korea entered into a mutual defense treaty. As part of the treaty the countries agree to attempt to settle international disputes peacefully, consult whenever the political independence or security of either party is threatened by external armed attack, and that either party would act to meet the common danger in accordance with their respective constitutional processes. Article IV of the treaty grants the United States "the right to dispose.... land, air and sea forces in and about the territory" of South Korea. Pursuant to the treaty, specifically Article IV, the countries entered into a SOFA with agreed minutes and an exchange of notes in 1966; it was subsequently amended January 18, 2001. In 1968, two years after the SOFA was signed between the countries, a member of the U.S. Army asserted in Smallwood v. Clifford that U.S. authorities did not have legitimate authority, under the jurisdictional provisions contained in the agreement, to release him to the Republic of Korea for trial by a Korean court on charges of murder and arson. The servicemember asserted that the agreement was not approved in a "constitutionally acceptable manner." He maintained that U.S. domestic law requires international agreements pertaining to foreign jurisdiction over U.S. forces stationed abroad be approved "either expressly or impliedly by the [U.S.] Senate." The court found that the SOFA resulted in a diminished role for the Republic of Korea in enforcing its own laws and that the United States did not waive jurisdiction over offenses committed within its own territory. Therefore, ratification by the Senate was "clearly unnecessary" because Senate approval would "have no effect on a grant of jurisdiction by the Republic of Korea, [of] which the United States could not rightfully claim." Additionally, the servicemember asserted that the Constitution and the Uniform Code of Military Justice (UCMJ) provide the sole methods for trying servicemen abroad and that they can not be changed by an executive agreement. The court held that the premise is true only when there has not been a violation of the laws of the foreign jurisdiction. When a violation of the foreign jurisdiction's criminal laws occurs, the primary jurisdiction lies with that nation and the provisions of the UCMJ only apply if the foreign nation expressly or impliedly waived its jurisdiction. In support of its decision the court cited the principle, stated in Wilson , that the primary right of jurisdiction belongs to the nation in whose territory the servicemember commits the crime. In 1947 the United States and the Republic of the Philippines entered into an agreement on military assistance. The agreement was for a term of five years, starting July 4, 1946, and provided that the United States would furnish military assistance to the Philippines for the training and development of armed forces. The agreement further created an advisory group to provide advice and assistance to the Philippines as had been authorized by the U.S. Congress. The agreement was extended, and amended, for an additional five years in 1953. A mutual defense treaty was entered into by the United States and the Philippines in 1951. The treaty publicly declares "their sense of unity and their common determination to defend themselves against external armed attack, so that no potential aggressor could be under the illusion that either of them stands alone in the Pacific Area[.]" The Treaty does not address or provide for a SOFA. In 1993, the countries entered into a SOFA. The agreement was subsequently extended on September 19, 1994; April 28, 1995; and November 29, December 1, and December 8, 1995. The countries entered into an agreement regarding the treatment of U.S. Armed Forces visiting the Philippines in 1998. This agreement was amended on April 11 and 12, 2006. The distinction between this agreement and the SOFA originally entered into in 1993 is that this agreement applies to U.S. Armed Forces visiting, not stationed in the Philippines. The countries also entered into an agreement regarding the treatment of Republic of Philippines personnel visiting the United States (counterpart agreement). The counterpart agreement contains provisions addressing criminal jurisdiction over Philippine personnel while in the United States. The agreement was concluded as an executive agreement and not ratified by the U.S. Senate. Arguably, following the logic of the U.S. District Court for the District of Columbia in Clifford , because the agreement arguably diminishes the impact of U.S. jurisdiction, it would need to be ratified by the Senate in order to be constitutionally valid. But, the counterpart agreement can be distinguished from the SOFA with the Republic of Korea, and SOFAs with other foreign jurisdictions, in that the United States is not fully waiving jurisdiction over offenses committed within U.S. territory. Rather, the agreement states that U.S. authorities will, at the request of the Government of the Philippines, request that the appropriate authorities waive jurisdiction in favor of Philippine authorities. However, the U.S. Department of State and Department of Defense retain the ability to determine that U.S. interests require that the United States exercise federal or state jurisdiction over the Philippine personnel. Between March 2003 and August 2010, the United States engaged in military operations in Iraq, first to remove the Saddam Hussein regime from power, and then to combat remnants of the former regime and other threats to the stability of Iraq and its post-Saddam government. In late 2007, the United States and Iraq signed a Declaration of Principles for a Long-Term Relationship of Cooperation and Friendship Between the Republic of Iraq and the United States of America. The strategic arrangement contemplated in the Declaration was intended to ultimately replace the United Nations mandate under which the United States and allied forces are responsible for contributing to the security of Iraq, which terminated on December 31, 2008. The Declaration was rooted in an August 26, 2007, communiqué, signed by five top political leaders in Iraq, which called for a long-term relationship with the United States. Pursuant to the Declaration, the parties pledged to "begin as soon as possible, with the aim to achieve, before July 31, 2008, agreements between the two governments with respect to the political, cultural, economic, and security spheres." Among other things, the Declaration proclaimed the parties' intention to negotiate a security agreement: To support the Iraqi government in training, equipping, and arming the Iraqi Security Forces so they can provide security and stability to all Iraqis; support the Iraqi government in contributing to the international fight against terrorism by confronting terrorists such as Al-Qaeda, its affiliates, other terrorist groups, as well as all other outlaw groups, such as criminal remnants of the former regime; and to provide security assurances to the Iraqi Government to deter any external aggression and to ensure the integrity of Iraq's territory. This announcement became a source of congressional interest, in part because of statements by Bush Administration officials that such an agreement would not be submitted to the legislative branch for approval, despite potentially obliging the United States to provide "security assurances" to Iraq. In the 110 th Congress, multiple hearings were held which addressed the proposed security agreement. In late 2007, Congress passed the Emergency Supplemental Appropriations Act for Defense, 2008, which contained a provision limiting the funds it made available from being used by U.S. authorities to enter into an agreement with Iraq that subjected members of the U.S. Armed Forces to the criminal jurisdiction of Iraq. In October 2008, Congress passed the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009, which requires a report from the President to the House Foreign Affairs and Armed Services Committees, and the Senate Foreign Relations and Armed Services Committees, on any completed U.S.-Iraq agreement addressing specified subjects, including security assurances or commitments by the United States, basing rights, and the status of U.S. forces in Iraq. Several legislative proposals were introduced which would have required any such agreement to either be submitted to the Senate for its advice and consent as a treaty or authorized by a statutory enactment. On November 17, 2008, after months of negotiations, U.S. Ambassador to Iraq Ryan Crocker and Iraq Foreign Minister Hoshyar Zebari signed two documents: (1) the Strategic Framework Agreement for a Relationship of Friendship and Cooperation between the United States and the Republic of Iraq (Strategic Framework Agreement), and (2) the Agreement Between the United States of America and Republic of Iraq On the Withdrawal of United States Forces from Iraq and the Organization of Their Activities during Their Temporary Presence in Iraq (Security Agreement). In some ways, the concluded agreements differ from the long-term security arrangement originally contemplated by the Declaration of Principles. Perhaps most significantly, the concluded agreements require the withdrawal of U.S. forces from Iraq by December 31, 2011. The concluded agreements cover different issues and are intended by the parties to have different legal significance. The Strategic Framework Agreement is a nonlegal, political agreement under which the parties pledge to work cooperatively in a number of fields, including on diplomatic, security, economic, cultural, and law enforcement matters. In the area of security, the Agreement provides that the United States and Iraq shall "continue to foster close cooperation concerning defense and security arrangements," which are to be undertaken pursuant to the terms of the Security Agreement. The Strategic Framework Agreement also states that "the temporary presence of U.S. forces in Iraq is at the request and invitation of the sovereign government of Iraq," and that the United States may not "use Iraqi land, sea, or air as a launching or transit point for attacks against other countries[,] nor seek or request permanent bases or a permanent military presence in Iraq." The Security Agreement is a legally binding agreement that terminates within three years, unless terminated at an earlier date by either Party. The Security Agreement contains provisions addressing a variety of military matters. As previously mentioned, it establishes a deadline for the withdrawal of all U.S. forces from Iraq by December 31, 2011. The Agreement also contains numerous provisions resembling those regularly contained in SOFAs concluded by the United States. Specifically, the Agreement contains provisions concerning the parties' right to assert civil and criminal jurisdiction over U.S. forces, as well as provisions which establish rules and procedures applicable to U.S. forces relating to the carrying of weapons, the wearing of uniforms, entry and exit into Iraq, taxes, customs, and claims. The Security Agreement contains other rules and requirements which have traditionally not been found in SOFAs concluded by the United States, including provisions addressing combat operations by U.S. forces. Operations by U.S. forces pursuant to the Agreement must be approved by the Iraqi government and coordinated with Iraqi authorities through a Joint Military Operations Coordination Committee. U.S. forces are also permitted to arrest or detain persons in the course of operations under the Agreement. More broadly, the Security Agreement provides for "strategic deliberations" between the parties in the event of external or internal threat or aggression against Iraq, and provides that, as mutually agreed by the parties, the United States "shall take appropriate measures, including diplomatic, economic, or military measures" to deter the threat. The Security and Strategic Framework Agreements entered into force on January 1, 2009, following an exchange of diplomatic notes between the United States and Iraq. Although the agreements required approval on multiple levels by the Iraqi government, the Bush Administration did not submit the agreements to the Senate for its advice and consent as a treaty or request statutory authorization for the agreements by Congress. There has been some controversy regarding whether these agreements could properly be entered on behalf of the United States by the Executive without the participation of Congress. Security agreements authorizing the United States to take military action in defense of another country have typically been ratified as treaties. It could be argued that the Security Agreement, which contemplates the United States engaging in military operations in Iraq and potentially defending the Iraqi government from external or internal security threats, requires congressional authorization for it to be legally binding under U.S. law. On the other hand, because Congress has authorized the President to engage in military operations in Iraq, both pursuant to the 2002 Authorization to Use Military Force Against Iraq and subsequent appropriations measures, it has impliedly authorized the President to enter short-term agreements with Iraq which facilitate these operations. As of August 31, 2010, the United States withdrew the last major combat unit, the U.S. Army's 4 th Stryker Brigade Combat Team, 2 nd Infantry Division, allowing Iraq to officially take over combat operations within the country. The post-combat phase of operations, Operation New Dawn, included the presence of approximately 50,000 U.S. troops conducting stability operations, focusing on advising, assisting, and training Iraqi Security Forces in how to handle their own security. As of December 18, 2011, the United States completed the withdrawal of U.S. forces, transitioning responsibility for security within Iraq to the Iraqi government. The charts below provide a list of current agreements according to the underlying source of authority, if any, for each of the SOFAs. Within each category the agreements are arranged alphabetically by partner country. The categories are defined as follows: The NATO SOFA is a multilateral agreement that has applicability among all the member countries of NATO. As of June 2007, 26 countries, including the United States, have either ratified the agreement or acceded to it by their accession into NATO. The NATO SOFA is the only SOFA that was concluded as part of a treaty. There are currently 24 countries, non-members of NATO, subject to the NATO SOFA through their participation in the NATO Partnership for Peace (PfP) program. The program consists of bilateral cooperation between individual countries and NATO in order to increase stability, diminish threats to peace, and build strengthened security relationships. The individual countries that participate in PfP agree to adhere to the terms of the NATO SOFA. The United States has concluded SOFAs where the underlying authority for the agreement is a treaty ratified by the U.S. Senate. The United States entered into a SOFA with Japan in 1960 under the authority contained in Article VI of the Treaty of Mutual Cooperation and Security previously concluded between the countries. Additionally, the United States entered into a SOFA with Korea in 1967 under the authority in Article V of the Mutual Defense Treaty previously concluded between the two countries. The United States entered into SOFAs with Australia and the Philippines after concluding treaties with the respective countries. In the case of Australia, the U.S. Senate advised ratification of the ANZUS Pact in 1952. In 1963, nine years after ratification of the Pact, Australia and the United States entered into an agreement concerning the status of U.S. forces in Australia. The United States entered into a SOFA with the Philippines in 1993 after concluding a mutual defense treaty with the country in 1952. The agreements with Australia and the Philippines can be distinguished from the agreements with Japan and Korea in that they cite general obligations under the previously concluded treaty, while the agreements with Japan and Korea cite to a specific authority (i.e., Article VI and Article V, respectively) contained in the underlying treaty. The United States is a party to the Inter-American Treaty of Reciprocal Assistance (Rio Treaty), for which the U.S. Senate advised ratification December 8, 1947. The United States then entered into military assistance agreements with Guatemala, Haiti, and Honduras. The agreements cite obligations created under the Rio Treaty and address status of U.S. personnel in each of the countries. The United States expanded on the status protections contained in the military assistance agreements by later concluding SOFAs with each of the countries. In all three, the military assistance agreements were cited as the basis of the new agreement. As previously discussed, Congress approved compacts changing the status of the Marshall Islands, Micronesia, and Palau from former territories and possessions to that of being Freely Associated States (FAS). The language of the compacts calls for a SOFA to be concluded between the respective parties. The Marshall Islands and Micronesia entered into SOFAs with the United States in 2004. Palau entered into a SOFA with United States in 1986. In 1941, the United States entered into an agreement with the United Kingdom regarding the lease of naval and air bases in Newfoundland, Bermuda, Jamaica, St. Lucia, Antigua, Trinidad, and British Guiana. The agreement not only described the physical location being leased, but provided for status of U.S. personnel present in the leased location. The lease agreement, while not a stand-alone SOFA, served the purpose of a SOFA in the specified locations. The United States and the United Kingdom concluded additional lease agreements in the 1950s, 1960s, and 1970s that contained status protection provisions in the leased locations. The United States has entered into SOFAs with countries in support of specific activities or exercises. Generally, these agreements are entered in order to support a joint military exercise or a humanitarian initiative. The SOFA will contain language limiting the scope of the agreement to the specific activity, but sometimes language is present expanding the agreement to cover other activities as agreed upon by the two countries. The agreements are not based upon a treaty or congressional action; rather, they are sole executive agreements. For example, the African Crisis Response Initiative (ACRI) was a bilateral training program introduced by the Clinton Administration in 1997. The United States entered into SOFAs with many African countries specifically addressing the ACRI. Each of the SOFAs contained language limiting the agreements to U.S. personnel temporarily in the country in connection with ACRI activities or other activities as agreed upon by the countries. While the agreement may have been entered as a result of the ACRI, language allowing for other activities, as agreed between the two countries, allows for the SOFA remain in force even though the ACRI does not currently exist. The last group of SOFAs discussed are agreements entered as sole executive agreements without a specified activity or exercise. These agreements contain broad language of applicability. Some of the agreements apply to U.S. personnel "present" in a country, others apply to U.S. personnel "temporarily present" in a country. In addition to time limitations, most of the agreements contain language which attempts to frame the scope of activities. The activities described may be as broad as "official duties" or specific to a particular class of activities (i.e., humanitarian, exercises, and/or training).
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The deadly attacks on Afghan civilians allegedly by a U.S. servicemember have raised questions regarding the Status of Forces Agreement (SOFA) in place between the United States and Afghanistan that would govern whether Afghan law would apply in this circumstance. SOFAs are multilateral or bilateral agreements that generally establish the framework under which U.S. military personnel operate in a foreign country and how domestic laws of the foreign jurisdiction apply toward U.S. personnel in that country. Formal requirements concerning form, content, length, or title of a SOFA do not exist. A SOFA may be written for a specific purpose or activity, or it may anticipate a longer-term relationship and provide for maximum flexibility and applicability. It is generally a stand-alone document concluded as an executive agreement. A SOFA may include many provisions, but the most common issue addressed is which country may exercise criminal jurisdiction over U.S. personnel. Other provisions that may be found in a SOFA include, but are not limited to, the wearing of uniforms, taxes and fees, carrying of weapons, use of radio frequencies, licenses, and customs regulations. SOFAs are often included, along with other types of military agreements, as part of a comprehensive security arrangement with a particular country. A SOFA itself does not constitute a security arrangement; rather, it establishes the rights and privileges of U.S. personnel present in a country in support of the larger security arrangement. SOFAs may be entered based on authority found in previous treaties and congressional actions or as sole executive agreements. The United States is currently party to more than 100 agreements that may be considered SOFAs. A list of current agreements included at the end of this report is categorized in tables according to the underlying source of authority, if any, for each of the SOFAs. In the case of Afghanistan, the SOFA, in force since 2003, provides that U.S. Department of Defense military and civilian personnel are to be accorded status equivalent to that of U.S. Embassy administrative and technical staff under the Vienna Convention on Diplomatic Relations of 1961. Accordingly, U.S. personnel are immune from criminal prosecution by Afghan authorities and are immune from civil and administrative jurisdiction except with respect to acts performed outside the course of their duties. The Government of Afghanistan has further explicitly authorized the U.S. government to exercise criminal jurisdiction over U.S. personnel. Thus, under the existing SOFA, the United States would have jurisdiction over the prosecution of the servicemember who allegedly attacked the Afghan civilians.
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On December 30, 2005, following a series of three continuing resolutions, H.R. 3010 ( H.Rept. 109 - 337 ) , the Departments of Labor, Health and Human Services, and Education, and Related Agencies (L-HHS-ED) Appropriations Act, 2006, was signed into law, as P.L. 109 - 149 . Prior to a 1% rescission for most discretionary activities, the act provides $143.0 billion in discretionary appropriations; the comparable FY2005 amount was $143.5 billion. On October 27, 2005, the Senate amended and passed H.R. 3010 ( S.Rept. 109 - 103 ). The bill would have provided $153.7 billion in discretionary funds for L-HHS-ED programs. On June 24, 2005, the House amended and passed H.R. 3010 ( H.Rept. 109 - 143 ), its version of the FY2005 bill, which would have provided $143.0 billion in discretionary funds for L-HHS-ED programs. On February 7, 2005, the President submitted the FY2006 budget to Congress; the request was for $141.7 billion in discretionary funds for L-HHS-ED programs. Table 1 summarizes the legislative status of FY2006 L-HHS-ED appropriations. In this report, unless stated otherwise, data on FY2005 appropriations and FY2006 appropriations proposals are based on the H.R. 3010 conference agreement ( H.Rept. 109 - 337 , December 13, 2005), which was subsequently signed into law as P.L. 109 - 149 on December 30, 2005. The FY2006 amounts are pre-rescission and do not take into account the 1% cut of most FY2006 discretionary amounts required by P.L. 109 - 148 . Likewise, the FY2006 amounts exclude the supplemental funding for 2005 hurricane relief and for pandemic influenza preparedness enacted through P.L. 109 - 148 . The FY2005 enacted amounts are post-reduction, taking into account the cuts required by P.L. 108 - 447 , the Consolidated Appropriations Act, 2005— these amounts differ from those shown in the H.R. 4818 conference report for FY2005, H.Rept. 108 - 792 , which are pre - reduction amounts . In most cases, data represent net funding for specific programs and activities and take into account current and forward funding and advance appropriations; however, all data are subject to additional budgetary scorekeeping. Except where noted, budget data refer only to those programs within the purview of the L-HHS-ED appropriations bill, and not to all programs within the jurisdiction of the relevant departments and agencies, including funding from other appropriations bills and entitlements funded outside of the annual appropriations process. This report describes the President's proposal for FY2006 appropriations for L-HHS-ED programs, as submitted to Congress on February 7, 2005, and the congressional response to that proposal. It compares the President's FY2006 request to the FY2005 L-HHS-ED amounts. It tracks legislative action and congressional issues related to the L-HHS-ED appropriations bill, with particular attention paid to discretionary programs. In addition, the report summarizes activities related to the annual budget process, such as the congressional budget resolution, continuing resolutions, and supplemental appropriations (see " Related Legislation "). However, the report does not follow specific funding issues related to mandatory L-HHS-ED programs—such as Medicare or Social Security—nor will it follow any authorizing legislation that may be needed prior to funding some of the President's budget initiatives. For a glossary of budget terms and relevant websites, see " Appendix A : Terminology and Web Resources." For funding resources for L-HHS-ED agencies, see " Appendix B : Context of L-HHS-ED Appropriations." The L-HHS-ED bill typically is one of the more controversial of the regular appropriations bills, not only because of the size of its funding total and the scope of its programs, but also because of the continuing importance of various related issues, such as restrictions on the use of federal funds for abortion, stem cell research, or human cloning. This bill provides discretionary funds for three federal departments and 14 related agencies including the Social Security Administration (SSA). Among the various appropriations bills, L-HHS-ED is the largest single source of discretionary funds for domestic federal programs; the Defense bill is the largest source of discretionary funds among all federal programs. According to the Budget of the United States Government Fiscal Year 2006 , Table S-4, the FY2005 L-HHS-ED bill accounted for $142.4 billion (17.3%) and the Defense bill accounted for $390.4 billion (47.5%) of the estimated $822.7 billion total for all federal discretionary budget authority in FY2005. This section summarizes major funding changes proposed for L-HHS-ED and related issues such as 302(b) allocations, advance appropriations, and earmarks for specific projects. Later sections provide details for individual L-HHS-ED departments. Table 2 summarizes the L-HHS-ED appropriations for FY2006, including both discretionary and mandatory appropriations. The table shows various aggregate measures of L-HHS-ED appropriations enacted for FY2005 and proposed for FY2006, including discretionary program level, current year, and advance appropriations, as well as scorekeeping adjustments. Program level appropriations reflect the total discretionary appropriations in a given bill, regardless of the year in which they will be spent, and therefore include advance funding for future years. Unless otherwise specified, appropriations levels in this report refer to program level amounts . Current year appropriations represent discretionary appropriations in a given bill for the current year, plus discretionary appropriations for the current year that were enacted in prior years. Current year discretionary appropriations are similar to the amount counted for the 302(b) allocations ceilings (discussed later). Advance appropriations are funds that will not become available until after the fiscal year for which the appropriations are enacted—for example, funds included in the FY2005 act that cannot be spent before FY2006 at the earliest (discussed later). Scorekeeping adjustments are made to account for special funding situations, as monitored by the Congressional Budget Office (CBO). Because appropriations may consist of mixtures of budget authority enacted in various years, two summary measures are frequently used—program level appropriations and current year appropriations. How are these measures related? For an "operational definition," program level funding equals (a) current year, plus (b) advances for future years, minus (c) advances from prior years, and minus (d) scorekeeping adjustments. Table 2 shows each of these amounts, along with current year funding for mandatory programs and the grand total for L-HHS-ED. On February 7, 2005, the President's FY2006 request was submitted to Congress, two months after the regular FY2005 L-HHS-ED appropriations were signed into law as P.L. 108 - 447 (enacted December 8, 2004). With regard to the President's budget, the primary issues raised during congressional consideration of any appropriations request generally relate to proposed funding changes. The summary below notes changes proposed for FY2006 discretionary budget authority of at least $100 million compared to the FY2005 amount. Viewing this list by itself should be done with caution, since the relative impact of a $100 million funding change to a $500 million program (a 20% increase or decrease) is greater than a $100 million change to a $5 billion program (a 2% increase or decrease). Later in this report, the discussions of budgets for individual departments include tables to compare the FY2006 request with the FY2005 funding for many of the major programs in the L-HHS-ED bill. Overall, $141.7 billion in discretionary appropriations was requested for L-HHS-ED for FY2006, $1.8 billion (1.3%) less than the FY2005 amount of $143.5 billion. For the Department of Labor (DOL), the FY2006 request included a decrease of $276 million for job training programs authorized by the Workforce Investment Act of 1998 (WIA), including $132 million less for WIA Dislocated Worker Assistance. A decrease of $116 million was proposed for the Employment Service. Overall, $11.6 billion in FY2006 discretionary appropriations was requested for DOL, 4.1% less than the FY2005 amount of $12.1 billion. For the Department of Health and Human Services (HHS), the FY2006 request proposed increases of $304 million for Community Health Centers, $145 million for the National Institutes of Health (NIH), $512 million for the Centers for Medicare and Medicaid Services (CMS) Program Management, and $171 million for the Public Health and Social Services Emergency Fund (PHSSEF). The FY2006 request proposed decreases of $288 million for Health Professions programs other than nursing, $101 million for Children's Hospital Graduate Medical Education (CHGME), $470 million for the Centers for Disease Control and Prevention (CDC), and $182 million for the Low-Income Home Energy Assistance Program (LIHEAP). FY2006 funding would have been eliminated for the $483 million Health Care-Related Facilities and Activities and the $637 million Community Services Block Grant (CSBG) programs. Overall, $62.7 billion in FY2006 discretionary appropriations was requested for HHS, 1.7% less than the FY2005 amount of $63.8 billion. For the Department of Education (ED), an FY2006 increase of $974 million was proposed for Elementary and Secondary Education Act of 1965 (ESEA) programs in aggregate. The request proposed increases of $602 million for ESEA Title I, Part A Grants to Local Educational Agencies (LEAs) for the Education for the Disadvantaged, $508 million for Special Education Part B Grants to States under the Individuals with Disabilities Education Act (IDEA), $834 million for Pell Grants, and $175 million for Striving Readers. Proposed new programs included $1.2 billion for a High School Intervention initiative, $250 million for High School Assessments, and $500 million for a Teacher Incentive Fund. Proposed decreases included $258 million less for the Fund for the Improvement of Education (FIE), $369 million for Adult Education, $140 million for the Fund for the Improvement of Postsecondary Education (FIPSE), and $468 million for TRIO programs. FY2006 funding would have been terminated for the $1.3 billion Perkins Vocational Education program, the $225 million Even Start program, the $205 million Comprehensive School Reform, the $496 million Educational Technology State Grants, the $437 million Safe and Drug-Free Schools State Grants, and the $306 million GEAR UP program. Overall, $56.2 billion in FY2006 discretionary appropriations was requested for ED, 0.7% less than the FY2005 amount of $56.6 billion. For the related agencies, the FY2006 budget proposed an increase of $748 million for Administrative Expenses at the Social Security Administration (SSA). Termination of separate funding was proposed for the $446 million SSA Medicare Reform Fund, with continuing SSA responsibilities to be funded under regular SSA Administrative Expenses. No funds were proposed for the two-year advance appropriation for the Corporation for Public Broadcasting (CPB) for FY2008. The CPB was funded at $400 million for FY2007 (under the FY2005 L-HHS-ED bill); the FY2005 CPB funding level was $387 million. Overall, $11.2 billion in FY2006 discretionary appropriations was requested for related agencies, 1.0% more than the FY2005 amount of $11.1 billion. The House Committee on Appropriations reported its version of the FY2006 L-HHS-ED appropriations as H.R. 3010 ( H.Rept. 109 - 143 ) on June 21, 2005. Under the provisions of H.Res. 337 , the House began consideration of the bill on June 23, and amended and passed the bill on June 24, 2005, by a vote of 250 to 151 (Roll Call no. 321). With some reservation, the Administration announced its support for the House bill, as approved by the committee; for details, please see http: // www.whitehouse.gov / omb / legislative / sap / 109 - 1 / hr3010sap - h.pdf . During its consideration of H.R. 3010 , as reported by the House Committee on Appropriations, the House approved 11 amendments to the bill. The amended provisions included restrictions on HHS regarding certain health-related programs being used to treat sexual or erectile dysfunction among sex offenders (§518); repeal of a proposed $100 million rescission of FY2006 appropriations for the CPB (§519); prohibition on ED from enforcing the Inspector General's November 2003 final audit report regarding 20 Arizona charter schools (§520); restrictions on the Pension Benefit Guaranty Corporation (PBGC) regarding its role in the restructuring of pension benefits by the UAL Corporation (United Air Lines) (§521); a prohibition on the inclusion of Social Security numbers on Medicare identification cards (§522); restrictions on SSA regarding the implementation of a totalization agreement with Mexico (§528); and restrictions on ED regarding special allowances for certain student loans (§529). Overall, the House proposal, as passed, would have provided program level discretionary appropriations of $143.0 billion for L-HHS-ED programs for FY2006. The President requested $141.7 billion; the FY2005 amount was $143.5 billion. The House bill differed from the President's request in a number of details. For DOL, the House bill would have funded the WIA Dislocated Worker Assistance State Grants at $1.2 billion, $118 million more than requested. The WIA Community College program would have received $125 million, $125 million less than requested. Overall, the House bill would have provided $11.7 billion in discretionary funds for DOL; $11.6 billion was requested; and $12.1 billion was provided for FY2005. For HHS, the House bill would have funded Community Health Centers at $1.8 billion, $204 million less than requested. Children's Hospital Graduate Medical Education (CHGME) would have received $300 million, $100 million more than requested. The Agency for Healthcare Research and Quality (AHRQ) would have received a direct appropriation of $319 million; the request was for $319 million in indirect appropriations. Community Services Block Grant (CSBG) would have received $320 million; no funds were requested. The Public Health and Social Services Emergency Fund (PHSSEF) would have received $184 million, $2.2 billion less than the request of $2.4 billion; however, the House bill would have directly appropriated $2.1 billion for bioterrorism activities to the Health Resources and Services Administration (HRSA) ($0.5 billion) and the CDC ($1.6 billion), funding that in previous years would have been appropriated indirectly through the PHSSEF for the same activities. Overall, the House bill would have provided $63.2 billion in discretionary funds for HHS; $62.7 billion was requested; and $63.8 billion was provided for FY2005. For ED, the House bill would have funded ESEA programs in aggregate at $23.6 billion for FY2006, $1.8 billion less than requested. ESEA Title I, Part A Grants to LEAs would have received $12.8 billion, $502 million less than requested. Even Start would have received $200 million; no funds were requested. Striving Readers would have received $30 million, $170 million less than requested. The High School Intervention initiative would not have been funded; $1.2 billion was requested. Educational Technology State Grants would have been funded at $300 million; no funds were requested. The High School Assessments initiative would not have been funded; $250 million was requested. FIE would have received $27 million, $129 million less than requested. Safe and Drug-Free Schools State Grants would have received $400 million; no funds were requested. The Special Education Part B Grants to States program under IDEA would have received $10.7 billion, $358 million less than requested. The Perkins Vocational Education program would have received $1.3 billion; no funds were requested. Adult Education would have received $585 million, $369 million more than requested. Pell Grants would have received $13.4 billion, $184 million more than requested. The Pell Grants accumulated shortfall from prior year awards, currently estimated at $4.3 billion, would have been paid off, pursuant to the FY2006 congressional budget resolution. The House bill would not have agreed to the budget proposal to unify student aid administrative activities in a single account. TRIO programs would have received $837 million; $468 million more than requested. GEAR UP would have received $306 million; no funds were requested. Overall, the House bill would have provided $56.7 billion in discretionary funds for ED; $56.2 billion was requested; and $56.6 billion was provided for FY2005. For the related agencies, the House bill would have provided $6.4 billion for SSA Administrative Expenses, $108 million less than requested. The bill would have provided $400 million for the CPB for an advance appropriation for FY2008; no funds were requested. As reported, the House bill would have rescinded $100 million of FY2006 CPB funds (from $400 million previously appropriated for FY2006); a rescission of $10 million was requested. However, as passed, the House bill would not have rescinded any FY2006 CPB funds. Overall, the House bill would have provided $11.5 billion in discretionary funds for the related agencies; $11.2 billion was requested; and $11.1 billion was provided for FY2005. The Senate Committee on Appropriations reported its version of the FY2006 L-HHS-ED appropriations as H.R. 3010 ( S.Rept. 109 - 103 ) on July 14, 2005, by a vote of 27 to 0. The Senate began consideration of the bill on October 21, 2005, and amended and passed the bill on October 27, 2005, by a vote of 94 to 3 (Roll Call no. 281). The Senate version of H.R. 3010 , as passed, would have provided program level discretionary appropriations of $153.7 billion for L-HHS-ED programs for FY2006. The comparable House amount was $143.0 billion, and the President requested $141.7 billion. The FY2005 comparable amount was $143.5 billion. The Senate bill differed from the House bill in a number of details regarding discretionary appropriations. For DOL, the Senate bill would have funded WIA programs in aggregate at a level $122 million more than the House amount. Overall, the bill would have provided $11.9 billion in discretionary appropriations for DOL programs, $0.2 billion more than the House and $0.3 billion more than the request, but $0.2 billion less than in FY2005. For HHS, the Senate bill would have provided $251 million more than the House bill for Health Professions other than nursing, $481 million more for Health Care-Related Facilities and Activities, $908 million more for NIH, $176 million more for LIHEAP, and $317 million more for the CSBG. Overall, the bill would have provided $65.4 billion in discretionary appropriations for HHS programs, $2.2 billion more than the House, $2.7 billion more than the request, and $1.6 billion more than in FY2005. For ED, the Senate bill would have provided $125 million more for Educational Technology State Grants, $391 million more for FIE, and $113 million more for FIPSE. The bill would have provided $100 million less for Safe and Drug-Free Schools State Grants and $206 million less for Pell Grants. It would have eliminated funding for Even Start ($200 million in the House bill) and the Teacher Incentive Fund initiative ($100 million in the House bill). Overall, the bill would have provided $56.7 billion in discretionary appropriations for ED programs, the same as the House, but $0.5 billion more than the request and $0.1 billion more than in FY2005. For the related agencies, the Senate bill would have provided $187 million less than the House bill for Supplemental Security Income (SSI) discretionary activities and $236 million more for SSA Administrative Expenses. Overall, the bill would have provided $11.7 billion in discretionary appropriations for related agencies, $0.2 billion more than the House, $0.5 billion more than the request, and $0.6 billion more than in FY2005. H.R. 3010 , the Departments of Labor, Health and Human Services, and Education, and Related Agencies Appropriations Act, 2006, was signed into law on December 30, 2005, as P.L. 109 - 149 . The first conference report on H.R. 3010 , H.Rept. 109 - 300 (November 16, 2005), failed to pass the House on November 17, 2005, by a vote of 209 to 224 (Roll Call no. 598). A second conference agreement provided somewhat more funding for Community Health Centers, Health Professions, and Head Start by reducing PHSSEF funds to provide an offset. The second conference agreement on H.R. 3010 , H.Rept. 109 - 337 (December 13, 2005), passed the House on December 14, 2005, by a vote of 215 to 213 (Roll Call no. 628). The bill was approved by the Senate on December 21, by unanimous consent, but was considered adopted by the Senate on December 22, 2005, when the House agreed to S.Con.Res. 74 concerning the enrollment of H.R. 2863 , the Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006; H.R. 2863 was signed into law on December 30, 2005, as P.L. 109 - 148 (see " Related Legislation .") P.L. 109 - 148 also required a 1% cut of most FY2006 discretionary amounts enacted through P.L. 109 - 149 . As shown in Table 2 , the FY2006 L-HHS-ED discretionary funding total was $143.0 billion, as enacted through P.L. 108 - 149 , compared to $143.5 billion in FY2005. Even prior to the P.L. 109 - 148 rescission, FY2006 discretionary funding was reduced for each of the major departments—DOL, HHS, and ED—compared to FY2005 amounts. At the same time, it may be noted that mandatory L-HHS-ED spending was estimated to increase by more than $100 billion between FY2005 and FY2006. Compared to FY2005 funding levels, the FY2006 discretionary amounts were increased or decreased by at least $100 million for the following programs, prior to the application of the 1% rescission. Additional details and funding amounts are provided in separate agency summaries. For DOL, the WIA program in aggregate received $225 million less than in FY2005. Program level funding for the WIA Community College program was $124 million less than in FY2005; in addition, $125 million was rescinded from FY2005 funding for this program. Unemployment Compensation received $140 million less than in FY2005. Overall, DOL received $11.6 billion in discretionary funding, $0.5 billion less than in FY2005. For HHS, funding was increased by $155 million for Community Health Centers, $252 million for NIH, and $506 million for CMS Program Management. First-year funding of $500 million was provided for Bioterrorism Hospital Grants and $1.6 billion for CDC Terrorism Preparedness and Response (TPAR). Funding was decreased by $153 million for Health Professions other than nursing, $219 million for CDC activities other than TPAR, and $2.3 billion for PHSSEF. Funding was eliminated for Health Care-Related Facilities and Activities, which received $483 million in FY2005. Overall, HHS received $63.4 billion in discretionary funding, $0.4 billion less than in FY2005. For ED, funding was increased by $100 million for ESEA Title I Part A Grants to LEAs, $100 million for IDEA Part B Grants to States, and $812 million for Pell Grants. Funding was decreased by $780 million for ESEA programs in aggregate, $197 million for Comprehensive School Reform, $221 million for Educational Technology State Grants, $254 million for FIE, and $140 million for FIPSE. The Teacher Incentive Fund initiative received an initial $100 million. The Pell Grants accumulated shortfall, estimated at $4.3 billion, was paid off. Overall, ED received $56.5 billion in discretionary funding, $0.1 billion less than in FY2005. For the related agencies, SSI discretionary activities received $254 million less than in FY2005, and SSA Administrative Expenses received $723 million more than the FY2005 amount. Overall, the related agencies received $11.5 billion in discretionary funding, $0.4 billion more than in FY2005. In addition to enacting appropriations, P.L. 109 - 149 amended several programs or otherwise modified the provisions that govern the use of appropriated funds for L-HHS-ED. Section 102 establishes within 90 days of enactment an Office of Job Corps within the Office of the Secretary of Labor. The new office will carry out the functions of the Job Corps program, and appropriations related to the Job Corps are to be transferred to that office. Section 107 requires that the FY2007 congressional budget justifications for DOL be submitted to the appropriations committees in the format and level of detail that ED used for its FY2006 justifications. Section 108 requires DOL to submit an operating plan to the appropriations committees no later than July 1, 2006, that outlines the planned allocations by major project and activity of the funds for the Pilots, Demonstrations, and Research program under §171 of WIA. The conferees noted ( H.Rept. 109-337 ) that such an operating plan was requested in report language for FY2005, but the DOL failed to respond and the report is now six months overdue. The conferees now direct DOL to submit detailed quarterly reports beginning in January 2006 on the status, amount, and recipient of each §171 project for each quarter of FY2006, and include whether the award was made competitively or by sole source and, for each sole source award, the justification and expected outcome of each such award. Section 209 authorizes the Director of NIH jointly with the Director of the Office of AIDS Research to transfer up to 3% of the funds between any two institutes or centers for research related to human immunodeficiency virus. Section 222 delays the implementation of regulations concerning power wheel chairs from taking effect prior to April 1, 2006. Sections 225 and 226 rescind the unobligated balances (amounts unspecified) from Health Professions and Nursing Student Loans. Section 227 makes aircraft otherwise available to the CDC available to the Secretary of HHS, the Director of the CDC, and HHS employees accompanying the Secretary or Director in such travel. The conferees note that current law is too restrictive for official travel in times of national emergency. Section 305 appropriates $4.3 billion for a one-time elimination the estimated funding shortfall for Pell Grants in accordance with §303 of H.Con.Res. 95 , the FY2006 budget resolution. Section 306 amends ESEA Title V, Part D, Subpart 12, which authorizes the Alaska Native and Native Hawaiian Education Through Cultural and Historic Organizations Act, to: (a) include any federally recognized Indian tribe in Mississippi in the program; and (b) include the Mississippi Band of Choctaw Indians as eligible for required annual grants of at least $1 million for internship and apprenticeship programs. Section 518 relaxes the residency requirements under the Immigration and Nationality Act in certain specific instances, but the modification was repealed on January 1, 2006. The purpose was "to reduce the residency requirement and limit the adjudication period for the naturalization of aliens with extraordinary ability so that such aliens may represent the United States at international events." Section 519 protects candidates for federal scientific advisory committees from the unauthorized disclosure of their political affiliation or voting history. Several general provisions were considered during preliminary stages of the appropriations process but were not included in the final FY2006 L-HHS-ED conference agreement. The following proposals were not included : a House proposal to prohibit the use of social security numbers on ID cards of Medicare beneficiaries (however, the conferees state that they consider this issue as one of "utmost urgency" and expect the Secretary of HHS to accelerate plans to convert ID cards ( H.Rept. 109 - 337 )); a Senate proposal to remove inaccurate medical information from abstinence education programs; a Senate proposal to prohibit the use of funds for drugs to treat erectile dysfunction; a House proposal pertaining to a "totalization agreement" with Mexico; and a Senate proposal to require that any "limitation, directive, or earmarking" included in either the House or Senate reports accompanying H.R. 3010 must also be included in the conference report or joint explanatory statement in order to be considered approved by both Houses of Congress. Some of the FY2006 emergency appropriations for hurricane disaster assistance and avian flu preparedness were offset by an "across-the-board" rescission. Section 3801 of P.L. 109 - 148 required a 1% cut from most FY2006 discretionary appropriations for each program, project, or activity. No federal agency was exempted except for the Department of Veterans Affairs. Emergency FY2006 appropriations were excluded from the rescission, as were advance appropriations for FY2007 and beyond. The House Committee on Appropriations has estimated that this cut will reduce total federal spending by approximately $8.5 billion. The actual application of this reduction to individual accounts and line items is to be determined by the Office of Management and Budget (OMB) and the individual agencies. Within 30 days of enactment, OMB is required to report back to Committees on Appropriations specifying each account and amount of the reduction resulting from the 1% rescission. The FY2006 conference data in this report are based on the funding levels stated in P.L. 109 - 149 ( H.Rept. 109 - 337 ), and have not been adjusted by the application of the rescission procedures required by P.L. 109 - 148 , as the exact rescission for each program was not specified by Congress . Earmarking of funds for specific projects in appropriations bills has become a topic of contention for Congress and the Administration, and the issue extends to L-HHS-ED projects. In the case of L-HHS-ED appropriations, earmarks may be defined as funds set aside within an account for a specific organization or location, either in the appropriation act or its conference report. Typically, the authorizing statute gives the general purpose for use of appropriations, such as "projects for the improvement of postsecondary education," but an earmark designates a specific amount for a specific recipient. Such designations bypass the usual competitive distribution of awards by a federal agency, but otherwise require recipients to follow standard federal financial and other administrative procedures. The President has urged the elimination of congressional earmarks in appropriations in recent years, but, with the exception of FY2006 L-HHS-ED appropriations, Congress has continued the practice. Earmarks in L-HHS-ED appropriations generally have increased during the past decade, along with the total appropriation for L-HHS-ED programs. However, a major change in direction occurred in FY2006. Virtually all earmarks were eliminated from the FY2006 L-HHS-ED bill; in general, the funding previously associated with L-HHS-ED earmarks was eliminated as well. In particular, there were estimated to be more than 3,000 in FY2005, totaling nearly $1.2 billion; for FY2006, the estimate was eight earmarks for $28.5 million. Table 3 shows the total annual L-HHS-ED appropriation, the estimated amount earmarked, the earmarked amount as a percent of the total, and the estimated number of earmarks. The maximum budget authority for annual L-HHS-ED appropriations is determined through a two-stage congressional budget process. In the first stage, Congress establishes the 302(a) allocations —the maximum spending totals for Congress for a given fiscal year. This task is sometimes accomplished through the concurrent resolution on the budget, where spending totals are specified through the statement of managers in the conference report. In years when the House and Senate do not reach a budget agreement, these totals may be set through leadership arrangements in each chamber. The spending amounts are allotted among the various committees, and—for the House and Senate Appropriations Committees—the amounts include the total discretionary budget authority available for enactment in annual appropriations. For FY2006, the concurrent resolution on the budget was H.Con.Res. 95 , to which the House and Senate agreed on April 28, 2005. The conference report established $843.0 billion as the 302(a) allocation ceiling for the total discretionary budget authority for FY2006; that amount represents an increase of $3.0 billion relative to the FY2005 discretionary budget authority of $840.0 billion ( H.Rept. 109 - 62 , pp. 31 and 86). For legislative details, please see " Related Legislation ." In the second stage of the annual congressional budget process, the House and Senate Appropriations Committees separately establish the 302(b) allocations —the maximum discretionary budget authority available to each subcommittee for each annual appropriations bill. The total of these allocations must not exceed the 302(a) discretionary total. This process creates the basis for enforcing discretionary budget discipline, since any appropriations bill reported with a total above the ceiling is subject to a point of order. The 302(b) allocations can and often do get adjusted during the year as the various appropriations bills progress toward final enactment. Table 4 shows the 302(b) discretionary allocations for the FY2006 L-HHS-ED appropriations for the House and Senate Committees on Appropriations. Comparable amounts for the FY2005 appropriations and the President's FY2006 budget request are also shown. Both the 302(a) and 302(b) allocations regularly become contested issues in their own right. Advance appropriations occur when funds enacted in one fiscal year are not available for obligation until a subsequent fiscal year. For example, P.L. 108 - 447 , which enacted FY2005 L-HHS-ED appropriations, provided $400 million for the Corporation for Public Broadcasting (CPB) for use in FY2007. Advance appropriations may be used to meet several objectives. These might include the provision of long-term budget information to recipients, such as state and local educational systems, to enable better planning of future program activities and personnel levels. The more contentious aspect of advance appropriations, however, involves how they are counted in budget ceilings. Advance appropriations avoid the 302(a) and 302(b) allocation ceilings for the current year, but must be counted in the year in which they first become available for obligation. This procedure uses up ahead of time part of what will be counted against the allocation ceiling in future years. In FY2002, the President's budget proposed the elimination of advance appropriations for federal discretionary programs, including those for L-HHS-ED programs. Congress rejected that proposal, and the proposal has not been repeated. For an example of the impact of advance appropriations on program administration, see discussion in " Department of Education ." The FY1999 and FY2000 annual L-HHS-ED appropriations bills provided significant increases in advance appropriations for discretionary programs. These amounts stabilized at approximately $19 billion in FY2000, increased to $21.5 billion in FY2003, and returned to $19.3 billion in FY2004 and FY2005. For FY2006, the President requested $18.8 billion in advance appropriations for L-HHS-ED, but P.L. 109 - 149 provided $19.3 billion, or 13.5% of the $143.0 billion of FY2006 discretionary appropriations for L-HHS-ED. From FY1998 to the present, the advance appropriations enacted in L-HHS-ED bills have been as follows: FY1998, $4.0 billion; FY1999, $8.9 billion; FY2000, $19.0 billion; FY2001, $18.8 billion; FY2002, $19.3 billion; FY2003, $21.5 billion; FY2004, $19.3 billion; FY2005, $19.3 billion; FY2006, President's budget request, $18.8 billion; FY2006, House bill $19.3 billion; FY2006, Senate bill $19.3 billion; and FY2006, P.L. 109-149 (pre-rescission), $19.3 billion. The L-HHS-ED appropriations bills include both mandatory and discretionary funds; however, the Appropriations Committees fully control only the discretionary funds. Mandatory funding levels for programs included in the annual appropriations bills are modified through changes in the authorizing legislation. Typically, these changes are accomplished through authorizing committees by means of reconciliation legislation, and not through appropriations committees in annual appropriations bills. Table 5 shows the trend in discretionary budget authority enacted in the L-HHS-ED appropriations for FY2001 through FY2005. During the past five years, L-HHS-ED discretionary funds have grown from $109.4 billion in FY2001 to an estimated $142.4 billion in FY2005, an increase of $33.0 billion, or 30.2%. During this same period—and using the Gross Domestic Product (GDP) deflator to adjust for inflation—L-HHS-ED discretionary funds in estimated FY2005 dollars have grown from $118.0 billion in FY2001 to $142.4 billion in FY2005, an increase of $24.4 billion in estimated FY2005 dollars, or 20.7%. L-HHS-ED discretionary funds as a percent of total federal discretionary funds decreased from a 16.5% share in FY2001 to an estimated 15.6% share in FY2005. L-HHS-ED discretionary funds as a percent of total federal budget authority increased slightly from a 5.6% share in FY2001 to an estimated 5.7% share in FY2005. FY2005 discretionary appropriations for the Department of Labor (DOL) were $12.1 billion. For FY2006, the budget request was $11.6 billion, $0.5 billion (4.1%) less than the FY2005 amount, as shown in Table 6 . The House bill would have provided $11.7 billion for DOL discretionary programs in FY2006, and the Senate bill would have provided $11.8 billion. The FY2006 conference agreement, as enacted, provided $11.6 billion in discretionary funding prior to the 1% cut required by P.L. 109 - 148 . Mandatory DOL programs included in the FY2005 L-HHS-ED bill were funded at $3.3 billion, and consist of the Federal Unemployment Benefits and Allowances ($1.1 billion), Black Lung Disability Trust Fund ($1.1 billion), Advances to the Unemployment Insurance and Other Trust Funds ($0.5 billion), Special Benefits for Disabled Coal Miners ($0.4 billion), Employment Standards Administration (ESA) Special Benefits ($0.2 billion), and Energy Employees Occupational Illness Compensation Fund ($40 million). The President's FY2006 budget request for DOL proposed changes in funding for a number of discretionary activities; proposed changes of at least $100 million were as follows. The Workforce Investment Act of 1998 (WIA) programs, funded in the aggregate at $5.3 billion in FY2005, would have been decreased by $276 million under the President's FY2006 budget request. The WIA Dislocated Worker Assistance programs, funded at $1.5 billion in FY2005, would have been decreased by $132 million in FY2006, including a decrease of $118 million for state grants. The Employment Service, funded at $846 million in FY2005, would have been decreased by $116 million, including a decrease of $85 million for state grants. For DOL programs, the House bill differed from the President's budget request primarily with respect to two WIA programs. The House bill would have provided $1.2 billion for WIA Dislocated Worker Assistance State Grants, $118 million more than requested and the same as the FY2005 amount. The WIA Community College program would have received $125 million, which is $125 million less than requested and $124 million less than the funds available from all sources for FY2005. Also, the House bill would have rescinded $125 million of FY2005 funds for this program, for a proposed net increase of $1 million in FY2006. For DOL programs, the Senate bill differed from the House bill by at least $100 million in several respects. WIA programs in aggregate would have received $5.3 billion, $122 million more than the House amount. The request was for $5.1 billion; $5.3 billion was provided in FY2005. WIA Community Colleges would have received $125 million indirectly through the WIA National Reserve rather than directly, as in the House bill. The request was for $250 million, provided directly; in FY2005, the program received $124 million directly and $125 million indirectly. The Senate bill would not have rescinded any FY2005 funds for the WIA Community College program; the House bill would have rescinded $125 million. Unemployment Compensation would have received $2.5 billion, $148 million less than the House amount. The request was for $2.6 billion; $2.7 billion was the FY2005 amount. The conference agreement, as enacted, changed discretionary spending by at least $100 million for several DOL programs, compared to the FY2005 funding levels. WIA programs in aggregate received $5.1 billion, $52 million more than requested but $225 million less than the FY2005 amount of $5.3 billion. The WIA Community College program received $125 million indirectly from the WIA National Reserve, with no funds provided directly. The request was for $250 million, to have been provided directly. In FY2005, the program received $124 million directly and $125 million indirectly through the National Reserve. In addition, the conference agreement rescinded $125 million of the FY2005 appropriation for the Community College program. Unemployment Compensation was funded at $2.5 billion, $100 million less than requested and $140 million less than the FY2005 amount of $2.7 billion. CRS Report RS22077, Unemplo yment Compensation (UC) and the Unemplo yment Trust Fund (UTF): Funding UC Benefits , by [author name scrubbed] and [author name scrubbed]. CRS Report RS20244, The Workforce Investment Act (WIA): Program - by - Program Overview and FY2006 Funding of Title I Training Programs , by [author name scrubbed]. Department of Labor http: // www.dol.gov http: // www.dol.gov / _sec / Budget2006 / overview.htm http: // www.doleta.gov / budget / 06bud.cfm Table 7 shows the appropriations details for offices and major programs of DOL. FY2005 discretionary appropriations for the Department of Health and Human Services (HHS) were $63.8 billion. For FY2006, the budget request was $62.7 billion, $1.1 billion (1.7%) less than the FY2005 amount, as shown in Table 8 . The House bill would have provided $63.2 billion for HHS discretionary activities in FY2006, and the Senate bill would have provided $73.4 billion. The FY2006 conference agreement, as enacted, provided $63.4 billion in discretionary funding prior to the 1% cut required by P.L. 109 - 148 . Mandatory HHS programs included in the L-HHS-ED bill were funded at $315.4 billion in FY2005, and consist primarily of Medicaid Grants to States ($182.3 billion), Payments to Medicare Trust Funds ($119.8 billion—virtually all of this amount was for Part B Supplementary Medical Insurance), Foster Care and Adoption ($6.8 billion), Family Support Payments to States ($4.1 billion), and the Social Services Block Grant ($1.7 billion). The President's FY2006 budget request for HHS proposed increased support primarily for Health Centers and the administration of Medicare and Medicaid. At the same time, it proposed reduced funding for various other health and human resources programs, as indicated below. Discretionary spending increases of at least $100 million were requested in the President's FY2006 budget for the following programs. Community Health Centers, funded at $1.7 billion in FY2005, would have been increased by $304 million under the President's budget request. The National Institutes of Health (NIH), funded at $28.4 billion in FY2005, would have been increased by $145 million. The NIH supports activities that maintain and improve health through medical science; for additional information, please see CRS Report RL32799, Federal Research and Development Funding: FY2006 , by [author name scrubbed] et al. The Centers for Medicare and Medicaid Services (CMS) Program Management for the administration of the Medicare and Medicaid programs, funded at $2.7 billion in FY2005, would have been increased by $512 million under the request. The Public Health and Social Services Emergency Fund (PHSSEF), funded at $2.4 billion in FY2005, would have been increased by $171 million. These funds are used primarily for bioterrorism activities. Along with the increases proposed above, the President's FY2006 budget would have decreased or terminated funding for several programs. Health Professions programs other than those for nursing, funded at $299 million in FY2005, would have been decreased by $288 million. Children's Hospital Graduate Medical Education (CHGME), funded at $301 million in FY2005, would have been reduced by $101 million. The CDC, funded at $4.5 billion in FY2005, would have been reduced by $470 million, including elimination of the Preventive Health and Health Services Block Grant (funded at $119 million in FY2005) and a reduction to Building and Facilities of $240 million (funded at $270 million in FY2005). Low-Income Home Energy Assistance Program (LIHEAP), funded at $2.2 billion in FY2005, would have been decreased by $182 million. Health Care-Related Facilities and Activities, funded at $483 million in FY2005, would have been eliminated; funds for this program have been earmarked in past years for construction and renovation projects for designated recipients. The Community Services Block Grant (CSBG), funded at $637 million in FY2005, would have been eliminated. For HHS programs, the House bill differed from the President's budget request in several respects. Community Health Centers would have received $1.8 billion under the House bill, $204 million less than requested; it received $1.7 billion in FY2005. Children's Hospital Graduate Medical Education (CHGME) would have received $300 million, $100 million more than requested; it received $301 million in FY2005. Bioterrorism Hospital Grants would have received $500 million; these funds were included under PHSSEF in the request and the FY2005 appropriation. The Centers for Disease Control and Prevention (CDC) Terrorism Preparedness and Response would have received $1.6 billion; these funds were included under PHSSEF in the request and the FY2005 appropriation. Other activities at the CDC would have received $4.3 billion, $288 million more than requested; they received $4.5 billion in FY2005. The Agency for Healthcare Research and Quality (AHRQ) would have received a direct appropriation of $319 million; the request was for $319 million in indirect appropriations from other HHS programs, the same as was provided in FY2005. The CSBG would have received $320 million; no funds were requested, and $637 million was provided in FY2005. The PHSSEF would have received $184 million, $2.4 billion less than the request and $2.2 billion less than the FY2005 amount. However, the House bill would have directly appropriated $2.1 billion for bioterrorism activities at the Health Resources and Services Administration (HRSA) ($0.5 billion) and the CDC ($1.6 billion), appropriations that in previous years would have been provided indirectly through the PHSSEF for these activities. For HHS programs, the Senate bill differed from the House bill by at least $100 million for several programs. Health Professions other than nursing would have received $298 million, $251 million more than the House amount. The request was for $11 million; $299 million was provided in FY2005. Health Care-Related Facilities and Activities would have received $393 million. No funds would have been provided under the House bill, and no funds were requested; $483 million was provided in FY2005. CDC activities other than Terrorism Preparedness and Response would have received $4.5 billion, $169 million more than the House amount. The request was for $4.0 billion; $4.5 billion was provided in FY2005. NIH would have been funded at $29.4 billion, $908 million more than the House amount. The request was for $28.5 billion; $28.4 billion was provided in FY2005. The AHRQ would not have been funded directly but would have been provided $324 million of program level support. The request was for $319 million of indirect program level support, the same as was provided in FY2005. The House would have provided $319 million directly for the AHRQ. LIHEAP would have been funded at $2.2 billion, $176 million more than the House amount. The request was for $2.0 billion; $2.2 billion was provided in FY2005. The CSBG would have been funded at $637 million, $317 million more than the House amount. No funds were requested; $637 million was provided in FY2005. The PHSSEF would have been funded at $8.2 billion, $8.0 billion more than the House amount. The request was for $2.6 billion; $2.4 billion was provided in FY2005. The Senate amount would have included $8.1 billion in emergency funds for pandemic flu activities. The conference agreement, as enacted, changed discretionary spending by at least $100 million for several HHS activities, compared to the FY2005 funding levels. Community Health Centers received $1.9 billion, $149 million less than requested but $155 million more than the FY2005 amount of $1.7 billion. Health Professions other than nursing received $146 million, $135 million more than requested but $153 million less than the FY2005 amount of $299 million. Health Care-Related Facilities and Activities received no funds, the same as was requested; $483 million was provided in FY2005. Bioterrorism Hospital Grants received $500 million; no funds were requested directly for these grants and no funds were appropriated directly in FY2005. CDC Terrorism Preparedness and Response received $1.6 billion; no funds were requested directly for these activities and no funds were appropriated directly in FY2005. Other CDC activities were funded at $4.3 billion, $251 million more than requested but $219 million less than the FY2005 amount of $4.5 billion. NIH received $28.6 billion, $107 million more than requested and $252 million more than the FY2005 amount of $28.4 billion. CMS Program Management received $3.2 billion, $6 million less than requested but $506 million more than the FY2005 amount of $2.7 billion. PHSSEF received $66 million, $2.5 billion less than requested and $2.3 billion less than the FY2005 amount of $2.4 billion. However, in FY2005, this account funded activities related to terrorism, which in FY2006 were funded in HRSA, CDC, and NIH, such as the $0.5 billion for Bioterrorism Hospital Grants and $1.6 billion for Terrorism Preparedness and Response. Annual L-HHS-ED appropriations regularly contain restrictions that limit—for one year at a time—the circumstances under which federal funds can be used to pay for abortions. Restrictions on appropriated funds, popularly referred to as the "Hyde Amendments," generally apply to all L-HHS-ED funds. Medicaid is the largest program affected. Given the perennial volatility of this issue, these provisions may be revisited at any time during the annual consideration of L-HHS-ED appropriations. From FY1977 to FY1993, abortions could be funded only when the life of the mother was endangered. The 103 rd Congress modified the provisions to permit federal funding of abortions in cases of rape or incest. The FY1998 L-HHS-ED appropriations, P.L. 105 - 78 , extended the Hyde provisions to prohibit the use of federal funds to buy managed care packages that include abortion coverage, except in the cases of rape, incest, or life endangerment. The FY1999 L-HHS-ED appropriations, P.L. 105 - 277 , continued the FY1998 Hyde Amendments with two added provisions: (1) a clarification to ensure that the restrictions apply to all trust fund programs (namely, Medicare), and (2) an assurance that Medicare + Choice plans cannot require the provision of abortion services. No changes were made from FY2000 through FY2004. The FY2005 L-HHS-ED appropriations, P.L. 108 - 447 ( H.Rept. 108 - 792 , p. 1271), added an additional restriction, popularly referred to as the "Weldon Amendment," that prevents federal programs or state or local governments that receive L-HHS-ED funds from discriminating against health care entities that do not provide or pay for abortions or abortion services. The FY2006 L-HHS-ED appropriations retained the Weldon amendment language and the Hyde restrictions. These provisions can be found in §507 and §508 of P.L. 109 - 149 . For additional information, please see CRS Issue Brief IB95095, Abortion: Legislative Response . On August 9, 2001, President Bush announced a decision to use federal funds for research on human embryonic stem cells for the first time, but limited the funding to "existing stem cell lines." Embryonic stem cells have the ability to develop into virtually any cell in the body, and have the potential to treat medical conditions such as diabetes and Parkinson's disease. In response to the President's announcement, the NIH developed a registry of 78 embryonic stem cell lines eligible for use in federally funded research. However, many of these lines were found to be unavailable or unsuitable for research; only 22 of the 78 eligible stem cell lines are currently available for general research purposes. Some scientists are concerned about the quality, longevity, and availability of eligible stem cell lines. Many believe that the advancement of research requires new stem cell lines, possibly including stem cells derived from cloned embryos. The use of stem cells, however, raises ethical issues regarding embryo and fetal tissue research because the embryos are destroyed in order to obtain the cells. Given its potential volatility, the issue may be revisited at any time during the annual consideration of L-HHS-ED appropriations. An FY1996 appropriations continuing resolution, P.L. 104 - 99 (§128), prohibited NIH funds from being used for the creation of human embryos for research purposes or for research in which human embryos are destroyed. Since FY1997, annual appropriations acts have extended the prohibition to all L-HHS-ED funds, with the NIH as the agency primarily affected. The restriction, originally introduced by Representative Jay Dickey, has not changed significantly since it was first enacted, and the FY2006 L-HHS-ED appropriations continued the restrictions without significant change. The current provision can be found in §509 of P.L. 109 - 149 . For additional information, please see CRS Report RL31015, Stem Cell Research ; CRS Report RL31358, Human Cloning , by [author name scrubbed] and [author name scrubbed]; and CRS Report RS21044, Legal Issues Related to Human Embryonic Stem Cell Research , by [author name scrubbed]. CRS Issue Brief IB95095, Abortion: Legislative Response , by Karen J. Lewis and [author name scrubbed]. CRS Report RL30731, AIDS Funding for Federal Government Programs: FY1981 - FY2009 , by [author name scrubbed]. CRS Report 98-476, AIDS: Ryan White CARE Act , by [author name scrubbed] and [author name scrubbed]. CRS Report RL30785, The Child Care and Development Block Grant: Background and Funding , by [author name scrubbed]. CRS Report RL32872, Community Services Block Grants (CSBG): Background and Funding , by [author name scrubbed]. CRS Report RL32046, Federal Health Centers Program , by Barbara English. CRS Report RL32799, Federal Research and Development Funding: FY2006 , by [author name scrubbed] et al. CRS Report RL30952, Head Start: Background and Issues , by [author name scrubbed]. CRS Report RL31865, The Low - Income Home Energy Assistance Program (LIHEAP): Program and Funding , by [author name scrubbed]. CRS Report 97-350, Maternal and Child Health Block Grant , by Sharon Kearney Coleman. CRS Report RL31336, The Older Americans Act: Programs, Funding, and 2006 Reauthorization (P.L. 109-365) , by [author name scrubbed] and [author name scrubbed]. CRS Report RL31719, An Overview of the U.S. Public Health System in the Context of Emergency Preparedness , by [author name scrubbed]. CRS Report RL33145, Pandemic Influenza: Domestic Preparedness Efforts , by [author name scrubbed]. CRS Report RL31940, Public Health Service Operating Agencies , by [author name scrubbed]. CRS Report RL31015, Stem Cell Research , by [author name scrubbed] and [author name scrubbed]. CRS Report RL31358, Human Cloning , by [author name scrubbed] and [author name scrubbed]. CRS Report RS21044, Legal Issues Related to Human Embryonic Stem Cell Research , by [author name scrubbed]. CRS Report RL33644, Title X (Public Health Service Act) Family Planning Program , by [author name scrubbed]. Department of Health and Human Services http: // www.hhs.gov http: // www.hhs.gov / budget / document.htm Table 9 shows the appropriations details for offices and major programs of HHS. FY2005 discretionary appropriations for the Department of Education (ED) were $56.6 billion. For FY2006, the budget request was $56.2 billion, $0.4 billion (0.7%) less than the FY2005 amount, as shown in Table 10 . The House bill would have provided $56.7 billion for ED discretionary activities in FY2006; the Senate bill would have provided $56.7 billion as well. The FY2006 conference agreement, as enacted, provided $56.5 billion in discretionary funding prior to the 1% cut required by P.L. 109 - 148 . A single mandatory ED program is included in the L-HHS-ED bill; the Vocational Rehabilitation State Grants program was funded at $2.6 billion in FY2005. Increasing federal support for education has been a priority of both Congress and the White House in recent years. Under the FY2006 budget request, funding for several programs would have been increased, and 14 new education programs were proposed. However, the President's request would have eliminated the funding for 48 existing programs and reduced the total discretionary funding for ED programs in FY2006. Discretionary spending increases of at least $100 million in FY2006 were requested by the President for the following programs. Elementary and Secondary Education Act of 1965 (ESEA) programs, funded in aggregate at $24.4 billion in FY2005, would have been increased by $974 million in the President's FY2006 budget request—see discussion below of ESEA funding shortfall. The ESEA Title I, Part A Grants to Local Educational Agencies (LEAs) program, funded at $12.7 billion in FY2005, would have been increased by $602 million. The Striving Readers program, funded at $25 million in FY2005, would have been increased by $175 million. The Special Education Part B Grants to States program under the Individuals with Disabilities Education Act (IDEA), funded at $10.6 billion in FY2005, would have been increased by $508 million—see discussion below of IDEA funding shortfall. The Pell Grants program, funded at $12.4 billion in FY2005, would have been increased by $834 million. Student Aid Administrative Costs, funded at $119 million in FY2005, would have been increased by $820 million in a proposal to unify the administration of all student aid activities in a single account. The increase would have been offset in part by a proposed savings of $625 million through the consolidation of certain related expenses currently counted elsewhere. A High School Intervention initiative was proposed with initial funding of $1.2 billion. A High School Assessments initiative was proposed with initial funding of $250 million. A Teacher Incentive Fund initiative was proposed with initial funding of $500 million. Along with the increases proposed above, the President's FY2006 budget would have decreased funding for several programs and eliminated funding for others. The March 16, 2005 table of the House Committee on Appropriations listed 38 line items for education programs that were funded for FY2005 but with no FY2006 funds requested; the ED Budget Service published a more detailed list with 48 programs that were funded in FY2005 but with no FY2006 funds requested, at http: // www.ed.gov / about / overview / budget / budget06 / summary / edlite - section3.html . The Fund for the Improvement of Education (FIE), funded at $414 million in FY2005, would have been reduced by $258 million. Adult Education, funded at $585 million in FY2005, would have been reduced by $369 million. The Fund for the Improvement of Postsecondary Education (FIPSE), funded at $162 million in FY2005, would have been decreased by $140 million. TRIO programs, funded at $837 million in FY2005, would have been reduced by $468 million. The Even Start program, funded at $225 million in FY2005, would have been terminated. Comprehensive School Reform, funded at $205 million in FY2005, would have been eliminated. Educational Technology State Grants, funded at $496 million in FY2005, would have been eliminated. Safe and Drug-Free Schools State Grants, funded at $437 million in FY2005, would have been eliminated. The Perkins Vocational Education program, funded at $1.3 billion in FY2005, would have been terminated. GEAR UP, funded at $306 million in FY2005, would have been eliminated. For ED programs, the House bill differed from the President's budget request in several respects. ESEA programs in aggregate would have received $23.6 billion under the House bill, $1.8 billion less than requested; they were funded at $24.4 billion in FY2005. The ESEA Title I, Part A Grants to LEAs program would have received $12.8 billion from the House bill, $502 million less than requested; it received $12.7 billion in FY2005. Even Start would have received $200 million; no funds were requested. It received $225 million in FY2005. Striving Readers would have received $30 million, $170 million less than requested; the program was funded at $25 million in FY2005. The High School Intervention initiative would not have been funded; $1.2 billion was requested. Educational Technology State Grants would have been funded at $300 million; no funds were requested. The program received $496 million in FY2005. The High School Assessments initiative would not have been funded; $250 million was requested. FIE would have received $27 million, $129 million less than requested; it received $414 million in FY2005. The Teacher Incentive Fund initiative would have received $100 million, $400 million less than requested; no funds were provided in FY2005. Safe and Drug-Free Schools State Grants would have received $400 million; no funds were requested. The program received $437 million in FY2005. The Special Education Part B Grants to States program under IDEA would have received $10.7 billion, $358 million less than requested; the program was funded at $10.6 billion in FY2005. The Perkins Vocational Education program would have received $1.3 billion; no funds were requested. It was funded at $1.3 billion in FY2005. Adult Education would have received $585 million, $369 million more than requested; it was funded at $585 million in FY2005. Pell Grants would have received $13.4 billion, $184 million more than requested; it received $12.4 billion in FY2005. The Pell Grants accumulated shortfall from prior year awards, currently estimated at $4.3 billion, would have been retired under the provisions of §305 of the House bill, pursuant to §303 of H.Con.Res. 95 , the FY2006 congressional budget resolution—see discussion below on the funding of Pell Grants. Student Aid Administrative Costs would have received $124 million, $815 million less than requested; it was funded at $119 million in FY2005. The House bill did not agree to the budget proposal to unify student aid administrative activities in a single account, nor did it agree to the consolidation of related expenses currently counted elsewhere for a proposed savings of $625 million. TRIO programs would have received $837 million; $468 million more than requested. TRIO was funded at $837 million in FY2005. GEAR UP would have received $306 million; no funds were requested. It received $306 million in FY2005. For ED programs, the Senate bill differed from the House bill by at least $100 million for several programs. Even Start would not have been funded; the House bill would have provided $200 million. No funds were requested; $225 million was provided in FY2005. Educational Technology State Grants would have received $425 million, $125 million more than the House amount. No funds were requested; $496 million was provided in FY2005. FIE would have received $387 million, $360 million more than the House amount. The request was for $156 million; $414 million was provided in FY2005. The Teacher Incentive Fund initiative would not have been funded; the House would have provided $100 million. The request was for $500 million to initiate this activity. Safe and Drug-Free Schools State Grants would have been funded at $300 million, $100 million less than the House amount. No funds were requested; $437 million was provided in FY2005. Pell Grants would have received $13.2 billion, $206 million less than the House amount. The request was for $13.2 billion; $12.4 billion was provided in FY2005. FIPSE would have been funded at $157 million, $108 million more than the House amount. The request was for $22 million; $162 million was provided in FY2005. The conference agreement, as enacted, changed discretionary spending by at least $100 million for several ED programs, compared to the FY2005 funding levels. ESEA programs in aggregate received $23.6 billion, $1.8 billion less than requested and $780 million less than the FY2005 amount of $24.4 billion. ESEA Title I Part A Grants to LEAs received $12.8 billion, $502 million less than requested but $100 million more than the FY2005 amount of $12.7 billion. Comprehensive School Reform were funded at $8 million, $197 million less than the FY2005 amount of $205 million; no funds were requested. Educational Technology State Grants received $275 million, $221 million less than the FY2005 amount of $496 million; no funds were requested. FIE received $160 million, $4 million more than requested but $254 million less than the FY2005 amount of $414 million. The Teacher Incentive Fund initiative received $100 million, $400 million less than requested; no funds were provided in FY2005. However, two other major education initiatives that were proposed in the FY2006 budget request were not funded—a $1.2 billion High School Intervention initiative and a $250 million High School Assessments initiative. IDEA Part B Grants to States received $10.7 billion, $408 million less than requested but $100 million more than the FY2005 amount of $10.6 billion. Pell Grants received $13.2 billion, $22 million less than requested but $812 million more than the FY2005 amount of $12.4 billion. The Pell Grants accumulated shortfall, currently estimated at $4.3 billion, was retired under §305 of the conference agreement, pursuant to §303 of H.Con.Res. 95 , the FY2006 congressional budget resolution. FIPSE received $22 million, the same as the request but $140 million less than the FY2005 amount of $162 million. Since the enactment of the No Child Left Behind Act of 2001 (NCLBA), P.L. 107 - 110 , which amended the ESEA among other programs, there has been a continuing discussion regarding the appropriations "promised" and the resulting "shortfall" when the enacted appropriations are compared to authorization levels. Some would contend that the ESEA authorizations of appropriations, as amended by NCLBA, represent a funding commitment that was promised in return for legislative support for the new administrative requirements placed on state and local educational systems. They would contend that the authorized levels are needed for implementing the new requirements, and that the differences between promised and actual funding levels represent a shortfall of billions of dollars. The FY2005 appropriation was $9.1 billion less than the amount authorized for the five ESEA programs for which a FY2005 authorization is specified. For FY2006, these five programs were funded at a level $12.0 billion below the authorized level (after adjustment for the 1% rescission). Others would contend that the authorized funding levels represent no more than appropriations ceilings, and as such are no different from authorizations for most education programs. That is, when the authorization amount is specified, it represents only a maximum amount, with the actual funding level to be determined during the regular annual appropriations process. In the past, education programs with specified levels of authorization generally have been funded at lower levels; few have been funded at levels equal to or higher than the specified authorization amount. For additional information, please see CRS Report RL33058, K - 12 Education Programs: Recent Appropriations , by [author name scrubbed]. From 1975 to 2004, the IDEA Part B Grants to States program authorized state payments up to a maximum amount of 40% of the national average per-pupil expenditure (APPE) times the number of children with disabilities ages 3 through 21 that each state serves. Appropriations have never been sufficient to reach the 40% level. In 2004, Congress addressed the authorization issue in P.L. 108 - 446 , which specified authorization ceilings for Part B Grants to States for FY2005 through FY2011. The Part B Grants to States authorization was $12.4 billion for FY2005 and $14.6 billion for FY2006. The FY2005 appropriation was $10.6 billion, or $1.8 billion less than the authorization. The FY2006 appropriation was $10.6 billion (after adjustment for the 1% rescission), or $4.0 billion less than the authorization. As with ESEA and NCLBA, some view these differences as funding shortfalls, while others see the maximum federal share and the specified authorizations as nothing more than appropriation ceilings. For additional information, please see CRS Report RL32085, Individuals with Disabilities Education Act (IDEA): Current Funding Trends , by [author name scrubbed]. The funding level for Pell Grants has been a continuing issue. The program provides assistance to eligible undergraduate students based on financial need. Aggregate program costs depend largely on the maximum award and the number of eligible recipients. The maximum award is currently set when appropriations are enacted, which is usually before the start of the program year. The exact number and total amount of the Pell Grant awards cannot be determined until all students have claimed an award. Generally, the number of recipients and the amount of the awards are not reconciled until the end of the program year, which occurs after the following year's appropriations have been enacted. Appropriations for Pell Grants make funds available for two full fiscal years to provide administrative flexibility regarding potential shortfalls and surpluses. If the cost of the Pell Grant program exceeds the current fiscal year's appropriation, the shortfall is covered by using appropriated monies from the next fiscal year. Similarly, a surplus can be carried forward and used in the following year. As of January 4, 2006, the ED Budget Service has estimated that the FY2005 shortfall will be $4.3 billion. For FY2006, the Administration proposed legislation that would recall the federal share of the Perkins Loan program and use $4.3 billion of the proceeds to eliminate the current Pell Grant shortfall. P.L. 109 - 149 continued funding for the Perkins Loan program, and §305 of P.L. 109 - 149 appropriated $4.3 billion to eliminate the shortfall. For additional information, please see CRS Report RL31668, Federal Pell Grant Program of the Higher Education Act: Background and Reauthorization , by [author name scrubbed]. Most appropriations are available for obligation during the federal fiscal year of the appropriations bill. For example, most FY2006 appropriations will be available for obligation from October 1, 2005, through September 30, 2006. Several L-HHS-ED programs, including some of the larger ED programs, have authorization or appropriations provisions that allow funding flexibility for program years that differ from the federal fiscal year. For example, many of the elementary and secondary education formula grant programs receive appropriations that become available for obligation to the states on July 1 of the same year as the appropriations, and remain available for 15 months through the end of the following fiscal year. That is, FY2006 appropriations for some programs will became available for obligation to the states on July 1, 2006, and will remain available until September 30, 2007. This budgetary procedure is popularly known as "forward" or "multi-year" funding, and is accomplished through funding provisions in the L-HHS-ED appropriations bill. 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. For Pell Grants for undergraduates, however, aggregate program costs for individual students applying for postsecondary educational assistance cannot be known with certainty ahead of time. Appropriations from one fiscal year primarily support Pell Grants during the following academic year, that is, the FY2006 appropriations will be used primarily to support grants for the 2006-2007 academic year. Unlike elementary and secondary education programs, however, the funds for Pell Grants remain available for obligation for two full fiscal years, as discussed above. An advance appropriation occurs when the appropriation is provided for a fiscal year beyond the fiscal year for which the appropriation was enacted. In the case of FY2006 appropriations, funds normally would have become available October 1, 2005, under regular funding provisions, but will not become available until July 1, 2006, under the forward funding provisions discussed above. However, if the July 1, 2006 forward funding date were to be postponed for obligation by three months—until October 1, 2006—the appropriation would be reclassified as an advance appropriation since the funds would become available only in a subsequent fiscal year , FY2007. For example, the FY2006 budget request for Title I, Part A Grants to LEAs for the Education for the Disadvantaged was $13.3 billion. This amount includes not only forward funding of $5.9 billion (to become available July 1, 2006), but also an advance appropriation of $7.4 billion (to become available October 1, 2006). Like forward funding provisions, these advance appropriations are specified through provisions in the annual appropriations bill. What is the impact of these changes in funding provisions? At the appropriations level, there is no difference between forward funded and advance appropriations except for the period available for obligation. At the program or service level, relatively little is changed by the three-month delay in the availability of funds, since most expenditures for a standard school year occur after October 1. At the scorekeeping level, however, a significant technical difference occurs because forward funding is counted as part of the current fiscal year, and is therefore fully included in the current 302(b) allocation for discretionary appropriations. Under federal budget scorekeeping rules, an advance appropriation is not counted in the 302(b) allocation until the following year. In essence, a three-month change from forward funding to an advance appropriation for a given program allows a one-time shift from the current year to the next year in the scoring of discretionary appropriations. For additional information, please see CRS Report RS20441, Advance Appropriations, Forward Funding, and Advance Funding , by [author name scrubbed], and CRS Report 98-720, Manual on the Federal Budget Process , by [author name scrubbed] and Allen Schick (pdf). CRS Report RL32867, Adult Education and Literacy: Overview and Reauthorization Proposals of the 109 th Congress , by [author name scrubbed]. CRS Report RL31618, Campus - Based Student Financial Aid Programs Under the Higher Education Act , by [author name scrubbed]. CRS Report RL31747, The Carl D. Perkins Vocational and Technical Education Act of 1998: Background and Implementation , by [author name scrubbed]. CRS Report RL31487, Education for the Disadvantaged: Overview of ESEA Title I - A Amendments Under the No Child Left Behind Act , by [author name scrubbed]. CRS Report RS21483, Education Technology Programs, Title II, Part D of the Elementary and Secondary Education Act , by [author name scrubbed] and [author name scrubbed]. CRS Report RL30448, Even Start Family Literacy Programs: An Overview , by [author name scrubbed]. CRS Report RL31668, Federal Pell Grant Program of the Higher Education Act: Background and Reauthorization , by [author name scrubbed]. CRS Report RL34119, Impact Aid for Public K - 12 Education: Reauthorization Under the Elementary and Secondary Education Act , by [author name scrubbed] and [author name scrubbed]. CRS Report RL32085, Individuals with Disabilities Education Act (IDEA): Current Funding Trends , by [author name scrubbed]. CRS Report RS22138, The Individuals with Disabilities Education Act (IDEA): Overview of P.L. 108-446 , by [author name scrubbed] and [author name scrubbed]. CRS Report RL33058, K - 12 Education Programs: Recent Appropriations , by [author name scrubbed]. CRS Report RL32923, Federal Pell Grants: Implications of Increasing the Maximum Award , by [author name scrubbed] (pdf). CRS Report RL31241, Reading First and Early Reading First: Background and Funding , by [author name scrubbed]. CRS Report RS20532, The Safe and Drug - Free Schools and Communities Act: Reauthorization and Appropriations , by [author name scrubbed]. CRS Report RL31622, Trio and GEAR UP Programs: Status and Issues , by [author name scrubbed]. CRS Report RL31240, 21 st Century Community Learning Centers: Background and Funding , by [author name scrubbed]. CRS Report RS20441, Advance Appropriations, Forward Funding, and Advance Funding , by [author name scrubbed]. CRS Report 98-720, Manual on the Federal Budget Process , by [author name scrubbed] and Allen Schick (pdf). Department of Education http: // www.ed.gov / index.jhtml http: // www.ed.gov / about / overview / budget / budget06 / index.html Table 11 shows the appropriations details for offices and major programs of ED. FY2005 discretionary appropriations for L-HHS-ED related agencies were $11.1 billion. For FY2006, the budget request was $11.2 billion, $0.1 billion (1.0%) more than the FY2005 amount, as shown in Table 12 . The House bill would have provided $11.5 billion for related agency discretionary activities in FY2006, and the Senate bill would have provided $11.7 billion. The FY2006 conference agreement, as enacted, provided $11.5 billion in discretionary funding prior to the 1% cut required by P.L. 109 - 148 . Mandatory programs for related agencies included in the L-HHS-ED bill were funded at $36.6 billion in FY2005, virtually all of it for the Supplemental Security Income (SSI) program. The President's FY2006 budget for related agencies would have changed discretionary spending by at least $100 million for several programs. Social Security Administration (SSA) Administrative Expenses, funded at $5.7 billion in FY2005, would have been increased by $748 million under the President's FY2006 budget request. The SSA Medicare Reform Fund to begin implementation of the Medicare prescription drug program enacted by P.L. 108-173 , funded at $446 million in FY2005, would have been eliminated; funding for the continuing responsibilities of SSA for Medicare are required to be counted under regular SSA Administrative Expenses beginning in FY2006. The Corporation for Public Broadcasting (CPB) has been provided with a two-year advance appropriation in recent years; however, the President's FY2006 budget did not request FY2008 funds for CPB. The CPB has been funded at $400 million for FY2007 (enacted as part of the FY2005 L-HHS-ED appropriations), $400 million for FY2006 (enacted in FY2004), and $387 million for FY2005 (enacted in FY2003). For the related agencies of the L-HHS-ED bill, the House bill differed from the President's budget request in several respects. SSA Administrative Expenses would have received $6.4 billion under the House bill, $108 million less than requested; these activities were funded at $5.7 billion in FY2005. The CPB two-year advance appropriation for FY2008 would have been funded at $400 billion under the House bill; no funds were requested. The FY2007 amount (enacted in the FY2005 L-HHS-ED appropriations) is $400 million. The House bill would have made no changes to the FY2006 CPB appropriation of $400 million. A rescission of $10 million was requested. The House bill, as reported by committee, would have made an FY2006 rescission of $100 million. For the related agencies, the Senate bill differed from the House bill by at least $100 million for two programs. Supplemental Security Income (SSI) discretionary activities would have received $2.7 billion, $187 million less than the House amount. The request was for $2.9 billion; $3.0 billion was provided in FY2005. SSA Administrative Expenses would have received $6.6 billion, $236 million more than the House amount. The request was for $6.5 billion; $5.7 billion was provided in FY2005. The FY2006 conference agreement, as enacted, changed discretionary spending by at least $100 million for two programs of the related agencies, compared to the FY2005 funding levels. SSI discretionary activities received $2.7 billion, $164 million less than requested and $254 million less than the FY2005 amount of $3.0 billion. SSA Administrative Expenses received $6.5 billion, $25 million less than requested but $723 million more than the FY2005 amount of $5.7 billion. CRS Report RS20420, AmeriCorps and Other Service Programs: Description and Funding Levels , by [author name scrubbed]. CRS Report RS22168, The Corporation for Public Broadcasting: Federal Funding Facts and Status , by [author name scrubbed] and [author name scrubbed]. CRS Report RL31320, Federal Aid to Libraries in the Museum and Library Services Act of 2003 , by [author name scrubbed]. CRS Issue Brief IB98048, Social Security Reform , by [author name scrubbed]. CRS Report 94-486, Supplemental Security Income (SSI): A Fact Sheet , by Scott Szymendera. CRS Report RS20419, VISTA and the Senior Volunteer Service Corps: Description and Funding Levels , by [author name scrubbed]. Note: Not all of the websites for the related agencies of L-HHS-ED appropriations include FY2006 budget information. Committee for Purchase From People Who Are Blind or Severely Disabled http: // www.jwod.gov / jwod / index.html Corporation for National and Community Service http: // www.cns.gov http: // www.cns.gov / about / budget / index.html Corporation for Public Broadcasting http: // www.cpb.org http: // www.cpb.org / about / funding / appropriation.html Federal Mediation and Conciliation Service http://www.fmcs.gov/internet/ Federal Mine Safety and Health Review Committee http://www.fmshrc.gov/ Institute of Museum and Library Services http: // www.imls.gov Medicare Payment Advisory Commission http://www.medpac.gov/ National Commission on Libraries and Information Science http://www.nclis.gov/ National Council on Disability http://www.ncd.gov/ National Labor Relations Board http: // www.nlrb.gov / nlrb / home / default.asp National Mediation Board http://www.nmb.gov/ Occupational Health and Safety Review Commission http://www.oshrc.gov/ Railroad Retirement Board http: // www.rrb.gov http: // www.rrb.gov / BFO / Justbudgettoc06.htm Social Security Administration http: // www.ssa.gov http://www.ssa.gov/budget/ Table 13 shows the appropriations details for offices and major programs of the L-HHS-ED related agencies. Several proposals related to L-HHS-ED appropriations have been considered by the 109 th Congress, including a series of FY2006 continuing resolutions, the FY2006 budget resolution, and FY2006 and FY2005 supplemental appropriations. FY2005 L-HHS-ED appropriations were provided by the Consolidated Appropriations Act, 2005 ( P.L. 108 - 447 ), which was enacted by the 108 th Congress following a series of three FY2005 continuing resolutions ( P.L. 108 - 309 ). A series of three continuing resolutions— P.L. 109 - 77 , P.L. 109 - 105 , and P.L. 109 - 128 —provided temporary FY2006 appropriations for most ongoing L-HHS-ED activities, including the costs of direct loans and loan guarantees, for the period October 1 through December 30, 2005. An FY2006 continuing resolution was necessary because the regular L-HHS-ED appropriations were not enacted by the start of FY2006 on October 1, 2005. Under the FY2006 continuing resolution, the funding level for each activity was provided at a rate of operations not to exceed the "current rate" or the rate permitted in the House-passed version of the FY2006 L-HHS-ED appropriations, whichever is lower, under FY2005 conditions and authority—with one exception: if an activity was zeroed out in the House-passed bill for FY2006, the funding level was not allowed to exceed the current rate [§101(d)]. New initiatives were prohibited unless otherwise authorized. For programs with high spend-out rates that normally would occur early in the fiscal year, special restrictions prohibited spending levels that would impinge on final FY2006 funding decisions. Obligations for mandatory payments were allowed for payments due on or about November 1, 2005; December 1, 2005; and January 1, 2006 [§114(b)]. Special provisions were made for funding certain appeals for Medicare (§120) and Social Security (§118). The amounts that would have been provided by the Senate-passed version of L-HHS-ED appropriations were excluded from the funding calculations under the continuing resolution because they were not passed by October 1, 2005. For additional information, please see CRS Report RL30343, Continuing Resolutions: Latest Action and Brief Overview of Recent Practices , by [author name scrubbed]. 1 st Continuing Resolution, P.L. 109-77 ( H.J.Res. 68 ), provided temporary appropriations for the period October 1, 2005, through November 18, 2005, as long as regular appropriations were not enacted sooner (§107 of P.L. 109-77 ). H.J.Res. 68 was passed by the House on September 29 and by the Senate on September 30, and signed into law by the President on September 30, 2005, as P.L. 109-77 . 2 nd Continuing Resolution, P.L. 109-105 ( H.J.Res. 72 ), extended the provisions of P.L. 109-77 through December 17, 2005. H.J.Res. 72 was passed by the House on October 17 and by the Senate on October 18, and signed into law by the President on October 19, 2005, as P.L. 109-105 . 3 rd Continuing Resolution, P.L. 109-128 ( H.J.Res. 75 ), extended the provisions of P.L. 109-77 through December 31, 2005. H.J.Res. 75 was passed by the House and the Senate on December 17, 2005, and signed into law by the President on December 18, 2005, as P.L. 109-128 . FY2006 supplemental appropriations were enacted as a part of P.L. 109 - 148 ( H.R. 2863 , H.Rept. 109 - 359 ) , the Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006. In particular, Division B of P.L. 109 - 148 , the Emergency Supplemental Appropriations Act to Address Hurricanes in the Gulf of Mexico and Pandemic Influenza, 2006, includes both (a) disaster assistance for areas damaged by 2005 hurricanes ($29.0 billion) and (b) avian and pandemic influenza preparedness ($3.8 billion), as well as various rescissions including the 1% rescission applicable to most FY2006 discretionary appropriations. For additional information on emergency assistance, please see CRS Report RL33053, Federal Stafford Act Disaster Assistance: Presidential Declarations, Eligible Activities, and Funding , by [author name scrubbed] (pdf); for information on pandemic influenza, please see CRS Report RL33145, Pandemic Influenza: Domestic Preparedness Efforts , by [author name scrubbed]. For L-HHS-ED activities, P.L. 109 - 148 appropriated $2.5 billion for hurricane disaster assistance and $3.3 billion for influenza preparedness and response. These amounts are not included in the FY2006 appropriations discussed in other parts of this report. All FY2006 L-HHS-ED supplemental appropriations were classified as emergency funding and are therefore not subject to the 1% rescission applicable to most FY2006 discretionary appropriations. The supplemental L-HHS-ED emergency funds were allocated as follows: DOL, Training and Employment Services, national emergency grants, $125 million; HHS, Social Services Block Grant, social and health care services and facilities, $550 million; HHS, Children and Family Services, Head Start, services for displaced children, $90 million; ED, Elementary and Secondary, assistance to restart school operations and reimburse states, $750 million; ED, Homeless Education, assistance for displaced children and youth, $5 million; ED, Elementary and Secondary, grants for temporary emergency impact aid for displaced students, $645 million; ED, Higher Education, grants for college students and institutions for "unanticipated expenses," $200 million; HHS, Public Health and Social Services Emergency Fund, influenza preparedness and response, $3.1 billion, including $350 million for upgrading state and local capacity and $50 million for laboratory capacity and research at the CDC; DOL and HHS, expenses related to 9/11 terrorist attacks, $50 million for New York State Uninsured Employers Fund and $75 million for the CDC (§5011, P.L. 109-148 )—according to the conferees ( H.Rept. 109-359 ), this supplemental replaces funds rescinded by P.L. 109-149 ; and HHS, Public Health and Social Services Emergency Fund, influenza preparedness and response for international activities and activities in foreign countries, $246 million, including $150 million for the CDC for global and domestic disease surveillance, laboratory diagnostics, rapid response, and quarantine. The annual concurrent resolution on the budget sets forth the congressional budget. Among other provisions, the conference agreement on the FY2006 resolution, H.Con.Res. 95 ( H.Rept. 109 - 62 ), proposes total discretionary budget authority of $843 billion; of this amount, $391 billion is provided for discretionary programs other than for defense and homeland security, according to the April 28, 2005 summary prepared by the majority staff of the House Committee on the Budget. The FY2006 discretionary ceiling represents an increase of 2.1% relative to the FY2005 discretionary total of $840 billion; the subtotal for programs other than defense and homeland security represents a 0.8% reduction. Report language outlines the funding assumptions made for selected programs that might be used to reach the spending targets. The FY2006 budget resolution does not specify a discretionary funding total for L-HHS-ED programs, nor amounts for individual departments, agencies, and programs; these specific amounts are only determined through the enactment of L-HHS-ED appropriations. Table 14 shows the assumed levels of discretionary budget authority for budget functions relevant to L-HHS-ED programs from the FY2006 resolution. The budget resolution includes reserve funds for, among other purposes: the Family Opportunity Act for Medicaid coverage for the families of disabled children (§302); elimination of the shortfall for Pell Grants (§303); health care costs and services for the uninsured (§304); health information technology and performance-based measures to improve health care (§306); safe imports of prescription drugs (§309); and restoration of SCHIP funds (§310). The reserve fund for Pell Grants allows $4.3 billion in new budget authority for FY2006; other reserve provisions prohibit increases in the federal deficit that might result from legislation to implement such provisions. The FY2006 budget resolution instructs authorizing committees to report legislation to reduce mandatory spending for the period FY2006 through FY2010 (§201 for the House, §202 for the Senate). Subsequently, these proposals would be combined in a single reconciliation bill by the budget committees. The House Committee on Education and the Workforce is responsible for a reduction of $1.0 billion for FY2006 and $12.7 billion for FY2006 through FY2010; the Senate Committee on Health, Education, Labor, and Pensions (HELP) is responsible for $1.2 billion for FY2006 and $13.7 billion for FY2006 through FY2010. Two other committees include L-HHS-ED programs in their jurisdiction: the House Committee on Ways and Means is responsible for a reduction of $0.3 billion for FY2006 and $1.0 billion for FY2006 through FY2010; and the Senate Committee on Finance is responsible for $10.0 billion for FY2006 through FY2010. H.Con.Res. 95 ( H.Rept. 109 - 17 ) was passed by the House on March 17, 2005 (Roll Call no. 88, 218-214). S.Con.Res. 18 (without written report) was passed by the Senate on March 17 (Roll Call no. 81, 51-49). On April 4, the Senate agreed to H.Con.Res. 95 with an amendment by unanimous consent. A conference report on H.Con.Res. 95 , H.Rept. 109 - 62 , was filed and passed by the House (Roll Call no. 149, 214-211) and passed by the Senate (Roll Call no. 114, 52-47); all actions took place on April 28, 2005. For additional information, please see CRS Report RL32812, The Budget for Fiscal Year 2006 , by Philip D. Winters. For procedural information, please see CRS Report 98-721, Introduction to the Federal Budget Process , by [author name scrubbed]. Regular FY2005 funding for L-HHS-ED activities was enacted late in the second session of the 108 th Congress, more than two months after the start of FY2005 on October 1, 2004. Eight of the 13 regular FY2005 appropriations bills were combined into a single omnibus bill, H.R. 4818 ; Division F of the omnibus provided appropriations for L-HHS-ED programs. A series of three continuing resolutions, P.L. 108 - 309 ( H.J.Res. 107 ), plus two amendments to it, provided temporary FY2005 funding for most L-HHS-ED programs until regular funding was enacted. The H.R. 4818 conference report, H.Rept. 108 - 792 , was passed by the House (Roll Call No. 542, 344-51, with 1 present) and by the Senate (Roll Call No. 215, 65-30) on November 19, 2004. It was signed into law by the President on December 8, 2005, as P.L. 108 - 447 , the Consolidated Appropriations Act, 2005. For a guide to the FY2005 omnibus bill, please see CRS Report RS21983, FY2005 Consolidated Appropriations Act: Reference Guide , by [author name scrubbed] (pdf). For information on the FY2005 L-HHS-ED appropriations, please see CRS Report RL32303, Appropriations for FY2005: Labor, Health and Human Services, and Education , by [author name scrubbed]. In an effort to meet the overall spending limitations requested by the President, the H.R. 4818 conferees required a rescission to some appropriations from what would have been provided otherwise. This provision was specified in §122 of Division J of P.L. 108 - 447 . It required a decrease of 0.80% in FY2005 discretionary appropriations for each program, project, or activity, whether enacted in P.L. 108 - 447 or in other appropriations. Discretionary funds from Defense, Military Construction, and Homeland Security appropriations were excluded, as were all FY2005 supplemental appropriations. Advance appropriations enacted through P.L. 108 - 447 for FY2006 or beyond were excluded as well. The rescission was estimated to save approximately $3.5 billion; for additional information, please see CRS Report RS21983, FY2005 Consolidated Appropriations Act: Reference Guide , by [author name scrubbed] (pdf). P.L. 108 - 447 required several reductions other than the 0.80% cut described above. One reduction was germane to L-HHS-ED appropriations; §519 of the L-HHS-ED part of the bill required an $18 million reduction in L-HHS-ED administrative expenses. Congress did not specify the actual amounts of these reductions but merely the process for their calculation. The application of these reductions to accounts and line items was to be determined by the Office of Management and Budget (OMB) and the individual agencies following enactment of P.L. 108 - 447 . As a result, the tables in the FY2005 conference report, H.Rept. 108 - 792 , show pre - reduction levels, whereas the post - reduction amounts, as approved by OMB, are incorporated into the tables shown in this report. FY2005 supplemental appropriations of $75.9 billion were enacted in response to the President's request for additional funds for military operations in Iraq and Afghanistan, Tsunami relief and rehabilitation, and other activities. The bill, H.R. 1268 ( H.Rept. 109 - 72 ) was signed into law on May 11, 2005. Among other provisions, it provided $10 million for domestically produced vaccines under the Public Health and Social Services Emergency Fund (PHSSEF) of HHS and $58 million for the purchase of influenza countermeasures for the Strategic National Stockpile under the Centers for Disease Control and Prevention (CDC). Several unobligated balances from FY2005 HHS funds were rescinded as an apparent offset to the $10 million supplemental, along with a rescission of $58 million from appropriations enacted for the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. For additional details on the P.L. 109 - 13 supplemental, please see CRS Report RL32783, FY2005 Supplemental Appropriations for Iraq and Afghanistan, Tsunami Relief, and Other Activities , by [author name scrubbed] and [author name scrubbed]. Appendix A. Terminology and Web Resources The following items include some of the key budget terms used in this report; they are based on CRS Report 98-720, Manual on the Federal Budget Process , by [author name scrubbed] and Allen Schick (pdf). The websites provide general information on the federal budget and appropriations. Advance appropriation is budget authority that will become available in a fiscal year beyond the fiscal year for which the appropriations act is enacted; scorekeeping counts the entire amount in the fiscal year it first becomes available for obligation. Appropriation is budget authority that permits federal agencies to incur obligations and to make payments out of the Treasury for specified purposes. Appropriations represent the amounts that agencies may obligate during the period of time specified in the law. Annual appropriations are provided in appropriations acts; most permanent appropriations are provided in substantive law. Major types of appropriations are regular, supplemental, and continuing. Budget authority is legal authority to incur financial obligations that normally result in the outlay of federal government funds. Major types of budget authority are appropriations, borrowing authority, and contract authority. Budget authority also includes the subsidy cost to the federal government of direct loans and loan guarantees, estimated on a net present value basis. Budget resolution is a concurrent resolution passed by both Houses of Congress, but not requiring the signature of the President, setting forth the congressional budget for at least five fiscal years. It includes various budget totals and functional allocations. Discretionary spending is budget authority provided in annual appropriations acts, other than appropriated entitlements. Entitlement authority is the authority to make payments to persons, businesses, or governments that meet the eligibility criteria established by law; as such, it represents a legally binding obligation on the part of the federal government. Entitlement authority may be funded by either annual or permanent appropriations acts. Forward funding is budget authority that becomes available after the beginning of the fiscal year for which the appropriation is enacted and remains available into the next fiscal year; the entire amount is counted or scored in the fiscal year in which it first becomes available. Mandatory (direct) spending includes (a) budget authority provided in laws other than appropriations; (b) entitlement authority; and (c) the Food Stamp program. Rescission is the cancellation of budget authority previously enacted. Scorekeeping is a set of procedures for tracking and reporting on the status of congressional budgetary actions. Supplemental appropriation is budget authority provided in an appropriations act that provides funds that are in addition to regular appropriations. Websites General information on budget and appropriations may be found at these websites. Specific L-HHS-ED agency sites are listed in relevant sections of this report. House Committees http://appropriations.house.gov/ http://www.house.gov/appropriations_democrats/ http://www.house.gov/budget/ http://www.house.gov/budget_democrats/ Senate Committees http://appropriations.senate.gov/ http://appropriations.senate.gov/demoinfo/demoinfo.cfm http://www.senate.gov/~budget/republican/ http://www.senate.gov/~budget/democratic/ Congressional Budget Office (CBO) http://www.cbo.gov Congressional Research Service (CRS) http://www.crs.gov/products/appropriations/apppage.shtml Government Accountability Office (GAO) http://www.gao.gov/ Government Printing Office (GPO) http://www.gpoaccess.gov/usbudget/ Office of Management & Budget (OMB) http://www.whitehouse.gov/omb/budget/index.html http://www.whitehouse.gov/omb/legislative/sap/index.html Appendix B. Context of L-HHS-ED Appropriations Budget authority for all federal programs is estimated at $2,477.4 billion for FY2005. Budget authority for all L-HHS-ED departments and related agencies is estimated at $1,264.9 billion, or slightly more than half — 51.1% — of the federal total. Table B -1 shows funding for the major L-HHS-ED agencies and provides context for the current year discretionary funding provided by L-HHS-ED appropriations — $142.7 billion, or 5.8% of the federal total in FY2005. Of the $1,264.9 billion for L-HHS-ED agencies, as shown in Table B -1 , the L-HHS-ED appropriations subcommittees generally have effective control only over the $142.7 billion in discretionary funds, or 5.8% of the total federal budget. What accounts for the remaining $1,122.2 billion of L-HHS-ED funds? First, funding for mandatory programs accounts for more than two-thirds of the L-HHS-ED bill — $354.2 billion, or 14.3% of the FY2005 federal total. Although appropriations are enacted for these mandatory activities annually — these are sometimes called "appropriated entitlements" — the amounts provided generally must be sufficient to cover program obligations and entitlements to beneficiaries. For these programs, as well as the programs funded through trust funds and permanent authorities, most changes in funding levels are made through amendments to authorizing legislation rather than through annual appropriations bills. Federal administrative costs for these programs typically are subject to annual discretionary appropriations, however. For L-HHS-ED agencies, these mandatory programs include Supplemental Security Income, Black Lung Disability payments, Foster Care and Adoption, the Social Services Block Grant, and Vocational Rehabilitation, as well as general (non-earmarked) fund support for Medicare and Medicaid. Second, other appropriations bills account for a small portion of L-HHS-ED agency funding—$4.7 billion, or 0.2% of the FY2005 federal total. Two HHS agencies are fully funded by other appropriations bills, and two HHS programs are partially funded by bills other than L-HHS-ED, as described below. Prior to FY2006, the Corporation for National and Community Service (CNCS) was partially funded outside of the L-HHS-ED bill. The HHS Food and Drug Administration is funded by the Agriculture appropriations ($1.5 billion in FY2005). The HHS Indian Health Service is funded by the Interior appropriations ($3.0 billion in FY2005). The Centers for Disease Control and Prevention (CDC) is primarily funded under L-HHS-ED ($4.5 billion in FY2005); it received FY2005 funds from the Veterans Affairs and Housing and Urban Development (VA-HUD) appropriations for the Agency for Toxic Substances and Disease Registry (ATSDR) ($76 million). For FY2006, Interior appropriations will provide ATSDR funding. The National Institutes of Health (NIH) is primarily funded under L-HHS-ED ($28.4 billion in FY2005); it received FY2005 funds from VA-HUD appropriations for the National Institute of Environmental Health Sciences (NIEHS) ($80 million). For FY2006, Interior appropriations will provide NIEHS funding. The CNCS—one of the related L-HHS-ED agencies—was funded in two separate bills before FY2006. The L-HHS-ED bill funded programs authorized under the Domestic Volunteer Service Act of 1973 ($354 million in FY2005); the VA-HUD bill funded AmeriCorps and other programs authorized by the National Community Service Act and the CNCS Inspector General ($573 million in FY2005). For FY2006, all funding for CNCS activities will be provided by L-HHS-ED. For purposes of comparability, all FY2005 CNCS funding has been included in this report as if it had been appropriated in its entirety through the L-HHS-ED bill. Third, the remaining L-HHS-ED agency funds — an estimated $763.3 billion, or 30.8% of the total FY2005 federal budget — are received automatically without congressional intervention and are funded outside of the annual appropriations process. These funds are provided from permanent appropriations and trust funds. The major L-HHS-ED programs in this category include Unemployment Compensation, Medicare, Railroad Retirement, Temporary Assistance for Needy Families (TANF, the welfare assistance program), Student Loans, State Children's Health Insurance, and Social Security benefits.
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This report tracks FY2006 appropriations for the Departments of Labor, Health and Human Services, and Education, and Related Agencies (L-HHS-ED). This legislation provides discretionary funds for three major federal departments and 14 related agencies. The report, which will be updated, summarizes L-HHS-ED discretionary funding issues but not authorization or entitlement issues. On February 7, 2005, the President submitted the FY2006 budget request to Congress, including $141.7 billion in discretionary L-HHS-ED funds; the comparable FY2005 appropriation was $143.5 billion, enacted primarily through P.L. 108-447. Congress reached agreement on H.R. 3010 (H.Rept. 109-337), providing $143.0 billion of discretionary L-HHS-ED funds, prior to a 1% rescission required by P.L. 109-148. H.R. 3010 was signed into law on December 30, 2005, as P.L. 109-149. A series of three continuing resolutions, beginning with P.L. 109-77 (H.J.Res. 68), provided temporary FY2006 funding from October 1 through December 30, 2005. Department of Labor (DOL). DOL discretionary appropriations were $12.1 billion in FY2005; $11.6 billion was provided for FY2006. FY2006 funding for Workforce Investment Act (WIA) programs was decreased by $225 million. Department of Health and Human Services (HHS). HHS discretionary appropriations were $63.8 billion in FY2005; $63.4 billion was provided for FY2006. Funding was increased by $155 million for Community Health Centers, $252 million for the National Institutes of Health (NIH), and $506 million for the Centers for Medicare and Medicaid Services (CMS) Program Management. Initial funding of $500 million was provided for Bioterrorism Hospital Grants and $1.6 billion for the Centers for Disease Control and Prevention (CDC) Terrorism Preparedness and Response (TPAR). Funding was decreased by $153 million for Health Professions other than nursing, $219 million for CDC activities other than TPAR, and $2.3 billion for the Public Health and Social Services Emergency Fund. Funding was eliminated for Health Care-Related Facilities and Activities, which received $483 million in FY2005. Department of Education (ED). ED discretionary appropriations were $56.6 billion in FY2005; $56.5 billion was provided for FY2006. Funding was increased by $812 million for Pell Grants. Funding was decreased by $780 million for Elementary and Secondary Education Act (ESEA) programs in aggregate, $197 million for Comprehensive School Reform, $221 million for Educational Technology State Grants, and $254 million for the Fund for the Improvement of Education (FIE). The estimated $4.3 billion Pell Grant shortfall was paid off. Related Agencies. Discretionary appropriations for related agencies were $11.1 billion in FY2005; $11.5 billion was provided for FY2006. For the related agencies, Supplemental Security Income (SSI) discretionary activities received $254 million less than in FY2005, and Social Security Administration (SSA) Administrative Expenses received $723 million more.
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Haiti's economic, political, and social development has been on a slow track since the transition from dictatorship to democracy began in the mid-1980s. The devastating earthquake of January 12, 2010, was a major setback to what little progress had already been made. Haiti struggled with providing basic needs even prior to the catastrophe, but currently is without the physical, political, and economic infrastructure to provide adequately for its citizens. As the massive humanitarian relief effort continues, planning for Haiti's economic reconstruction and development is also underway. The transition from disaster relief to a national redevelopment strategy is essential, and by all accounts, must be comprehensive, directed at all sectors of the economy, and guided by the Haitian government in cooperation with the United Nations and other international assistance organizations. The U.S. Congress has long taken a comprehensive view of aid to Haiti, annually appropriating funds in support of security, humanitarian relief, and development assistance. Yet, the Haitian economy even before the earthquake had experienced extremely slow growth in output, employment, and productivity. One important step that reflects the nexus of congressional interest and Haitian need is the HOPE Act. In December 2006, the 109 th Congress passed the Haitian Hemispheric Opportunity through Partnership Encouragement Act of 2006 (HOPE I) to assist Haiti with expanding its apparel trade as a way to help stimulate economic growth and employment. The act included special rules for the duty-free treatment of select U.S. apparel imports from Haiti, particularly those made from less expensive third-country inputs, provided Haiti met rules of origin and eligibility criteria that require making progress on worker rights, poverty reduction, and anti-corruption measures. Early assessments of the effectiveness of HOPE I, however, were disappointing and the 110 th Congress responded in 2008 by amending it with HOPE II. HOPE II extended the preferences for 10 years, expanded coverage of duty-free treatment to more apparel products, and simplified the rules of origin to make them easier to use. The act also included a new requirement to ensure that participating apparel firms comply with internationally recognized core labor standards and submit to regular inspection by the United Nations International Labor Organization (ILO). In the aftermath of the earthquake, congressional interest again turned to amending the HOPE Act to increase incentives for investors. The Haiti Economic Lift Program (HELP) Act of 2010 ( P.L. 111-171 ) was introduced in the House and Senate on April 28, 2010. It passed in the House on May 5, 2010 and in the Senate the following day with strong bipartisan support. The HELP Act extended the Caribbean Basin Trade Partnership Act (CBTPA) and the HOPE Act through September 30, 2020. It further enhanced those HOPE Act trade preferences that appeared to have demonstrated the greatest effect in promoting Haitian apparel exports, particularly the least restrictive of those that allow use of lower-cost apparel inputs sourced from anywhere in the world. These provisions give Haitian firms a competitive advantage in the U.S. market, which is intended to attract long-term investment to Haiti's primary export industry. This report analyzes the evolution of the HOPE Act as it relates to U.S. trade policy, the Haitian economy, and post-earthquake reconstruction efforts. A discussion of Haiti's current social and political situation is now clouded by the massive destruction caused by the January 2010 earthquake. By all accounts Haiti struggles to provide basic services and is in need of massive amounts of international aid. President Préval continues to govern, meeting with his cabinet ministers and helping to coordinate international relief efforts, but the extension of emergency presidential powers and delays in holding local and national elections have emboldened political opposition. This situation exacerbates Haiti's social and political problems deeply rooted in the country's historical development patterns. Haiti occupies the western third of Hispaniola, a Caribbean island it shares with the Dominican Republic (see Figure 1 ). Haiti has endured a long post-colonial history of poverty, political repression, and underdevelopment, a trend that continues to challenge the sustainability of Haiti's fragile political stability. Since the end of the Duvalier dictatorship in 1986, Haiti has struggled to institutionalize democracy, and so far has been unable to overcome a legacy of weak governance, economic inequality, and social unrest. The presidency has alternated largely between Jean-Bertrand Aristide and René Préval, both of whom struggled to establish a broadly accepted government, in part for the lack of progress in changing the legacy of inequality in Haitian society. President Préval's second administration, begun in 2006, initially sparked a ray of hope among the masses, but his government has since been marred by decisions that have weakened his support and raised doubts about fledgling institutional democracy. The earthquake has worsened an already difficult political situation. The post-dictatorial political system is new, fragile, and in many ways, susceptible to criticism that it has failed to establish a fully functioning government. After four years into his second non-consecutive term, Préval's leadership, vision, and strategy to address long-standing poverty and unemployment have come under question. The transitory terms of his prime ministers, along with delays in holding Senate elections, and in initiating widely supported constitutional reform (particularly to amend a repetitive, expensive, and so far unworkable electoral system) have compromised the government's legitimacy. The multiparty system, rather than consolidating politics, may be slipping further into factional partisanship, leading to low voter turnout, evidence for some of the failure to promote a "political culture of participation." Multiple observers note that the government bureaucracy suffers from a historic endemic corruption, acting to enrich itself while failing to delivery basic services to the Haitian people. Political tensions emerged once again during the Senate runoff elections that took place on June 21, 2009. The dominant party of President Préval gained 5 of the 11 seats, but the numbers mask a broader discontent within Haitian society. Turnout was exceedingly poor, estimated at 10% or less of registered voters, and scattered violence marred any overall sense of a society exercising its democratic privileges, not to mention the cancellation of voting in one province. The elections took place amid serious protests by medical students after classes failed to resume, and by society as a whole over an emotional debate on raising the minimum wage, which congress eventually passed and President Préval signed into law. Some constituents have questioned Préval's commitment to the populist platform that helped bring him to power as he pursues a pragmatic middle path to governance. In the wake of the current disaster, Préval's leadership is being fully tested, in part by electoral politics. Elections have been interrupted by the earthquake and as of May 8, 2010, terms for the National Assembly and one-third of the Senate have expired, but not before parliament extended Préval's mandate until May 11, 2011. It also appears as though the presidential and parliamentary elections scheduled for November 2010 may be delayed, in part from lack of presidential action. Taken together, these actions have caused additional friction in an already highly stressed society and have also led to congressional calls for President Préval to expedite efforts to set a firm election date. Haiti's uneven social structure lies at the heart of its state of recurring crisis. Haitian society has small middle and working classes, and is dominated by the chasm between a tiny minority of wealthy elite and the impoverished masses, the latter of which have little power or participation in governing. Politics since the transition to democracy in 1986 has not altered this precarious relationship. The highly skewed distribution of power and resources, and the underlying fear it generates, have made the transition to democracy difficult. Haiti's political future appears tenuous as long as entrenched economic and social patterns remain unchanged. Research on the sustainability of young democracies suggests that Haiti occupies the category of highly vulnerable countries. Initial conditions that correlate with a reversal of democracy include poor economic performance overall, low per capita income, highly skewed income and asset distribution, and weak political institutions that have difficulty enforcing checks and balances on executive power. The Préval government is feeling the pressures that poor economic performance places on governments, compounded by the effects of the earthquake. Strong support from the international community will need to be effective in alleviating suffering and providing hope to help rebuild political as well as economic momentum. Prior to the earthquake, security was reportedly improving, although it remained a persistent problem, rooted in the history of violence stemming from political and economic inequality. It manifested in the often random violence of gangs and paramilitary groups. Security is currently being enforced by the United Nations Stabilization Mission in Haiti (MINUSTAH), but relief efforts also include the addition of U.S. and U.N. troops. Despite some concerns with sovereignty issues, there is no doubt that the current situation requires a strong foreign military presence for the foreseeable future. The ability of MINUSTAH to handle a possible escalation of social upheaval is an important question given the country's desperate situation, although the temporary deployment of U.S. forces has helped maintain stability. Even prior to the earthquake, economic growth and development was hindered within this often marginally functional political and social landscape. Internally, many doubted that the Haitian government could deliver on changing the day-to-day conditions of a population immersed in poverty. Externally, vast amounts of foreign aid expose the challenge of development in a country devoid of the basic cornerstones of growth. The restoration of growth remains the primary economic goal and is a necessary condition for development. The post-earthquake challenge involves nearly the wholesale reconstruction of an economy. Even if Haiti can emerge from the earthquake's devastation and policies can be designed and resources brought to bear, igniting a sustainable growth trend will not provide the foundation for long-term political and social stability if it cannot begin to address the underlying extreme social inequality. Haiti's dismal economic growth trend epitomizes its long-term development paralysis. From 1960 to 2000, annual average per capita income growth was actually -0.7%, by far the worst performance in the Western Hemisphere. Growth was achieved briefly in the 1970s, led by export-oriented assembly industries, but Haiti experienced a prolonged economic downturn in the 1980s, as did most countries in the region, leading to social and political unrest that ultimately contributed to the overthrow of the Duvalier dictatorship in 1986. In 1991, following an interim government, Aristide emerged briefly as the first elected president, only to be deposed by a military coup within a few months. To force the return of the democratically elected government, the United States and other countries responded with a trade embargo under the auspices of the Organization of the American States (OAS) and the United Nations (UN). Although its success in changing political behavior has been questioned, its economic effects were concrete and devastating. Haiti was already experiencing a decline in output, employment, and income, but the trend mushroomed during the 1991-1994 embargo. The embargo targeted fuel imports (not food, but supplies were delayed), and all exports. Overall, by 1994, per capita income had fallen by 30% in three years and unemployment peaked at 75%. Sector effects were highly pronounced. Employment in the assembly manufacturing industry (e.g., apparel, electronics, sporting goods), centered in Port-au-Prince, fell by over 80%, shedding 32,000 jobs. One estimate of the multiplier effect suggests that the embargo eliminated some 200,000 jobs in the formal sector. Most assembly plants closed permanently, with only apparel rebounding slightly in the aftermath of the embargo. The inability to import agricultural inputs such as fertilizers and seeds, or to export agricultural goods, had similarly devastating effects on that sector's production. In addition, because oil imports were blocked, there was a sudden increase in the use of charcoal, accelerating the ecologically destructive trends in deforestation and soil erosion, further damaging agricultural production. Trade was renewed in 1995, but economic growth oscillated for the next decade, hampered by recession, flooding, and ongoing political turmoil. In the post-embargo period, annual GDP growth for the decade ending 2006 averaged only 1.1%, lower than Haiti's 1.4% average population growth rate. This trend is a recipe for perpetuating chronic unemployment, poverty, and emigration pressures in a country like Haiti that cannot absorb most new entrants into the work force. As seen in Figure 2 , Haiti's economic growth has generally lagged badly compared to Latin America and the Caribbean (LAC) as a whole, a region that is itself known for its poor long-term growth record. Growth has been positive since 2005, but averaged only slightly more than 2.0% per year. There are many domestic and international issues facing Haiti, but sustainability of its long-term growth is at the core of its development challenge (see data in Appendix ). Haiti is the poorest country in the region. Over 70% of the population lives on less than $2 per day. Inequality is extreme; Haiti has the most highly skewed income patterns in the Americas, with nearly half of the nation's earnings going to the top 10% of the income distribution, while the bottom 10% earns less than 1% of national income. Inflation has made matters worse, causing real wages to fall by half from 2000 to 2008, despite a major adjustment in 2003 (see data in Appendix ). The 2009 global recession although painful, helped arrest inflation, allowing real interest rates to fall along with food and energy prices. Employment opportunities are few, with 80% of workers operating in the informal sector. The 2009 debate over increasing the minimum wage produced protests and political conflagration, an outrage that attests to the importance that the Haitian people place on the need for policy responses to address persistent poverty. There is little doubt that failure to adjust the minimum wage in line with inflation had deeply eroded the purchasing power of most Haitians. The Haitian Congress proposed to more than double the minimum wage across the board from the equivalent of $1.80 to $5.00 per day. There was disagreement among President Préval's advisors on supporting this level of increase because employers argued that such large cost increases could force worker layoffs and potentially bankrupt some firms, particularly small and medium-sized businesses. As a compromise, President Préval agreed to a minimum wage of $5.00 per day for workers in all sectors except apparel, who received an adjustment to $3.25, with the law requiring parity within a few years. Apparel manufacturers argued that fully trained and efficient apparel sewers already earned in excess of the new minimum wage in any case. The real marginal cost of the raise was associated with increased expenses for training, vacation, and other paid absences. Shortly after the wage increase took effect, there were reported employment responses. Two prominent employment sectors, retail gasoline and private security, both reported employment decreases as adjustments to high wage costs. Gasoline stations, for example, reduced or eliminated afternoon-evening shifts, a time when retail sales tended to diminish. Whether this employment trend will continue over the long run is unknown and perhaps irrelevant in the short run given current conditions. To address the need for a strategic industrial development plan, President Préval established a Presidential Commission on Competitiveness in 2009. Its primary goal was to enact a development strategy based on improving productivity, diversifying the economy, and creating new employment opportunities in the short term. This ambitious plan envisioned the creation of 500,000 jobs within three years by targeting key industries in agriculture, services, and manufacturing sectors that could be started up or expanded relatively quickly. Specifically, the plan calls for investment in five "growth clusters" (fruits and tubers, animal husbandry, tourism, garment production, and business process outsourcing), with additional resources committed to "support sectors" such as infrastructure, finance, information technology, education, and enhanced business climate. While the plan is bold, history suggests it will not be easy to achieve. It does, nonetheless, reflect a serious effort to present a comprehensive analytical approach that covers both short-term and long-term development goals. Success in the short term is critical if any progress is to be made in reducing poverty and related social unrest. It will be an important plan to monitor, not only as a gauge of Haiti's economic success, but because it will likely raise expectations that problems can begin to be addressed in the near future, which may entail a higher degree of political risk. Most importantly, it may provide the basis for Haiti's emergence from the economic catastrophe it currently faces, including an assessment of the Haitian government's role in planning and bringing about redevelopment. Despite these plans, Haiti's growth trend has suffered from the global downturn, which reduced remittances, exports, and public revenue, presenting a risk to Haiti's economic recovery program. Projections of average annual rates of growth are only between 1% and 2%. To consolidate what little gains have been made in reinvigorating growth, Haiti will have to address a core area of domestic policy, the lack of productivity growth. Persistently low or negative productivity is the result of negligible investment in private enterprise, as well as human and social capital such as education, health care, and infrastructure. It is pronounced in the agricultural sector, where primitive methods and ancient equipment perpetuate low yields, lack of growth in cultivated land, and inadequate food supplies, much of this because of the sector's "decapitalization" during the 1991-1994 trade embargo. Investment in manufacturing has also been sparse, jeopardizing prospects for longer-term growth. Improvements in public administration, especially those that might address widely perceived problems of crime, corruption, and bureaucratic efficiency, along with private sector gains, could provide the basis for progress under the Préval development plan. A critical reconstruction question for both the public and private sectors is whether to rebuild as quickly as possible to meet immediate needs, or invest the additional time and money to rebuild at higher standards. Slow growth is also an obvious constraint at the sector level. Agricultural production represents 30% of GDP and employs up to 70% of the work force, mostly dedicated to subsistence farming. Output has stagnated for decades and declined for five years in a row until expanding by 3.0% in 2007. Agricultural growth is limited by the small amount of arable land, overuse of soil, and poor irrigation. It is also constrained by poor rural infrastructure, destructive agricultural practices, and frequent hurricanes and other natural disasters. Rice, sugar, and coffee are produced at a fraction of levels achieved decades earlier. Haiti currently produces little of these traditional exports, and output of staples has long been insufficient to meet domestic food needs. Haiti, therefore, must import large amounts of food stuffs. Rising international prices of basic foods exposed Haiti's vulnerability to price shocks and its limited ability to feed itself, as seen in the food riots that occurred in April 2008. The subsequent collapse in commodity prices, although a problem for much of the region, helped alleviate some of Haiti's import bill, at least in the short run. Manufacturing constitutes only 7.6% of GDP and has shown no growth over the past decade until recently. It, nonetheless, is the major foreign exchange earner and holds out some promise for employment growth. Manufacturing is dominated by food processing (47.2%) and apparel assembly (21.1%). Construction and public works account for another 7.7% of GDP and grew by 6.3% over the last two years. These trends reflect recent, new public sector investment and provide one option for employment growth of low-skilled workers. The services sector constitutes 51% of GDP and is led by restaurant and hotel industries, which together account for 27% of GDP. It grew by nearly 6% in 2007. Tourism is not a major factor, but core ingredients of a tourist industry are present in Haiti, should confidence return in Haiti's ability to maintain political and economic stability. Haiti has a historically unhealthy dependence on foreign commerce and finance, from the colonial days of the sugar trade to the current assistance provided by developed countries. Total trade (exports plus imports) equals 60% of GDP, but the trade imbalance is large with a deficit equal to 33% of GDP. Haiti is in a difficult position because slow growth in output and exports means that it must rely on foreign sources for basic commodities such as food and oil, as well as manufactured and capital goods. The problem is often made worse by deteriorating terms of trade, when prices of oil and other commodity imports rise relative to prices of Haiti's exports. Haiti's trade relationship with the world is dominated by the United States, with which it ran a $494 million deficit in 2008. Haiti exports primarily apparel, which accounts for 75%-80% of foreign exchange earnings and for 92% of total exports to the United States. Cacao, mangoes, and coffee compose the small basket (4%) of agricultural exports. In 2008, the United States accounted for 78.2% of Haiti's exports followed in order of magnitude by the European Union (7.4%), Thailand (3.6%), and Canada (3.3%)—see Figure 3 . The United States also accounted for 53.5% of Haiti's imports followed by Latin America (11.6%), the European Union (8.8%), and China (7.1%). A return to economic growth is critical to finance the trade deficit in the long run. In the near term, however, there is no alternative to relying on foreign sources of income, principally remittances, foreign aid, and grants. Transfers finance Haiti's fiscal and current account deficits, but they are a poor substitute for production and export-driven financing. They promote long-term dependency and create technical problems, such as exchange rate appreciation that exacerbates Haiti's structural trade deficit, with no concomitant growth in productivity or output that is typically associated with an export-driven exchange rate appreciation. These transfers, so necessary for Haiti's short-term survival, are dependent on the fortunes of expatriate citizens and the generosity of foreign governments, diminishing Haiti's control over the future of its economic well-being. Haiti has a poorly diversified export sector, overly dependent on one type of product and a single foreign market, a strategy that has so far shown little lasting positive effect on long-term development. The risk to this export structure became increasingly clear with the U.S. economic downturn, which reduced demand for Haitian goods (falling 7.5% year-over-year). As the Commission on Competitiveness notes, reliance on U.S. trade preferences for apparel exports represents a long-term opportunity, but only if the sector can be expanded into greater value-added activities and other sectors of the economy begin to contribute more to growth in output and exports. Haiti's trade dependence is most pronounced on the import side. Haiti imports manufactured goods, machinery, transportation equipment, raw materials, energy, and food. It is unable to produce most of these needs and will be a large net importer for the indefinite future. Haiti's vulnerability became acute over the last decade with the rise in food and energy prices, which had a huge budgetary effect. From 2002 to 2007, the value of food and energy imports rose 57% and 159% respectively, even as volume declined slightly. In 2008, petroleum accounted for 25%-30% of total imports. This trend points to two fundamental problems. First, higher commodity prices make food and energy imports more expensive, decreasing Haitian purchasing power. Second, to compensate, there is a compounding substitution effect, in which other goods must be given up to spend more on food and energy. This effect may be seen in the decline of imports of manufactured goods, which fell by 37% from 2002 to 2007. Foreign direct investment (FDI) in Haiti has been historically very low. Net FDI inflows ranged from $4 million in 2000 to $14 million in 2004, and then spiked to $160 million in 2006, before falling to $30 million in 2008. The large increase appears to be related to an investment boost in construction and tourist industries, which seems to be limited in duration. Construction activity in the public and private sector has expanded briskly, but FDI inflows were not expected to continue at this recent higher level. One approach to attracting FDI to Haiti rests on reinvigorating the apparel industry, a strategy that the U.S. Congress supports with the HOPE Act. Although agriculture is the single most important sector of the Haitian economy for both jobs and output, apparel assembly is the core export industry and one promising source of employment growth in the formal sector. Apparel production is a globally competitive industry that often relies on a multi-country chain of production. Fiber, yarn, and fabric production is capital intensive and provides the opportunity for the greatest value added. Garment assembly, by contrast, is highly labor intensive, offering thinner profit margins. Assembly factories are far less expensive to build than textile mills and location of production is often a secondary consideration to levels of vertical integration and global networks, use of technology, ability to demonstrate socially responsible production, and overall cost containment. The attraction of apparel assembly is the relatively low levels of investment and skills required to operate this entry-level segment of the industry. It not only provides opportunity for quick job growth, but also for advancement into the higher value-added work as investment, experience, contacts, and labor skills progress. Haiti is a prime candidate for redeveloping the apparel exporting industry because assembly requires an abundance of low-skill labor, but relies on relatively simple technology and small capital investment. Therefore, production naturally gravitates toward locations with low labor costs. Although Haiti's labor costs are not as low as those in some Asian countries, they are the lowest in the region, allowing Haiti to niche into apparel assembly. As shall be discussed, at the margin, U.S. trade preferences and relatively relaxed rules of origin can provide a critical benefit. The fortunes of the apparel sector to date, however, have paralleled the broader trends of the economy, which have been subject to tremendous social and political turbulence. Historically, the apparel heyday in Haiti lasted from the 1960s through the end of the Duvalier dictatorship in 1986. The troubled transition to democracy, including the 1991 military coup and trade embargo that followed, caused a massive downturn in production for years. Since 1994, the Haiti apparel industry has entered into a slow and tentative period of rebuilding. At its peak in the 1980s, Haitian apparel industry sources estimate that the number of jobs ranged upward of 100,000. The 1991-1994 trade embargo effectively closed apparel operations, causing employment to fall to near zero for a short time, as many apparel manufacturers apparently left Haiti for Honduras and other sites in the region. In its rebuilding, Haitian apparel firms estimate that employment more than doubled to 27,000 since the original HOPE legislation passed in 2006. Firm-level apparel output data are not readily available, but because over 90% of apparel production is exported to the United States, U.S. import data can serve as a reasonable proxy for production trends. Figure 4 shows the trend of U.S. imports of Haitian apparel by volume. Note that imports were falling in the tumultuous aftermath of the Duvalier dictatorship, hitting bottom during the 1991-1994 trade embargo. With a temporary return to relative political calm, U.S. imports (again as a reflection of output) rose, but declined again after 2000 as production was lost to competition and continuing political uncertainty kept investors at bay. Growth renewed after 2002 with industry restructuring. By 2006, a new downturn is noticeable, likely related to two events that occurred at that time: the end of global textile quotas put in place under the World Trade Organization (WTO) Agreement on Textiles and Clothing (ATC), and implementation of the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR), which shifted regional U.S. tariff preferences for apparel in favor of Central America. The downturn continued into 2008, likely reflecting the effects of the global financial crisis, but returned to growth in 2009. Haiti's apparel industry faces many challenges. Domestically, the lack of industrial space, the high cost of capital and utilities, and poor infrastructure top the list. Externally, highly efficient competitors both in the region and in Asia will continue to challenge Haiti's low-cost export strategy. The required use of higher-cost U.S. inputs (e.g., yarns, fabrics, components) for duty-tree entry into the United States has also been a problem, much of it addressed in the HOPE II and HELP Acts (see " HOPE II " and " The HELP Act "). To improve its competitiveness, the industry underwent major restructuring after 2000. Where it once had been a relatively diversified producer, the industry as a whole adopted a leaner, low-cost business model based on high-volume production that could take advantage of Haiti's low-skill labor pool. Haiti was able to rebuild the industry based on this strategy and can compete at the low end of the U.S. apparel market based on its low wages, quality products, and proximity to the United States, consistent with Haiti's stage of development. For the most part, Haiti's production is still limited mostly to simple knits and some woven products. The mix is shifting, however, toward greater production of more complicated woven goods (e.g., khaki pants), which rose from 12.6% of apparel exports to the United States in 2007 to 18.6% in 2009. Knits (e.g., t-shirts and sweatshirts) fell from 87.4% of apparel exports to the United States, to 74.4% over the same two years. Haiti's top five apparel products account for 90% of U.S. apparel imports from the country. As may be seen in Table 1 , for these articles, Haiti's primary competition is Central America, the Dominican Republic, and Southeast Asia (ASEAN), even more so than China, with the exception of articles produced from man-made fibers. Mexico, Bangladesh, and other countries are also important competitors for some items. Rejuvenating Haiti's apparel assembly industry has been criticized as a growth strategy for its lack of development potential and vulnerability to rapidly changing market conditions. Nonetheless, it has survived as a niche production strategy in a highly competitive industry, even diversifying its product line. Supporters of the sector argue that given Haiti's limited options for rebuilding its economy in the short term, the apparel sector offers one relatively quick response to chronically high unemployment. Apparel assembly has also allowed manufacturing to remain in Haiti that might otherwise have migrated to Asia or Central America, and the industry has recently begun to diversity production. Haiti's apparel industry relies entirely on foreign producers for yarns and fabrics. Fabric is sourced primarily from the United States, the Dominican Republic, and Asia, in approximately equal proportions. Apparel factories produce for a wide variety of firms including Hanes (U.S.), Gildan (Canadian), Wilbes (South Korean), and Grupo M (Dominican), who contract for many well-known U.S. brand names. Haitian apparel production is concentrated in Port-au-Prince, where it is located largely in two free trade zones situated near airport and port facilities. In addition, in 2003, Grupo M began a mutually beneficial apparel co-production arrangement in Ouanaminthe, on the northern border with the Dominican Republic (see Figure 1 , Map of Haiti, p. 2). The plant is located in a relatively new foreign trade zone (Compagnie Development Industriel—CODEVI). Grupo M, the only Dominican company operating a co-production plant, provides management training and guidance, and plans to turn operation of the facility over fully to Haitian managers. It has also worked with the Haitian government in providing the necessary infrastructure investment, including water and electricity, the excess of which is made available to the surrounding community. Selection and training of Haitian workers is rigorous and the jobs are highly coveted. Production was unaffected by the January 2010 earthquake. Haiti has a competitive advantage in apparel based on its relatively low labor costs, proximity to the U.S. market, and a niche strategy based on mass-produced articles. This niche relies largely on simple assembly operations (sewing and some cutting), has few style changes over time, accommodates slightly longer lead times, and has relatively predictable demand schedules. Location of production is often not a critical decision factor for many buyers, but proximity to the U.S. market has proven to be an important benefit for Haiti. There are, however, significant productivity problems, with some firms operating barely at the margin of profitability. A survey of apparel buyers ranked Haiti as "favorable" on price and overall product quality, but pointed to the need to (1) improve training for apparel workers and middle management, (2) overcome a poor image for political stability, (3) develop better infrastructure, and (4) compensate for a lack of production in "apparel infrastructure" such as thread, linings, and fabric. Haiti compares less favorably on costs of electricity, construction, and overall operation. While rent on industrial space is low, buildings are fully depreciated and given high construction costs and the need to rebuild, future rent costs could rise significantly, cutting into apparel firm profitability. Public investment in transport, utility, and modern customs facilities is also needed to support a more competitive apparel sector. There are some key challenges to Haitian apparel competitiveness. One is producer concerns over losing a major cost advantage because of the large 2009 minimum wage increase. Apparel managers note that even though fully trained workers already earn more than the new minimum wage, raising the minimum wage can reduce the worker production incentives. Second, to remain competitive, firms will need investment to move toward higher value-added "full package" production, an increasingly standard requirement of U.S. buyers. Full packaging production involves a wide range of skills that include product design, materials sourcing, logistics, manufacture of the entire finished product, packaging, and delivering the final good to the retailer. Full packaging requires advanced financial, managerial, sewing, and other operational capabilities not yet widely available in Haiti. Third, few believe that investors are willing to make large capital commitments necessary to construct fabric mills in Haiti. Many view Haiti as politically and socially unstable and unattractive because of high construction, capital, and utility costs. Still, the key to Haiti's long-term apparel production development is moving up the value-added chain toward full package operations. This process can also be done incrementally, as managerial and worker skills improve allowing for additional work in printing, finishing, washing, and other stages of apparel production. The United States Agency for International Development (USAID) has let a long-term contract to help Haiti apparel producers develop these skills, and includes funding construction training centers to develop the managerial expertise and other skills necessary to move toward full package production. The earthquake that rocked Haiti on January 12, 2010, did untold damage to the country, including a significant loss of life and property. The world has responded with an unprecedented humanitarian relief effort. While Haiti grapples with stabilizing a catastrophic situation, the apparel sector is also struggling to regain its previous production capacity as soon as possible. Although buyers are reportedly willing to stay with Haiti, its best chance at retaining apparel customers and future investment rests with a quick return to full production. Estimates from Haiti indicate that earthquake damage to firms was serious, uneven, but not as severe as it might have been. Of the 23 plants operating in late 2009, the earthquake completely destroyed one, and seriously damaged four others. Currently 19 are fully operational, two are being relocated, and two are closed. Employment attendance rates have returned to levels seen prior to the earthquake, but with fewer factories operating, total employment has fallen from 26,600 to 23,300. Monthly apparel exports declined 43% from $58.2 million in February 2009 to $33.1 million in February 2010. Many factories are still in need of cleaning, repair, renovation, and equipment. Estimates of rebuilding costs for the industry have risen to $38 million to refurbish damaged buildings, replace machinery, and train new employees, among other costs. Others suggest that to the extent that the Haitian apparel firms elect to rebuild at new and higher standards, which would be in line with the broad strategic vision for the sector's long-term development, perhaps twice as much investment capital would be needed. As noted above, construction costs are high in Haiti because most materials must be imported. A key to successful reconstruction will be the availability of affordable financing. The need for immediate and swift reconstruction raises a host of policy questions regarding the use of international aid for providing affordable financing such as grants, subsidized loans, loan guarantees, or other incentives that would entice private investors to take on the risk of rebuilding in Haiti. Congress took one important step by modifying HOPE Act tariff preferences and rules of origin to further enhance U.S. market access for Haitian apparel exports. Congress first provided trade preferences to the Caribbean region in the Caribbean Basin Economic Recovery Act (CBERA) of 1983—often referred to as the Caribbean Basin Initiative. The preferences did not, however, cover textile or apparel goods. In 2000, Congress passed the Caribbean Basin Trade Partnership Act (CBTPA), which provided additional incentives on a temporary basis to select U.S. imports of textile and apparel articles assembled or knit-to-shape by firms in designated beneficiary countries. In general, to qualify for the tariff preferences, the articles had to be made from inputs produced in the United States or the region. The HOPE Act, as amended, builds on this precedent, providing additional benefits exclusively for Haitian apparel exports as a way to support growth and development in Haiti. The HOPE Act, as amended, offers duty-free treatment for U.S. apparel imports from Haiti under rules of origin that allow for more flexible sourcing of materials than those offered to Caribbean countries under the CBTPA. The critical difference is that under the CBTPA, select apparel goods receive duty-free treatment if assembled or knit-to-shape from inputs that use U.S. and in some cases regional fabrics , provided they are made from U.S. yarn . Under provisions in the HOPE Act, as amended, duty-free treatment is extended to apparel articles if wholly assembled or knit-to-shape in Haiti from materials (yarns, fabric, and components) sourced from any country . In some cases there are few restrictions; in others, a minimum portion of the garment's materials must be produced by U.S. firms or those in a country that is party to a U.S. unilateral preferential trade arrangement or a free trade agreement (FTA). Because the HOPE Act allows for the use of non-U.S. fabric and other apparel inputs, Congress sought detailed input from the U.S. textile and apparel industries. The United States is the dominant market for Haitian apparel and therefore the economic benefit of the preferences is potentially significant for enhancing investment, output, and employment in that sector. The legislative development of the HOPE Act follows. In December 2006, the 109 th Congress passed the Haitian Hemispheric Opportunity through Partnership Encouragement Act of 2006 (HOPE I) as an amendment to the Caribbean Basin Economic Recovery Act (CBERA— P.L. 98-67 ). Now referred to as HOPE I, the act provided special rules for the duty-free treatment of select apparel imports from Haiti made from third-country yarns and fabrics, provided Haiti met rules of origin and eligibility criteria. To be eligible, Haiti had to make progress toward establishing a market economy, the rule of law, the elimination of barriers to U.S. trade and investment, policies to reduce poverty, a system to combat corruption, and protection of internationally recognized worker rights. The act required that all eligible exports be shipped directly from Haiti. It also established an overall cap on total qualified apparel imports equal to 1%-2% of total U.S. apparel imports. It included a short supply rule that allowed duty-free treatment of goods made from fabrics found to be in "short supply," as defined in all other preference arrangements and FTAs of the United States, and gave preferences to wire harness automotive imports. At the heart of HOPE I were two new rules of origin allowing for duty-free entry of Haitian apparel goods. First, quotas were established for apparel articles made from inputs that meet the value-added content requirement in which 50%-60% of value added must come from firms in the United States or from firms in countries that are a party to a U.S. FTA or are beneficiary countries under a unilateral preference arrangement. There were no restrictions on the source of the remaining inputs. Second, an additional quota or trade preference level (TPL) of 50 million square meter equivalents (SMEs) was established for duty-free treatment of woven apparel that did not have to meet the 50%-60% value-added rule (allowing all inputs for these articles to be sourced from anywhere in the world). Despite these new trade rules favoring Haitian apparel producers, HOPE I soon came under criticism for being ineffective. In 2007, the first year of operation, only 3% of U.S. imports of Haitian apparel entered under HOPE I, the rest still entering duty free under the CBTPA. There were five major criticisms of HOPE I: The three-year program was too short to attract new investment. The 50% value added rule was too high, greatly limiting its use. The TPL for woven articles was too small and did not include knit articles, which constitute 80% of Haitian apparel exports. The requirement for direct shipping from Haiti was cumbersome and costly since apparel finishing had to be done in the Dominican Republic, with the articles shipped back to Haiti for export to the United States. The overall cap on imports was too small. In addition, some U.S. textile producers objected to the preferences, contending that because they permitted use of third-party fabrics and other inputs, they were effectively displacing textile jobs in the United States and the Caribbean with those in Asia. U.S. producers also argued that the rules of origin were vague and difficult to enforce, and that the tariff preferences could result in diverting apparel production to Haiti from countries in the region that had apparel trade preferences in other agreements with the United States. Because early assessments of the effectiveness of HOPE I were critical of its progress in stimulating foreign investment in the apparel sector, and given that Haiti's economic and social conditions were deteriorating rapidly in early 2008, the 110 th Congress amended the HOPE Act with passage of the Hemispheric Opportunity through Partnership Encouragement Act of 2008. It became known as HOPE II, and both houses of Congress agreed quickly on bill language without formal hearings, expediting the legislative process, but to the chagrin of some Members. As with HOPE I, duty-free treatment was provided to apparel articles wholly assembled or knit-to-shape in Haiti. The specific rules of origin determined the amount of third party inputs that could be used in the manufacturing process and still receive duty-free treatment. Congress made three broad design changes to the HOPE Act: It extended all tariff preferences from a period of 3 to 10 years ending September 30, 2018. It allowed direct shipment of final goods from either Haiti or the Dominican Republic. It clarified the quantitative limitation (cap) rules to ensure that (1) articles subject to a specific cap do not count toward the overall value-added cap, (2) articles subject to one cap do not count toward another cap, and (3) HOPE benefits are understood to be extended in addition to any other benefits conveyed under the Caribbean Basin Initiative. Amended rules of origin allowed for more liberal application of duty-free treatment for imports of Haitian apparel regardless of the source of inputs (yarns, fabrics, components). The most notable changes were An increase in the annual TPL to 70 million SMEs for select woven apparel imports without regard to source of inputs. The addition of a new TPL of 70 million SMEs annually for knit apparel without regard to source of inputs, with some exclusions. The addition of a new uncapped "3-for-1" earned import allowance (EIA). It allowed producers to claim a credit for the export of apparel articles made from qualifying inputs that can be used in exchange for exporting articles duty-free made from non-qualifying inputs in a 3-for-1 ratio. Qualifying woven fabric must be wholly formed in the United States from yarns wholly formed in the United States. Qualifying knit fabric and knit-to-shape components must be wholly formed or knit-to-shape in the United States or any country or combination thereof that is a party to a U.S. free trade agreement or a beneficiary country under a unilateral preference arrangement, from yarns wholly formed in the United States. Continuation of the value-added rule through 2012, but the overall cap on eligible apparel articles was frozen at 1.25% of total U.S. apparel imports. A new uncapped duty-free rule for brassieres, selected women's and girls' sleepwear, luggage, and handbags wholly assembled or knit-to-shape in Haiti. The statute also clarifies that the "short supply" rule, or benefits given for the use of non-U.S. fabric and yarns not available in commercial quantities, is uncapped and expanded to include all fabric and yarns in short supply lists in other U.S. preference arrangements and FTAs. Haiti is eligible to receive preferential treatment as long as the President of the United States determines and certifies that Haiti has established or is making continual progress toward establishing protection for internationally recognized worker rights. The statute defines these as including (1) the right of association; (2) the right to organize and bargain collectively; (3) a prohibition on the use of any form of forced or compulsory labor; and (4) a minimum age for the employment of children and acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health. HOPE II also amended the eligibility requirements by requiring Haiti to create a new independent Labor Ombudsman's Office and to establish the Technical Assistance Improvement and Compliance Needs Assessment and Remediation (TAICNAR) Program within 16 months of enactment of the legislation. The Labor Ombudsman is to be appointed by the President of Haiti and report directly to him. The office's major functions include (1) maintaining a registry of apparel producers who may seek to use the trade preferences; (2) coordinating with government officials to create a system to ensure participation by apparel firms; (3) overseeing the TAICNAR program; and (4) receiving and directing appropriate comments to the Haitian Department of Labor and the United Nations International Labor Organization (ILO) regarding comments and complaints directed at firms participating in the program. The TAICNAR program creates an independent factory monitoring system focused primarily on assisting factories in improving their working conditions and labor-management relations. It is based on the Better Factories Cambodia project that was negotiated as part of the terms of the 1999 U.S.-Cambodia Bilateral Textile Agreement. The ILO has since developed a Better Work Global Program in conjunction with the International Finance Corporation of the World Bank to expand use of this model. The TAICNAR program is one example, referred to by the ILO as Better Work Haiti. The ILO is given the lead because, as with the Cambodia project, Haiti lacks the resources and institutional capacity to monitor and enforce compliance with labor standards. Developing this capacity is also a goal of the TAICNAR program. In the Better Work approach, access to the U.S. apparel market is given in exchange for sustained and verifiable improvement in factory labor conditions. The TAICNAR program employs a similar incentive system and operational structure in that Haiti's duty-free access depends in part on firms complying with core labor standards and submitting to ILO monitoring at the firm level. Although duty-free access can eventually be denied if conditions do not improve, the thrust of the program is to reinforce a positive response to improving labor conditions rather than imposing a punitive system to address noncompliance. Hence, there is emphasis on providing assistance for remediating problems. In addition, for the program to move forward, government and private sector actors in Haiti had to agree to this arrangement that empowers the ILO with operational authority. Haiti stakeholders acquiesced not only to take advantage of the trade preferences, but also to demonstrate their commitment to transparency in an admittedly difficult process of improving working conditions to levels now required of global apparel production. HOPE II requires that the TAICNAR program assess registered apparel producers compliance with (1) core labor standards, (2) labor laws in Haiti that relate directly to core labor standards, and (3) a provision that acceptable conditions of work are maintained with respect to minimum wages, hours of work, and occupational health and safety. The ILO has the authority to conduct unannounced site visits to manufacturing facilities and confidential interviews with workers and management, provide the results of assessments to workers and management, and require actions to remediate deficiencies. The ILO must produce publicly available biennial reports on the program and biannual reports evaluating the progress of each factory in meeting these goals. Congress authorized and appropriated $10 million to the U.S. Department of Labor to finance the TAICNAR program. Although the ILO and some independent analyses have praised the success of the Better Work approach, in Haiti it is too new to evaluate. The ILO representative arrived in June 2009 and only completed the first round of firm site visits before the earthquake interrupted the evaluation process. Review of the labor code has found it acceptable, but as was expected by some, it has been poorly enforced and many firms will be required to improve their practices and factory conditions to comply with the TAICNAR standards. In addition, enhancing Haiti's capacity to do these type of inspections and enforce labor codes is another major challenge. Other issues have come to light with respect to the TAINCAR program. First, the relationship between the autonomous nature of the ILO's representative and the government of Haiti is somewhat ambiguous. Although the Haiti Labor Ombudsman views its office as having overall authority, the ILO does operate independently. Despite the agreement to collaborate, this relationship has raised questions in the minds of various stakeholders as to the ultimate authority on labor matters, should disagreements arise. In a related issue, another debate has surfaced as to the implication of the core labor standards listed in the HOPE II legislation. They are the same as those listed in the ILO Declaration on Fundamental Principles and Rights to Work, to which all members are obligated to uphold. The statute, however, does not reference the ILO. Without such a reference, and/or language limiting this understanding specifically to the ILO Declaration and the eight fundamental conventions that back the Declaration (as is done in the case of the Labor Chapters of recent U.S. free trade agreements), some have questioned whether a more expansive application of other ILO conventions and jurisprudence could be applied in Haiti. As part of U.S. support for Haiti's post-earthquake economic recovery, Congress passed the Haiti Economic Lift Program (HELP) Act of 2010 ( P.L. 111-171 ) in May 2010. In the HELP Act, Congress crafted amendments to the HOPE Act, targeting those preferences that had so far appeared to demonstrate the greatest promise of promoting Haitian apparel exports to the United States. An analysis of the apparel trade data from Haiti, as seen in Table 2 , indicates that Haitian apparel producers were increasing their use of the tariff preferences, particularly after HOPE II was passed in 2008. From 2007 to 2009, the proportion of apparel entering under HOPE II grew from 3.3% to 26.9% of total apparel entering duty free under all preference programs (CBTPA and HOPE Act). Although there may have been some switching of exports entering the U.S. market from CBTPA to HOPE II, data reveal that in 2009 there was a 137% jump in the use of the woven TPL and a 41% increase in the use of the value-added rule, likely in response to HOPE II. By 2009, a small portion of apparel began to enter under the knit TPL as well, but there has been little use of other special import rules provided to Haitian apparel exports. In addition, data not shown reflect that the statutory caps on the amount of apparel allowed to enter duty free are still far from being exceeded. For example, in 2009 Haiti filled 5.2% of its overall apparel quota, 2.1% of the knit apparel cap, and 22.8% of the woven cap. Haitian apparel producers lobbied for specific changes including extending the program to 2028, increasing the TPLs for knits and fabrics, reducing the value-added rule to 50% for five years, reducing the earned income allowance from 3-to-1 to 1-for-1, and expanding the apparel and non-apparel items that would be eligible for duty-free treatment. The 111 th Congress examined carefully the HOPE Act trade rules to determine which could be enhanced that would make the most significant and timely contribution to Haiti's economic recovery. It did so in consultation with the U.S. apparel industry, with key, but not all, apparel stakeholders supporting the final bill. The HELP Act extends both the Caribbean Basin Trade Partnership Act (CBTPA) and the HOPE Act through September 30, 2020. Together, the relevant trade preference rules give current producers and would-be investors assurance that enhanced U.S. market access for Haitian apparel will be available for the next decade. This change is important for any calculation of long-term return on investment, a critical element in the decision to invest and operate in Haiti. To receive duty-free treatment under HOPE II, 55% (rising to 60%) of the value of the exported product had to be made from inputs and processes from Haiti, the United States, or a country in an FTA or unilateral preferences arrangement with the United States. Third-country inputs could not exceed 45% of the value of the apparel article. Yarn and fabric constitute the largest cost of apparel, typically 60% of the total product cost, and nearly all the material cost. Therefore, under this rule, the opportunity for Haitian producers to use lower-cost third country fabric was limited because its use would have exceeded the 45% threshold. In other words, most Haitian garment producers do not have the value to add to take full advantage of this rule. Congress responded by extending the 50% threshold though December 20, 2015, the 55% threshold to December 20 2017, and the 60% threshold through December 20, 2018, providing more time for Haitian producers to move up the value-added chain. HOPE II expanded the woven apparel TPL to 70 million SMEs. It was an attractive incentive, easy to use, and for many producers, both foreign and Haitian, small and large, a primary reason for locating and investing in Haiti. Production of woven articles is expanding and because woven articles are more labor intensive than knit articles, they provide a greater employment impact than knits. Producers responded to the incentive, with exports of woven articles to the United States expanding by 79% from 2007 to 2009. Although estimates vary, according to some producers, the 70 million SME cap could be exceeded sometime in 2011 or 2012, although the earthquake may have changed this time frame. Congress decided to allow this cap to grow to 200 million SMEs. To accommodate concerns of U.S. industry that higher TPLs would diminish use of U.S. fabric and other inputs, this new threshold will only be allowed once Haitian producers have exported at least 52 million SMEs. For a select group of woven apparel articles, the threshold would remain at 70 million SMEs to safeguard sensitive U.S. import-competing products, a critical factor in obtaining U.S. industry support. The 70 million SME knit TPL added in HOPE II functions differently than the woven TPL. For example, t-shirts, the largest knit export, are excluded because of a linked preference provided under CBTPA. Industry sources speculate that because of the t-shirt exclusion, knit exports from Haiti are unlikely to exceed the TPL in the near future. Effectively, HOPE II tightened the Haiti knit assembly relationship in an already existing integrated U.S.-Caribbean production process supported by CBTPA. Knit exports to the United States have grown only by 3% from 2007 to 2009, but these products already represented 80% of apparel exports. The HELP Act increases the knit TPL to 200 SMEs subject to the same 52 million SME trigger, but lists exceptions for sensitive products, as with the woven rule, which may not exceed an 85 million SME threshold. This rule potentially benefits mostly those factories that are able to produce large volumes of articles, in this case mostly t-shirts, that use fabric from yarn made in the United States. Potentially, some contractors in the Dominican Republic and Haiti are able to make large runs of cotton t-shirts exported duty-free to the United States under CBTPA (supporting U.S. yarn manufacturers). These same firms then use the earned import credits to produce other articles (mostly t-shirts) assembled from fabric not made from U.S. yarns (cotton or synthetic fabric from Asia or elsewhere), which enter duty-free under HOPE II. The rule has been criticized by Haitian industry representatives as being too complicated and difficult to use. To date it has not been used, largely because apparel articles made from third country inputs enter duty free under the knit and woven TPLs. It may not be used significantly until such a time as these TPLs are exceeded, but Congress reduced the 3-for-1 rule to 2-for-1, thereby requiring less U.S. fabric and yarn before third-country alternatives may be sourced. Certain listed apparel articles that are wholly assembled or knit-to-shape in Haiti and imported directly into the United States from Haiti or the Dominican Republic may enter duty-free regardless of the country source of fabric, yarn, components, or other inputs. This rule originated with brassieres and was expanded under HOPE II. It was further expanded significantly to include various types of garments determined in conjunction with U.S. industry input. In addition, the HELP Act extended duty-free treatment for automobile wire harnesses for an additional five years. The HELP Act requires U.S. Customs and Border Protection (CBP) to verify that apparel articles imported under the TPLs are not transshipped illegally into the United States. CBP is also to evaluate Haiti's customs requirements and set out a plan to improve their capabilities. The HELP Act authorizes appropriations of $100,000 to help meet the immediate customs infrastructure needs of Haiti and $750,000 for fiscal years 2011 through 2020 to maintain support for the Haitian customs initiative. The Haitian apparel industry benefits from a comparative advantage that rests on low-wage production and proximity to the U.S. market, augmented by flexible trade preferences created by the U.S. Congress in the HOPE Act, as amended. Because the United States is the primary market for Haitian apparel exports, these "uniquely" generous trade preferences based largely on duty-free treatment for apparel articles made with third-country inputs, especially fabric, are expected to lead to increased foreign investment in apparel manufacturing. Job growth and production increases in the apparel industry since HOPE I was passed in 2006 are early indicators that the strategy may have been taking hold before the earthquake occurred. In the aftermath of the January 12, 2010 earthquake, the apparel industry faces a number of problems in returning to full production, including damaged factories, a devastated work force, and interrupted finance and logistical capabilities. Congress has chosen to respond to Haiti's needs by amending the HOPE Act to enhance even further market access for Haitian apparel and other exports. Two important considerations guided congressional action in addition to a broad-based concern over Haiti's economic and social problems. First, legislation appeared to focus on enhancing those preference rules that have so far shown the most promise for promoting investment, production, and apparel exports. Second, Congress, in amending the preference rules, openly considered the possible negative effects on U.S. producers and workers. In so doing, Congress sought to achieve a policy coherence that attempts to balance domestic and foreign policy considerations.
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In December 2006, the 109th Congress passed the Haitian Hemispheric Opportunity through Partnership Encouragement Act of 2006 (HOPE I), which included special trade rules that give preferential access to U.S. imports of Haitian apparel. These rules were intended to promote investment in the apparel industry as one element of a broader economic growth and development plan. HOPE I allowed for the duty-free treatment of select apparel imports from Haiti made from less expensive third-country inputs (e.g., non-regional yarns, fabrics, and components), provided Haiti met rules of origin and eligibility criteria that required making progress on worker rights, poverty reduction, and anti-corruption measures. Early assessments of the effectiveness of HOPE I, however, were disappointing. The 110th Congress responded by amending HOPE I with the Hemispheric Opportunity through Partnership Encouragement Act of 2008 (HOPE II). HOPE II extended the preferences for 10 years, expanded coverage of duty-free treatment to more apparel products, particularly knit articles, and simplified the rules, making them easier to use. Early evidence suggests that apparel production and exports are responding to these changes. HOPE II also amended the eligibility requirements by requiring Haiti to create a new independent Labor Ombudsman's Office and establish the Technical Assistance Improvement and Compliance Needs Assessment and Remediation (TAICNAR) Program. The TAICNAR program provides for the United Nations International Labor Organization (ILO) to operate a firm-level inspection and monitoring program to help Haitian apparel factories comply with meeting core labor standards, Haitian labor laws, and occupational health and safety rules. It would apply to those firms that agree to register for the program as a prerequisite for utilizing the tariff preferences. The TAICNAR program is also designed to help Haiti develop its own capacity to monitor compliance of apparel producers in meeting core labor standards. The earthquake that rocked Haiti on January 12, 2010 caused considerable damage to the apparel sector, although much has been done to return capacity to pre-earthquake levels. Rebuilding costs for the industry are estimated at $38 million to refurbish damaged buildings, replace machinery, and train new employees. The U.S. Congress responded to the apparel industry's needs by amending the HOPE Act with the Haiti Economic Lift Program (HELP) Act of 2010 (P.L. 111-171), which improves U.S. market access for Haitian apparel exports. Two important considerations guided congressional action in addition to a broad-based concern over Haiti's economic and social problems. First, legislation appeared to focus on enhancing those preference rules that have so far shown the most promise for promoting investment, production, and apparel exports. Second, Congress factored in the possibility of negative effects on U.S. producers and workers, and in so doing sought a policy coherence that attempts to balance domestic and foreign policy considerations. The HELP Act made a number of major changes to the trade preferences including extending the Caribbean Basin Trade Partnership Act (CBTPA) and the HOPE Act through September 30, 2020; allowing the value-added rule to remain at 50% through 2015; increasing the woven tariff preference level (TPL) to 200 million square meter equivalents (SMEs), with many exclusions to accommodate U.S. industry; expanding the knit TPL similarly; reducing the 3-for-1 earned import credit to 2-for-1; and expanding the list of products eligible for duty-free treatment under special assembly rules. The HELP Act requires U.S. Customs and Border Protection (CBP) to verify that apparel articles imported under the TPLs are not transshipped illegally into the United States, and to develop a plan to evaluate and improve Haiti's customs capabilities.
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The public health and environmental requirements of two federal laws are primarily driving projects in rural, as well as non-rural, areas for drinking water and wastewater treatment. The Environmental Protection Agency (EPA) administers both laws. For the quality of drinking water supply , requirements of the Safe Drinking Water Act (SDWA) apply to public water supply systems, whether government-owned or privately owned. Under this law, EPA regulates the quality of drinking water provided by community water supply systems, which are defined as those having at least 15 service connections. Community water supply systems serve approximately 300 million persons; 19 million persons also get their drinking water from non-community systems (such as wells that serve individual homes, schools, factories, or campgrounds), which are not subject to the act. Regulated water systems provide drinking water to 97% of Americans. The vast majority of systems are small and privately owned, although most people (70% of those served by community water systems) are customers of large, publicly owned systems. The smallest water systems (serving fewer than 3,300 persons, many serving small clusters of homes) account for 77% of all systems and a similarly high percentage of systems in significant noncompliance with drinking water regulations. Most very small systems have no credit history and have never raised capital in financial markets. Small to medium systems (serving 3,301 to 50,000 persons) are institutionally more capable than smaller systems, yet they also face financing challenges. The smallest of these have limited access to financial markets and creditworthiness more sensitive to local economic conditions than larger systems. Community water supply systems currently are subject to a number of drinking water regulations issued by EPA under the SDWA. Federal regulations limiting levels of contaminants in treated water are implemented by local water suppliers. These require, for example, system monitoring, treatment to remove certain contaminants, and reporting. New regulations are being developed that are likely to impose additional compliance burdens on these systems within the next few years, and costs of meeting these requirements are a growing concern to water suppliers and policy makers. EPA estimates that compliance with the regulations already promulgated will provide millions of people protection from numerous industrial chemicals, microbes, and other contaminants in public water supplies. However, to comply, many cities and towns must invest in capital equipment, operation and maintenance, and increased staff technical capacity. Recent regulations with particularly costly implications for small towns include water filtration, lead control, arsenic control, and inorganic and organic contaminant control. According to EPA, small community water systems (serving up to 3,300 persons) have funding needs of $64.5 billion (17% of the total national need) to provide safe drinking water—accounting for a disproportionate percentage of community water system need. Although small systems account for only 8% of the population served, nearly 83% of all systems with reported funding needs are small communities, EPA said. For wastewater treatment , requirements of the Clean Water Act (CWA) apply to all communities that discharge municipal sewage waste into the nation's waters. About 80% of wastewater treatment and collection facilities serve small communities (defined as those with a population of 10,000 or less), yet those facilities serve only 7% of the U.S. population . Under the CWA, all municipalities were to achieve secondary treatment of municipal sewage (equivalent to removing approximately 85% of wastes from the municipal wastestream), or more stringent, where that is required to meet local water quality standards, by 1988. Much like the Safe Drinking Water Act, small community wastewater systems have higher rates of noncompliance than larger systems. Unlike the SDWA, however, regulatory requirements under the CWA have been fixed for some time. The CWA issue for many cities of all size is continuing efforts to finance improvements that have largely been known for several years. EPA reported in 2016 that as of 2012, cities throughout the country (of all sizes) would require nearly $271 billion for wastewater facilities to meet water quality standards. EPA estimated that documented funding needs for rural communities totaled $68 billion. Needs for projects in small communities (populations less than 10,000) were $33 billion, or about 12% of the total U.S. funding needs. The largest needs in small communities are for improved wastewater treatment and correction of combined sewer overflows. Five states accounted for 30% of the small community needs (Pennsylvania, New York, Kentucky, Texas, and Alabama). With few exceptions, small community facilities are a large majority of the total number of publicly owned facilities in each state, and in four states (Iowa, Montana, Nebraska, and North Dakota), small community facilities constitute more than 95% of publicly owned facilities. In 19 other states, small community facilities constitute 80% to 95% of the publicly owned facilities. As with meeting drinking water needs, EPA has estimated that, because small systems lack economies of scale, their customers face a particularly heavy financial burden to meet needs for clean water investments. The smallest cities are likely to experience the largest overall percentage increases in user charges and fees as a result, EPA has said. The federal government administers a number of programs that assist rural communities in developing water and waste disposal systems. The most prominent are programs of the Department of Housing and Urban Development (HUD); the Appalachian Regional Commission (ARC); the Economic Development Administration (EDA); EPA; and the U.S. Department of Agriculture (USDA). HUD administers assistance primarily under the Community Development Block Grant (CDBG) program, in Title I of the Housing and Community Development Act of 1974, as amended. FY2016 appropriations are $3.0 billion, of which approximately $900 million is available for smaller communities. CDBG funds are used by localities for a broad range of activities intended to result in decent housing in a suitable living environment. Water and waste disposal needs compete with many other public activities for this assistance and are estimated to account for 10% to 20% of CDBG obligations. Program policy requires that at least 70% of funds must benefit low/moderate-income persons. According to data from HUD, in recent years, water and sewer improvement projects have accounted for 9%-10% of all CDBG funds nationally. Thirty percent of CDBG funds are allocated by formula to the states for distribution to small communities and may be available for rural community projects. The larger portion of total CDBG funds, 70%, is allocated by formula to metropolitan areas and cities with populations of 50,000 or more and statutorily defined urban counties and thus does not assist rural areas directly. The ARC assists with programs and projects to provide basic facilities essential to economic growth in the Appalachian regions of 13 states. Investments are concentrated in areas with significant potential for future growth as well as in areas that suffer the greatest distress. States recommend projects for assistance. In FY2016, the ARC is funded at a level of $146 million, budgeted primarily for area development assistance, covering a range of community-based projects including basic infrastructure, business, and human development. Historically, environmental projects have received about 5% of ARC economic and human development funds. EDA provides project grants for construction of public facilities, including water and sewer systems, to alleviate unemployment and underemployment in economically distressed areas. Development grants provide for infrastructure projects that foster industries and commercial businesses that provide long-term employment and are part of approved overall economic development programs in areas of lagging economic growth. Economic development grants can be used for a wide range of purposes and frequently have a sewer or water supply element. In FY2016, EDA's public works grants are funded at $100 million. In historic terms, the largest federal program for wastewater treatment assistance is administered by EPA under the Clean Water Act. Since 1973 Congress has appropriated $94 billion in assistance under this act. FY2016 funding is $1.39 billion. Funds are distributed to states under a statutory allocation formula and are used to assist qualified projects on a priority list that is determined by individual states. Prior to 1989, states used their allotments to make grants to cities and other localities. Now, however, federal funds are used to capitalize state loan programs (State Revolving Funds, or SRFs), and project loans are made according to criteria in the CWA. Over the long term, the loan programs are intended to be sustained through repayment of loans to states, thus creating a continuing source of assistance for other communities. Rural and non-rural communities compete for funding; rural areas have no special priority, nor are states required to reserve any specific percentage for projects in rural areas. Some small communities and states with large rural populations have had problems with the CWA loan program. Many small towns did not participate in the previous grants program and are more likely to require major projects to achieve compliance with the law. Yet many have limited financial, technical, and legal resources and have encountered difficulties in qualifying for and repaying loans. They often lack an industrial tax base or opportunities for economies of scale and thus face the prospect of very high per capita user fees to repay a loan for the full cost of sewage treatment projects. Still, small communities have been participating in the clean water SRF program: an estimated 23% of the $42 billion in SRF assistance since 1989 (representing 67% of loans made by states) has gone to communities with less than 10,000 in population. In 1996, Congress enacted Safe Drinking Water Act (SDWA) amendments which authorize federal capitalization of state loan programs to help public water systems finance improvements needed to comply with federal drinking water regulations ( P.L. 104-182 ). Since then, Congress has provided $20 billion in appropriations for the drinking water SRF program (DWSRF), which is similar in structure to the CWA SRF program. Elements that differ under the DWSRF include authority for states to make both loans and grants and to assist both privately and publicly owned community water systems. To give states flexibility in meeting infrastructure needs, the law allows a governor to transfer as much as 33% of the annual DWSRF allotment to the CWA SRF, or an equivalent amount from the CWA SRF to the DWSRF. For FY2016, Congress appropriated $863 million for SDWA SRF assistance. According to EPA, 38% of total assistance since 1996 (representing 71% of all assistance agreements) has gone to systems serving fewer than 10,000 persons. Grants and loans (direct and guaranteed) for water and wastewater projects are available through rural development programs of the U.S. Department of Agriculture (USDA). Funds are limited to communities with population of 10,000 or less. Communities must be denied credit through normal commercial channels to be eligible for assistance. USDA prefers making loans; grants are made only when necessary to reduce average annual user charges to a reasonable level. The split between loans and grants is about 70-30. In recent years, approximately 65% of loan funds and 57% of grant funds have been obligated to drinking water projects; the remainder have been obligated to waste disposal projects. USDA also makes grants to nonprofit organizations to provide technical assistance and training to assist rural communities with their drinking water, wastewater, and solid waste disposal problems. Prior to the 1996 farm bill (the Federal Agriculture Improvement and Reform Act of 1996, P.L. 104-127 ), these USDA grants and loans, as well as other USDA rural development assistance to businesses, industries, and communities, were authorized as separate programs. In P.L. 104-127 , Congress endorsed an Administration proposal to consolidate 14 existing rural development grant and loan programs into three categories for better coordination and greater local involvement. The program is called the Rural Community Advancement Program (RCAP). The three components are the Rural Utilities Service (RUS, providing assistance for water and wastewater disposal, solid waste management, and emergency community water programs), Rural Community Facilities, and Rural Business and Cooperative Development. Under RCAP, USDA state offices work with state and local governments, Indian tribes, and private and community organizations to prepare a strategic plan for delivering RCAP assistance to each state. The key concept in RCAP is to involve state and local stakeholders in strategic planning, so that federal assistance will address local priorities more effectively. The 1996 farm bill did not alter the basic features or statutory requirements of the water and waste disposal grant and loan programs, which are administered through a network of state and local offices. USDA headquarters allocates program funds to the Rural Economic and Community Development state offices through an allocation formula based on rural population, poverty, and unemployment. District RECD offices actually administer the programs. Since 2001 USDA has provided more than $10 billion to more than 7,500 rural water and wastewater systems, benefitting more than 6.5 million people. Subsequent farm bills in 2002 ( P.L. 107-171 ), 2008 ( P.L. 110-246 ), and 2014 ( P.L. 113-79 ) have not significantly modified USDA's rural water and waste disposal assistance programs. The 2014 law extended authorizations for grants and loans through FY2018. Grants for the development costs of water supply and waste disposal projects in rural areas are authorized under the Consolidated Farm and Rural Development Act. An eligible project must serve a rural area which is not likely to decline in population below that for which the project was designed, and it must be designed and constructed so that adequate capacity will or can be made available to serve the reasonably foreseeable growth needs of the area. Grants may not exceed 75% of the development cost of a project and should only be used to reduce user costs to a reasonable level. Grants are only made after a determination of the maximum amount of loan that a community can afford and still have reasonable user rates. Grants, which typically provide 35%-45% of project costs, may be used to supplement other funds borrowed or furnished by applicants for project costs and may be combined with loans when the applicant is able to repay part, but not all, of the project costs. Eligible applicants may include municipalities, authorities, districts, certain Indian tribes, and similar organizations. Priority is given to projects serving populations of fewer than 5,500 persons. RUS also is authorized to help rural residents where a significant decline in quantity or quality of drinking water exists or is imminent and funds are needed to obtain adequate quantities of water that meet standards of the Safe Drinking Water Act or the Clean Water Act. Grants, ranging from $10,000 to a maximum of $500,000, are provided for projects to serve a rural area with a population of 10,000 or less that has a median household income not in excess of the statewide nonmetropolitan median household income. Grants for repairs, partial replacement, or significant maintenance of an established system cannot exceed $150,000. Communities use the funds for new systems, waterline extensions, construction of water source and treatment facilities, and repairs or renovation of existing systems and may be awarded for 100% of project cost. Applicants compete on a national basis for available funding. The 2014 farm bill authorized $30 million per year through FY2018 for this program, subject to appropriations. Funding for it is provided through reservation of 3% to 5% of appropriated water and waste disposal grant funds. Amounts actually provided through this program have been quite variable over time, depending on need. In FY2014, $14.7 million was distributed in 14 states; in FY2015, $2.5 million was distributed in 14 states. The Rural Development Act of 1972 authorized the Rural Development Insurance Fund under the Consolidated Farm and Rural Development Act. Among other activities, this fund is used for loans to develop storage, treatment, purification, or distribution of water or collection, treatment, or disposal of waste in low-income rural areas. Loans are made to public bodies, not-for-profit organizations, Indian tribes on federal and state reservations, and other federally recognized tribes for projects needed to meet health or sanitary standards, including clean water standards and SDWA requirements. Loans are repayable in not more than 40 years or the useful life of the facility, whichever is less. USDA makes either direct loans to applicants or guarantees up to 90% of loans made by third-party lenders. Borrowers are required to refinance (graduate) to other credit when they can obtain the needed funds from commercial sources at reasonable rates and terms. Loan interest rates are based on the community's economic and health environment and are designated poverty, market, or intermediate. Poverty interest rate loans are made in areas where the median household income (MHI) falls below the higher of 80% of the statewide nonurban MHI, or the poverty level, and the project is needed to meet health or sanitary standards; by law, this rate is set at 60% of the market rate. The market rate is adjusted quarterly and is set using the average of a specified 11-bond index. It applies to loans to applicants where the MHI of the service area exceeds the statewide nonurban MHI. The intermediate rate applies to loans that do not meet the criteria for the poverty rate and which do not have to pay the market rate; by law, this rate is set at 80% of the market rate. Interest rates on guaranteed loans are negotiated between the borrower and the lender. The 2014 farm bill amended the water and waste disposal direct and guaranteed loan programs to encourage financing by private or cooperative lenders to the maximum extent possible, use of loan guarantees where the population exceeds 5,500, and use of direct loans where the impact of a guaranteed loan on rate payers would be significant. Beginning with USDA's FY1996 appropriation, Congress consolidated the water and waste disposal grant and loan appropriations in a single Rural Utilities Assistance Program, consistent with the approach taken in the 1996 farm bill to consolidate delivery of rural development assistance. Funds available through appropriations for USDA's water and waste disposal programs provide $508 million in total for FY2016, including $385 million in grants and subsidy to support direct and guaranteed loans. USDA estimated that, counting both appropriations and repaid loan monies still available, those funds would support more than $1.73 billion in program activity. In dollar terms, the largest federal programs that solely assist water and waste disposal needs are administered by EPA. Funds available in FY2016 for EPA's clean water and safe drinking water SRF programs total $2.3 billion. They do not focus solely on rural areas, however. USDA's grant and loan programs also support significant financial activity and are directed entirely at rural areas. Still, funding needs in rural areas are high (more than $130 billion, according to state surveys summarized in EPA reports), and there is heavy demand for funds. At the end of FY2007, USDA reported a $2.4 billion backlog of requests for 928 water and wastewater projects for its grant and loan programs. Among policy makers, interest has grown in identifying or developing alternative financing tools beyond federal grants or SRFs to help communities meet their water infrastructure needs. Finding consensus on an approach and the revenues to support such needed investments are significant challenges. In 2014, Congress enacted legislation that authorizes a five-year pilot program to provide federal loan assistance for water infrastructure projects, called the Water Infrastructure Finance and Innovation Act (WIFIA) program. However, some analysts are concerned that alternative financing approaches—such as the WIFIA pilot program—are more focused on large communities than rural areas, which could have more difficulty making needed infrastructure investments in the future. Meeting the infrastructure funding needs of rural areas efficiently and effectively is likely to remain an issue of considerable congressional interest.
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The Safe Drinking Water Act and the Clean Water Act impose requirements regarding drinking water quality and wastewater treatment in rural as well as urban areas of the United States. Approximately 19% of the U.S. population lives in areas defined by the Census Bureau as rural. Many rural communities need to complete water and waste disposal projects to improve the public health and environmental conditions of their citizens. Small water infrastructure systems often have higher rates of noncompliance than larger systems. In addition, because small systems generally lack economies of scale, their customers face a particularly heavy financial burden to meet needs for clean water investments. Funding needs are high (more than $130 billion, according to state surveys). Several federal programs assist rural communities in meeting these requirements. In dollar terms, the largest are administered by the Environmental Protection Agency, but they do not focus solely on rural areas. The Department of Agriculture's grant and loan programs support significant financial activity and are directed solely at rural areas. Meeting infrastructure funding needs of rural areas efficiently and effectively is likely to remain an issue of considerable congressional interest.
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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 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, and in recent years 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. The United States has often taken the lead in responding to natural disasters in the region, as was demonstrated once again in the aftermath of Haiti's catastrophic 2010 earthquake. The Obama Administration has 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 maintains 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 has stressed that its policy approach toward the region is one that emphasizes 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 Organization of American States (OAS) General Assembly meeting in Bolivia, 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." 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 involve 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. He announced that diplomatic relations, which had been severed in 1961, would be restored and that travel, commerce, and the free flow of information to and from Cuba would be increased. The policy priority of expanding economic opportunity focuses on one of the key problems facing Latin America: lingering poverty and inequality. At the end of 2013, an estimated 164 million people in Latin America were living in poverty—almost 28% of the region's population—while 66 million people or 11.5% were living in extreme poverty or indigence. These statistics reflect a significant improvement from 2002, when almost 44% of the region's population lived in poverty. Moreover, the statistics show an improvement from 2009, when the region faced an uptick in poverty because of the global financial crisis. In addition to traditional U.S. development assistance programs focusing on health and education, expanding economic opportunity also has 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 green sustainable business practices. The Organization of American States' Inter-American Social Protection Networ k 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 I nitiative 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 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 drug trafficking, are a significant problem in many countries. The Central America-Mexico corridor is the route for 90% of illicit drugs from South America entering the United States, while murder rates in several Central American and Caribbean countries are among the highest in the world and drug trafficking-related violence in Mexico has risen to unprecedented levels. U.S. support in this area includes a series of partnerships to help countries combat drug trafficking and organized crime such as the Mérida Initiative for Mexico, the Central America Regional Security Initiative (CARSI) , and the Caribbean Basin Security Initiative (CBSI) . The Colombia Strategic Development Initiative (CSDI) aligns U.S. assistance with the follow up strategy to Plan Colombia that is designed to develop a functioning state presence in remote, but strategically important, areas. While these programs only began in the last few years, 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 the Andean country combat both drug-trafficking and terrorist groups financed by the drug trade. The policy priority of strengthening democratic governance has the goal of building on progress that the region has 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 (see " Latin America's Economic and Political Environment " below). The United States provides foreign aid to support the rule of law and human rights, good governance, 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. U.S. officials have continued to speak out about human rights abuses in countries such as Cuba and Venezuela, and threats to political rights and civil liberties in other countries in the region. Assistant Secretary of State Jacobson has spoken out about the erosion in the full respect for freedom of expression in some countries, and has also contended that hemispheric nations should collectively remain on guard against efforts to weaken the Inter-American human rights system. The Obama Administration introduced the Energy and Climate Partnership of the Americas (ECPA) in 2009 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 April 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. 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. Political Changes. 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 nations with the exception of Cuba are elected democracies. This past December, Argentina celebrated 30 years of civilian democratic rule since its military relinquished power in 1983 after seven years of harsh dictatorship. Some observers contend that the region overall, despite some exceptions, appears to be moving politically toward the ideological center, focusing on centrist, pragmatic polices. The threat to elected governments in the region from their own militaries has dissipated in most countries, although the 2009 ouster of President Manuel Zelaya in Honduras is an exception. Colombia's ongoing peace negotiations with the Revolutionary Armed Forces of Colombia (FARC), which began formally in October 2012, have raised hopes that the hemisphere's oldest civil conflict, which dates back to the 1960s, may be resolved. 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 2013, seven nations in the hemisphere held elections for head of government. Late in the year, former Chilean President Michelle Bachelet (2006-2010) was elected to a new four-year term in December, and was inaugurated in March 2014. Bachelet has promised reforms aimed at reducing inequality, including a gradual move toward free higher education. In 2104, nine countries in the region held elections for head of government (see text box). In Costa Rica, Luis Guillermo Solís, an academic and former diplomat from the center-left Citizen Action Party, was elected president with 78% of the vote in a second round runoff, defeating the candidate of the ruling National Liberation Party. In El Salvador, the candidate of the ruling leftist Farabundo Martí National Liberation Front, Salvador Sánchez Cerén (the sitting Vice President and a former guerrilla commander), won the country's presidential election in a close second round race in which he defeated the candidate of the rightist National Republican Alliance. In Panama's election, Juan Carlos Varela of the center-right Panameñista Party won the presidency in a three-candidate race, defeating the candidate from the ruling Democratic Change party of outgoing President Ricardo Martinelli. In Colombia, incumbent President Juan Manuel Santos won a heated runoff race in June, and primarily based his campaign on continuing peace negotiations with the FARC that began in 2012. In Antigua and Barbuda, the ruling United Progressive Party led by Baldwin Spencer was ousted by the opposition Antigua and Barbuda Labour Party led by Gaston Browne, with economic issues dominating the campaign. In Bolivia, incumbent President Evo Morales of the leftist Movement Toward Socialism party was easily reelected to a third term. In Brazil, incumbent President Dilma Rouseff of the center-left Workers Party won a second term in a very close runoff against Aécio Neves of the centrist Brazilian Social Democracy Party. In Uruguay, former president Tabaré Vázquez of the center-left Broad Front coalition defeated Luis Alberto Lacalle Pou, the candidate of the center-right National Party, by more than 12% in a second round. Despite significant improvement 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. Many of the street protests that swept Latin America in 2013, most notably in Brazil, were sparked by new middle classes demanding better public services. There are also numerous examples of elected presidents over the past 25 years who left office early amid severe social turmoil, often with economic crises, high-profile corruption, or even the presidents' own autocratic actions contributing to their ousters. The quality of democracy in several countries in the region also has been eroded by two key factors 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 is the executive's abuse of power in several countries that has led to a setback in liberal democratic practices, with elected leaders seeking to consolidate power at the expense of minority rights. In recent years, there has also been a deterioration of media freedom in several countries in the region precipitated by the increase in organized crime-related violence and by politically driven attempts to curb critical or independent media. Some analysts see the growth of leftist populism in the region in such countries as Venezuela, Ecuador, Bolivia, and Nicaragua as a threat to democracy because of the tough treatment of political opponents and the dismantling of institutional checks and balances. They contend that a type of competitive or electoral authoritarianism is taking hold in these countries, in which democratic institutions exist but abuse by the incumbent skews the playing field against opponents. In January 2014, Nicaragua's National Assembly, dominated by President Daniel Ortega's Sandinista party, approved constitutional changes eliminating presidential term limits and eliminating the 35% threshold requirement needed for election. This paves the way for Ortega to seek a fourth term in 2016. 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 2014 report (covering 2013), the group ranked just one country as not free: Cuba; 10 countries as partly free—Bolivia, Colombia, Ecuador, Guatemala, Haiti, Honduras, Mexico, Nicaragua, Paraguay, and Venezuela; and the remaining 22 countries of the region as free. While the Dominican Republic was categorized as free, Freedom House noted a decline in civil liberties in the country because of a court ruling that could render thousands of Dominicans of Haitian descent stateless, an action that was criticized by other Latin American countries and the United States. In Panama, Freedom House maintained that political rights declined because of concerns about a lack of investigations of government corruption and verbal attacks against journalists investigating corruption. In contrast, political rights and civil liberties were reported to have improved in Nicaragua because of, among other things, advances in transparency, progress in women's rights, and efforts to combat trafficking. (The Freedom House evaluation, however, was completed before Nicaragua's Sandinista-dominated legislature approved constitutional changes in late January 2014 that eliminated presidential term limits.) Economic Changes. The region has also undergone a significant economic transformation. While the 1980s were commonly referred to as the lost decade of development as many countries became 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 2%. 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 5.6% and 4.3% respectively. Economic growth rates declined since to a regional average of 3.1% in 2012 and 2.5% in 2013. The weak performances of Brazil (2.5%) and Mexico (1.1%) dragged down the regional average in 2013, The 2014 regional forecast by the U.N. Economic Commission for Latin America and the Caribbean (ECLAC) originally was for an improved growth rate of 3.2% based on increasing external demand tied to improving economic conditions in the global economy and better economic performance in Brazil and Mexico. That forecast, however, was first reduced to a 2.2% growth rate, and by December 2014 estimated at just 1.1%., the lowest average regional growth rate since 2009, in part because of the slow or negative growth rates in some of the largest economies, such as Argentina, Venezuela, Brazil and Mexico. The pace of economic recovery in developed countries and slower growth in China affected Latin American growth. For 2015, however, ECLAC, forecasts a slightly faster growth rate of 2.2%. In 2014, there was particular concern about economic conditions in Venezuela, which faced shortages of basic food and consumer items, falling international reserves, high inflation, and in the second half of the year, a rapid decrease in oil prices—the economy is forecast to contract 3% in 2014, according to ECLAC. Likewise, Argentina's economy is forecast to contract in 2014 by 0.2%, and there is economic uncertainty as a result of the government's confrontation with remaining private creditor holdouts who did not participate in the government's 2005 and 2010 debt restructurings. As noted above, Latin America has made significant progress in combating poverty and inequality. Two key factors accounting for this decline are 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. In terms of income distribution, while Latin America is still the most unequal region in the world, inequality has declined in many countries since 2002, and there has been a clear downward trend in income concentration in the region over the past decade. Rising growth and income levels and progress in poverty reduction also have helped expand Latin America's middle class by about 50% over the past decade, according to the World Bank. Now more than 150 million people in the region (about 30% of total population) are considered in the middle class. In recent years, Latin America's relatively sustained political stability and steady economic performance (with some exceptions) have 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 in recent years 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 $260 billion in 2013. (Nevertheless, the United States remains the single largest trading partner for many countries; total U.S. trade with the region amounted $846 billion in 2013, 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 nine-member group currently includes Bolivia, Cuba, Ecuador, and Nicaragua, as well as the Caribbean island nations of Dominica, Antigua and Barbuda, St. Vincent and the Grenadines, and most recently St. Lucia, which became a member in July 2013. ALBA has the goals of promoting regional integration and socioeconomic reform and alleviating poverty, but is most often associated with the anti-American rhetoric of its Latin American members. Some observers maintain that ALBA has lost its initial energy. Director of National Intelligence James Clapper maintained in January 2012 congressional testimony that ALBA was "created in part to spread Chávez's influence in the region" but "is only muddling through." In the aftermath of President Chávez's death in March 2013, some observers questioned the future of the Venezuelan-founded alliance, and the precipitous decline in the price of oil in 2014 further threatened 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 March 2014, in an attempt to quell political unrest in Venezuela, UNASUR foreign ministers approved a resolution expressing support for dialogue between the Venezuelan government and all political forces and social sectors; in April, the foreign ministers of Brazil, Colombia, and Ecuador were initially successful in establishing such dialogue, but talks between the government and the political opposition ultimately broke down in May, 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 describe above, the Alliance welcomed the United States as an observer in July 2013. A region-wide organization established in December 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. CELAC held its first summit in Chile in January 2013, in which Cuban President Raúl Castro assumed the presidency of the organization for a year. CELAC's second summit was held in late January 2014 in Havana, Cuba. At the summit, leaders declared their region a "zone of peace," pledging to resolve disputes as respectful neighbors. The leaders also committed their nations to nonintervention and pledged to respect "the inalienable right of every state to choose its political, economic, social, and cultural system." While to some extent CELAC's establishment reflects Latin American desire to lessen U.S. influence in the region, the United States still remains very much engaged in the region bilaterally and multilaterally through the OAS and its numerous affiliated organizations. 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 next Summit of the Americas, scheduled to be hosted by Panama April 10-11, 2015. Cuba had expressed interest in attending the sixth summit in 2012 in Colombia, 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, and as a result, Panama's Vice President and Foreign Minister Isabel de Saint Malo announced in August 2014 that it would invite Cuba to the summit, presenting a policy dilemma for the Obama Administration. In December 2014, as President Obama was announcing a new policy approach toward Cuba, the White House announced that the President Obama would participate in the summit, but emphasized that human rights and democracy would be key summit themes. Under the fist six years of the Obama Administration, there was significant continuity in U.S. policy toward Latin America from the Bush Administration. Some of the same basic policy approaches were, although in many cases there has been a change of emphasis. Nevertheless, the Obama Administration also made several significant policy changes, including an overall emphasis on partnership and shared responsibility. Moreover, just after the end of the 113 th Congress in December 2014, President Obama unveiled a new policy approach toward Cuba that substantially broke with the long-standing U.S. sanctions-based policy and moved toward a policy of engagement. 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 the CBSI, the origin of which, however, dates back to the Bush Administration. Assistance for Colombia become 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 increasingly 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. Another trade initiative begun informally under the Bush Administration and continued by the Obama Administration through formal trade negotiations is the proposed Trans-Pacific Partnership (TPP) free trade agreement, which involves negotiations with Mexico, Chile, and Peru and eight other Pacific countries. Just as the Bush Administration had, the Obama Administration has expressed support for comprehensive immigration reform, an especially important issue in U.S. relations with Mexico and Central America. Reform efforts were stymied in 2007 when the Senate failed to invoke cloture and limit debate on two comprehensive reform measures, and Congress did not return to consideration of such measures. In 2013, however, a bipartisan group of Senators developed a framework for comprehensive reform legislation that the Senate approved in June 2013; the measure included a pathway for citizenship for some 11 million undocumented immigrants living in the United States. The House did not consider comprehensive immigration reform in the 113 th Congress, and in response to President Obama's executive actions on immigration in November 2014, the House approved legislation that would have declared the President's actions null and void. In mid-2014, both houses began focusing on how to address the surge in unaccompanied minors from Central America that have entered the United States along the U.S.-Mexico border. In other areas, the Obama Administration has made policy changes on Latin America that have more clearly differentiated it from the Bush Administration. Early on, the Administration put more of an emphasis on partnership and shared responsibility in its policy toward the region. The Administration sustained high levels of development assistance to the region even in recent years as overall U.S. assistance to the region has declined. With regard to Cuba, the Administration has implemented major changes in Cuba policy. In 2009, it lifted restrictions on family travel, restarted semiannual migration talks, and moved to engage Cuba in a number of areas. In 2011, the Administration it eased restrictions on other types of purposeful travel. Cuba's detention of U.S. Agency for International Development subcontractor Alan Gross in 2009 impeded a major improvement in bilateral relations, but following his release in December 2014, the Administration unveiled a new policy approach toward the normalization of relations toward Cuba. The Administration vowed to continue speak out on human rights and democracy issues, and stressed that more could be done to support the Cuban people through engagement. Congress plays an active role in policy toward Latin America and the Caribbean. Legislative and oversight attention to the region during the 113 th Congress focused on such issues as U.S. support to countries contending with drug trafficking and transnational crime, including Mexico under the Mérida Initiative, Central America under CARSI, and the Caribbean under the CBSI; continued counternarcotics and security support to Colombia as it moved toward a potential peace agreement; and continued support to Haiti as it continued to recover from the 2010 earthquake. Hearings on the region covered these issues as well as a variety of other topics, including overall U.S. interests and policy in the Western Hemisphere; energy issues; U.S. foreign aid to the region; challenges to democracy, including media freedom, the rule of law, and political unrest in Venezuela; concerns about Iranian activities in the region; U.S. relations with such countries as Brazil, Mexico, and the Dominican Republic; and the surge of unaccompanied minors from Central America (see Appendix B for links to hearings on the region during the 113 th Congress). Legislative action in the 113 th Congress included approval of: omnibus appropriations legislation for FY2013 ( P.L. 113-6 , Consolidated and Further Continuing Appropriations Act, 2013, signed into law March 26, 2013), which included foreign aid appropriations with numerous provisions on Latin America; the Organization of American States Revitalization and Reform Act of 2013 ( P.L. 113-41 , signed into law October 2, 2013), which directs the Secretary of State to develop a strategy for the adoption of proposed reforms at the OAS; the U.S.-Mexico Transboundary Hydrocarbons Agreement in the Bipartisan Budget Act of 2013 ( P.L. 113-67 , signed into law December 26, 2013); the 2014 farm bill ( P.L. 113-79 , signed into law February 7, 2014), with modifications to the U.S. cotton program related to a trade dispute with Brazil over U.S. subsidies and a reporting requirement on a U.S.-Mexico water dispute in the Rio Grande Basin; omnibus appropriations for FY2014 ( P.L. 113-76 , Consolidated Appropriations Act, 2014, signed into law January 17, 2014), which included foreign aid appropriations with numerous provisions on Latin America; the Assessing Progress in Haiti Act of 2014 ( P.L. 113-162 ), which directs the Secretary of State to submit a report to Congress annually through 2017 on the status of post-earthquake recovery and development efforts in Haiti; omnibus appropriations for FY2015, ( P.L. 113-235 , Consolidated and Further Continuing Appropriations Act, 2015, signed into law December 16, 2014); and the Venezuela Defense of Human Rights and Civil Society Act of 2014 ( S. 2142 , signed into law December 18, 2014, but not yet assigned a Public Law number). There was also legislative action on the following measures by either the House or the Senate: In June 2013, the Senate approved comprehensive immigration reform, S. 744 . In March 2013, the Senate approved a resolution on Haiti's recovery and reconstruction, S.Res. 12 . Three resolutions were approved regarding the political and human rights situation in Venezuela: in October 2013, the Senate approved S.Res. 213 ; in March 2014, the House approved H.Res. 488 and the Senate approved S.Res. 365 . On August 1, 2014, the House approved an FY2014 supplemental appropriations bill, H.R. 5230 , that would have reprogrammed up to $40 million in FY2014 appropriations to support repatriation and reintegration activities in Central America. A Senate bill, S. 2648 , introduced in July 2014, would have provided $300 million in FY2014 supplemental appropriations to address the issue of unaccompanied minors (the same amount requested by the Administration). Although many Latin American and Caribbean nations have made significant development progress in recent years, foreign aid remains an important tool for advancing U.S. policy priorities in the hemisphere. Current aid programs reflect the diversity of the region. Some nations receive a broad range of U.S. assistance, with projects in areas such as democracy promotion, economic reform, basic education, human 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. Absolute assistance levels for the region have declined each year since FY2010. In FY2014, the United States provided an estimated $1.5 billion of aid to Latin American and Caribbean nations through the U.S. Agency for International Development (USAID) and the State Department. Some countries in the region receive additional assistance through other U.S. agencies, such as the Department of Defense, the Inter-American Foundation, the Millennium Challenge Corporation, and/or the Peace Corps. Key Policy Issues: The 113 th Congress spent a substantial amount of time considering appropriations for foreign aid and other programs. Final action on FY2013 appropriations was delayed until March 2013, when Congress approved the Consolidated and Further Continuing Appropriations Act, 2013 ( P.L. 113-6 ), and final action on FY2014 appropriations was delayed until January 2014, when the President signed into law the Consolidated Appropriations Act, 2014 ( P.L. 113-76 ). In July 2014, President Obama requested supplemental appropriations to address a surge in unaccompanied alien children arriving at the U.S. border, primarily from Central America. Congress considered the request, which included $300 million for programs in Central America, but ultimately did not approve any supplemental appropriations. Final action on FY2015 appropriations was delayed until December 16, 2014, when President Obama signed into law the Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ). It is unclear how much foreign assistance the legislation provided for Latin America and the Caribbean since, for the most part, appropriations levels for individual countries and programs were not specified in the bill or explanatory statement. Nevertheless, it appears as though the total may have exceeded the Administration's $1.3 billion request for the region since the legislation provided at least $24 million more than was requested for Colombia, $64 million more than was requested for Mexico, and $130 million more than was requested for the Central America Regional Security Initiative (CARSI). For additional information, see CRS Report R43577, U.S. Foreign Assistance to Latin America and the Caribbean: Recent Trends and FY2015 Appropriations , by [author name scrubbed]. Latin America is the 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 leading countries of birth for the U.S. foreign born population. Factors that have fueled Latin American migration to the United States have included family ties, poverty and unemployment, political and economic instability, natural disasters, proximity, and most recently, crime and violence. Since the mid-1990s, increased border enforcement has made unauthorized entry into the United States more difficult and expensive, which has had the unintended consequence of creating a "caging effect" by encouraging unauthorized immigrants to settle in the United States. It has also prompted more 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. Migrants have been vulnerable to kidnapping, human trafficking, and other abuses. For these reasons, Latin American governments have supported the enactment of comprehensive immigration reform (CIR) in the United States that would normalize the status of illegal migrant workers and create guest worker programs to facilitate legal circular migration. In the absence of CIR, governments have also welcomed President Obama's recent executive actions to give certain categories of unauthorized immigrants in the United States relief from removal (deportation) and work authorizations, even though they are temporary measures. Immigration reform received substantial attention in both chambers during the 113 th Congress. In June 2013, the Senate passed the Border Security, Economic Opportunity, and Immigration Modernization Act ( S. 744 ), a CIR bill that would double recent investments in border security and require employers to verify employment eligibility electronically, but also create new visa programs and provide paths to legalization for unauthorized immigrants. During that session, House committees approved five discrete immigration bills. During the second session, attention in both the Senate and House focused on how to address the unprecedented surge in unaccompanied minors who have been apprehended along the U.S.-Mexico border and how to respond to President Obama's executive actions on immigration. In the absence of CIR, 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 expires for El Salvador in March 2015, Honduras and Nicaragua in March 2016, and Haiti in January 2016. Another issue in U.S. relations with Latin America and the Caribbean is the increase in removals (deportations) in recent years. In FY2013, for example, DHS deported almost 368,644 individuals worldwide, some 97% of whom were returned to Latin American and Caribbean countries. Of those deported to Latin America and the Caribbean, more than half were removed based on a criminal conviction. Mexico remains concerned about the stress that increased deportations have put on border communities, as well as the safety of the deportees arriving into dangerous localities. Caribbean and Central American countries are also concerned about the potential effect of the deportations on increased levels of crime and violence. Officials from across the region have called on the United States to provide better information on deportees with criminal records, which DHS has begun to do in certain countries, and to provide reintegration assistance to help governments support returning nationals. In recent years, emigration from Mexico has declined dramatically, but illegal emigration of both adults and children (accompanied and unaccompanied) from Central America's "northern triangle countries" (El Salvador, Guatemala, and Honduras) has surged. Some of the "push" factors why children are migrating include poverty, violence, and the existence of smuggling networks, while some of the "pull" factors include family reunification and the promise of better economic and educational opportunities. Many analysts doubt the northern triangle governments' willingness and ability to address the root causes pushing unaccompanied children to leave despite their pledges to do so. Mexico is also under pressure to better secure its southern border, arrest alien smugglers, and combat Central American transmigration. Key Policy Issues: In 2014, Congress focused on how to respond to the surge in unaccompanied minors from Central America apprehended on the U.S. Southwest border. On July 8, 2014, the Administration submitted an FY2014 supplemental appropriations request to Congress to address increased migration from Central America. While the vast majority of the $3.7 billion requested would have been used to enforce U.S. immigration policies, $300 million was to be dedicated to programs in Central America. The Senate-introduced version of the bill ( S. 2648 ) would have provided the requested foreign aid funds; the House-passed version ( H.R. 5230 ) did not include new funds for Central America. Ultimately, Congress did not enact an FY2014 supplemental appropriations bill. The FY2015 omnibus appropriations measure approved in December 2014 ( P.L. 113-235 ) provides $430 million for Central America, up from $304 million in FY2014 and requires the Administration to develop a Central American migration prevention and response plan. Of those funds, $130 million is additional CARSI aid above the Administration's request to help address security and rule of law challenges. It also includes $79 million in additional Mérida Initiative funds for securing Mexico's southern border. In response to President Obama's November 2014 announcement of executive actions on immigration, the House passed H.R. 5759 , which would have declared the executive actions null and void; the Senate took no action on the bill. More significantly, in the FY2015 omnibus appropriations measure, Congress elected to fund all agencies through the end of FY2015, with the exception of the Department of Homeland Security (DHS). With DHS funding slated to run out in February 2015, the 114 th Congress will have the opportunity to take action on FY2015 appropriations for the lead agency responsible for implementing the aforementioned executive actions on immigration. For additional background, CRS Report R43320, Immigration Legislation and Issues in the 113 th Congress , coordinated by [author name scrubbed]; CRS Report R43798, The Obama Administration's November 2014 Immigration Initiatives: Questions and Answers , by [author name scrubbed]; CRS Report RS20844, Temporary Protected Status: Current Immigration Policy and Issues , by [author name scrubbed] and [author name scrubbed]; CRS Report RL33200, Trafficking in Persons in Latin America and the Caribbean , by [author name scrubbed]; CRS Report R43628, Unaccompanied Alien Children: Potential Factors Contributing to Recent Immigration , coordinated by [author name scrubbed]; and CRS Report R43702, Unaccompanied Children from Central America: Foreign Policy Considerations , coordinated by [author name scrubbed]. The Latin America and Caribbean region is one of the fastest-growing regional trading partners for the United States. The average rate of growth in trade between the United States and the region since 1998 surpasses that of U.S. trade with Asia and the European Union. 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 region's imports and 30% of its exports. Most of this trade is with Mexico, which accounts for 64% of U.S. imports from and 55% of U.S. exports to the region. In 2013, total U.S. exports to Latin America and the Caribbean were valued at $407 billion, while U.S. imports were valued at $438 billion (see Appendix A ). The United States has strengthened economic ties with the region 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 almost 21 years ago in January 1994, the United States has entered into a total of six FTAs involving 11 countries in the region, including Mexico, Chile, Colombia, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Panama, and Peru. Some of the largest economies in South America, however, such as Argentina, Brazil, and Venezuela, have resisted the idea of forming trade integration 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 extends unilateral trade preferences to some countries in the region through trade preference programs such as the Generalized System of Preferences (GSP) and the Caribbean Basin Trade Partnership Act (CBTPA). In the early 1990s, the United States began extending unilateral trade preferences to certain countries in the Andean region under the Andean Trade Preference Act (ATPA). After several extensions and modifications, the program expired on July 31, 2013. As wages rise in East Asia and 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 may be the proposed Trans-Pacific Partnership (TPP), which could have significant implications for U.S. trade and investment ties with the three Latin American countries participating in the negotiations—Mexico, Chile, and Peru—as well as with Canada and seven other countries in the Pacific involved in the negotiations (other Latin American countries could possibly join in the future). The proposed TPP may open some issues related to NAFTA and provide updated provisions in areas such as intellectual property rights (IPR) protection, labor rights, and environmental protection. Key Policy Issues . During the 113 th Congress, the TPP negotiations were of congressional interest, especially in the areas of services trade, IPR protection, worker rights, environmental issues, and regulatory cooperation. Given that only three countries from Latin America were taking part in the negotiations, this raised some questions among policy makers as to whether the United States should consider broadening trade policy efforts to the region as a whole. Another issue of 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 other Pacific Alliance activities. Also of interest was the passage of energy reform in Mexico and the implications for U.S. oil imports from Mexico and for business and investment opportunities for U.S. companies. For additional background, see CRS Report R42965, NAFTA at 20: Overview and Trade Effects , by [author name scrubbed] and [author name scrubbed]; CRS Report R42694, The Trans-Pacific Partnership (TPP) Negotiations and Issues for Congress , coordinated by [author name scrubbed]; CRS Report R41429, Trade Preferences: Economic Issues and Policy Options , coordinated by [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. 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, however, have spurred some Latin American leaders and others to explore drug policy alternatives. In 2009, the Latin American Commission on Drugs and Democracy (later renamed the Global Commission on Drug Policy) advocated the decriminalization of drug consumption and treatment of drug addiction as a public health matter as well as a redoubling of law enforcement efforts to crack down on drug trafficking-related organized crime. At the sixth Summit of the Americas held in April 2012, several Latin American presidents criticized current international drug control efforts. As a result, Summit participants tasked the OAS Inter-American Drug Abuse Control Commission (CICAD) to prepare two inter-related reports to evaluate current Latin American drug policies and provide policy options for alternative drug control approaches. The first of these two OAS reports assessed the scope of the drug problem in the Americas. It concluded that there is no single manifestation of the drug problem in the region. For example, it found that health-related consequences of drug consumption were most apparent in end-user countries while criminal activity and related violence predominantly affected drug production and transit countries. As a result, the report suggests that regional responses may benefit from greater policy flexibility that allows for a diversity of approaches tailored to the problems facing individual countries. Such flexibility may include changes in national legislation or international law to permit the decriminalization or legalization of marijuana. The second OAS report presents four potential scenarios for the future direction of the drug problem in the Americas, depending on the policy decisions taken by regional actors between 2013 and 2025. Collectively, policy options identified include (1) addressing insecurity and weak governance through institutional capacity building in the justice sector; (2) experimenting with alternatives to the current prohibitionist drug control regime, including but not limited to the decriminalization or legalization of marijuana; (3) mitigating drug-related violence and addiction through local community and civic engagement; and (4) allowing drug traffickers to operate freely and with impunity in order to reduce the visibility of drug trafficking-related violence. Many stakeholders had hoped that the OAS reports would spur further consideration of alternative drug policy options, including in particular changes in policy approaches to marijuana-related crimes. To date, the Obama Administration's position on this issue remains firmly against national-level policies that would legalize or decriminalize controlled substances, including marijuana. 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. 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. Advocates of counternarcotics policy reform have hailed recent Latin American initiatives as a breakthrough, praising such efforts as overdue, given the perception that existing policies have not translated into enduring counterdrug progress for the region. Others, however, consider the prospect of a growing divide between U.S. and Latin American drug control policy as one of the most serious threats to the integrity of the global drug control regime. Such critics are concerned that variations in national drug control policies could provide criminal elements additional opportunities to exploit gaps in drug enforcement. It remains unclear whether such policy debates may translate into lasting improvements to reduce the production, trafficking, use, and consequences of illegal drug trade. Key Policy Issues: The 113 th Congress 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. Illustrating congressional interest in the issue, the House Committee on Foreign Affairs marked up the Western Hemisphere Drug Policy Commission Act of 2014, H.R. 4640 , on June 26, 2014. This bill would have established a commission to review and make recommendations on how to improve U.S. domestic and international drug policies. For additional information, see CRS Report RL34543, International Drug Control Policy: Background and U.S. Responses , by Liana Rosen. Also see CRS Report R41349, U.S.-Mexican Security Cooperation: The Mérida Initiative and Beyond , by [author name scrubbed] and [author name scrubbed]; and CRS Report R41731, Central America Regional Security Initiative: Background and Policy Issues for Congress , by [author name scrubbed] and [author name scrubbed]. U.S. attention to terrorism in Latin America intensified in the aftermath of the September 2001 terrorist attacks on New York and Washington, with an increase in bilateral and regional cooperation. In its 2013 Country Reports on Terrorism (issued in April 2014), the State Department maintained that the majority of terrorist attacks in the Western Hemisphere were committed by the Revolutionary Armed Forces of Colombia (FARC). The State Department asserted that Latin American governments made modest improvements in their counterterrorism capabilities and border security, but that for some countries, corruption, weak government institutions, insufficient interagency cooperation, weak or nonexistent legislation, and a lack of resources impeded progress. Over the past several years, policy makers have been concerned about Iran's increasing activities in Latin America. Concerns center on Iran's attempts to circumvent U.N. and U.S. sanctions, as well as on its ties to the radical Lebanon-based Islamic group Hezbollah. Both Iran and Hezbollah are reported to be linked to two bombings against Jewish targets in Argentina in the early 1990s. A June 2013 State Department report to Congress on Iran's activities in Latin America (submitted pursuant to the Countering Iran in the Western Hemisphere Act of 2012 ( P.L. 112-220 )) asserted that Iran's influence in the region is waning. Some critics maintain that the State Department is playing down the threat posed by Iran in the region, while others contend that while Iran's involvement in the region is a concern, its level and significance are being exaggerated. As in past years, the State Department's 2013 terrorism report maintained that "there were no known operational cells of either Al Qaeda or Hezbollah in the hemisphere," but noted that "ideological sympathizers in South America and the Caribbean continued to provide financial and ideological support to those and other terrorist groups in the Middle East and South Asia." Cuba has remained on the State Department's list of state sponsors of terrorism since 1982 pursuant to Section 6(j) of the Export Administration Act. In December 2014, as part of President Obama's new policy approach toward Cuba, the President called for a review of Cuba's designation on the state sponsors of terrorism list (see " Cuba " section below). Both Cuba and Venezuela are on the State Department's annual list of countries determined to be not cooperating fully with U.S. antiterrorism efforts pursuant to Section 40A of the Arms Export Control Act. U.S. officials have expressed concerns over the past several years about Venezuela's lack of cooperation on antiterrorism efforts, its relations with Iran, and the involvement of senior Venezuelan officials in supporting the drug and weapons trafficking activities of the FARC. In recent years, however, improved Venezuelan-Colombian relations have resulted in closer cooperation between the two countries on antiterrorism and counternarcotics efforts and border security. Key Policy Issues. The 113 th Congress continued oversight of terrorism concerns in the Western Hemisphere, especially the activities of Iran and Hezbollah. The State Department assessment of Iranian activities in the region was the subject of two House hearings in 2013, and another House hearing on terrorist groups in Latin America was held in February 2014 (see Appendix B ). In terms of legislative initiatives, two were introduced in the 113 th Congress related to Cuba., but no action was taken on the measures. H.R. 1917 (Rush) would have, among its provisions, 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. H.Res. 262 (King) would have called for the immediate extradition or rendering to the United States of all fugitives from justice who are receiving safe harbor in Cuba in order to escape prosecution or confinement for criminal offenses in the United States. The issue of Cuba's harboring of fugitives wanted in the United States had been mentioned for several years in the State Department's annual report on terrorism. For additional information, see CRS Report RS21049, Latin America: Terrorism Issues , by [author name scrubbed] and [author name scrubbed]. Since its foundation in 1948, the Organization of American States (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. As the other 34 members have developed more independent foreign policies, however, the OAS has become less receptive to U.S. initiatives and more prone to inaction. A number of Members of Congress have expressed concerns about the organization's direction in recent years. Some assert that the OAS advances policies counter to U.S. interests and argue that the United States should no longer fund the organization. Others assert that the OAS continues to be an important hemispheric institution but worry that administrative and financial problems are preventing it from effectively carrying out its core missions of democracy promotion, human rights protection, economic and social development, and regional security cooperation. Key Po licy Issues: The 113 th Congress maintained considerable interest in the OAS, and adopted legislation designed to strengthen the organization. On October 2, 2013, President Obama signed into law the OAS Revitalization and Reform Act of 2013 ( P.L. 113-41 ), which had been passed by both houses of Congress in September 2013. The measure expressed support for the OAS, asserted that the organization could carry out its mission more effectively by implementing certain management and programmatic reforms, and directed the Secretary of State to develop a strategy to ensure the proposed changes are adopted. It also directed the Secretary of State to submit the strategy to Congress within 180 days of enactment, and provide quarterly briefings on the implementation of the proposed reforms. Congress also continued to appropriate funding for the OAS. In addition to providing resources for the U.S. assessed contribution to the OAS, the FY2015 omnibus appropriations measure ( P.L. 113-235 ), provided voluntary contributions to the organization. The legislation designated $3.4 million for OAS development assistance programs and $4.5 million for OAS democracy promotion programs—including $2 million for the autonomous Inter-American Commission on Human Rights (IACHR). For additional information, see CRS Report R42639, Organization of American States: Background and Issues for Congress , by [author name scrubbed]. Argentina has had a vibrant democratic tradition since its military relinquished power in 1983. Current President Cristina Fernández de Kirchner, from a center-left faction of the Peronist party, was first elected in 2007 (succeeding her husband, Néstor Kirchner, who served one term) and is now approaching the final year of her second term. Argentina's constitution does not allow for more than two successive terms, so President Fernández is ineligible to run in the next presidential election, scheduled for October 2015. The presidential race is well underway with several candidates leading opinion polls, including two from the Peronist party. 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. Recent court rulings have increased pressure on Argentina to reach an agreement with private creditors who chose not to participate in the 2005 and 2010 debt restructuring offers. This outstanding debt has also prevented Argentina from accessing international credit markets, and could make it more difficult for Argentina to emerge from its current economic downturn. U.S.-Argentine relations, as described by the Department of State, are based on such shared interests as regional peace and stability, nuclear nonproliferation, human rights, education, and cooperation on science and technology. Commercial relations are robust, with the United States running a $5.7 billion trade surplus and U.S. companies investing approximately $15 billion in the country. At various junctures, however, there have been tensions in the bilateral relationship, including over Argentina's payment of international arbitral awards in investment disputes and the repayment of debt owed to the U.S. government. While these issues have been settled, the unresolved holdout debt issue has contributed to increased tension, with Argentine officials at times rhetorically lashing out at the United States. Key Policy Issues: The 113 th Congress maintained an interest in Argentina because of defaulted debt owed to private creditors and the U.S. government as well as the treatment of U.S. investors in the country. Some Members of Congress also expressed concern about the government's alleged efforts to exert influence over the media. A continued interest of Congress was progress in the investigation and prosecution of those responsible for the 1994 bombing of the Argentine-Israeli Mutual Association (AMIA) that killed 85 people. Both Iran and Hezbollah are alleged to be linked to the bombing. For background information, see CRS Report R43816, Argentina: Background and U.S. Relations , by [author name scrubbed] and [author name scrubbed]; and archived CRS Report R41029, Argentina's Defaulted Sovereign Debt: Dealing with the "Holdouts" . U.S. policy toward Brazil remains in flux as officials adjust to the country's expanded global reach. Brazil enjoyed strong economic growth from 2004 to 2010 and is now the world's seventh-largest economy. The country has utilized its economic clout to exert more influence on global matters. As a result, the United States and Brazil increasingly engage on international issues in addition to bilateral concerns. The changing relationship has occasionally frustrated U.S. policy makers as the two multicultural democracies' shared values have not always translated into common approaches to international affairs. Some analysts assert that the independent foreign policies and occasionally divergent national interests of Brazil and the United States will inevitably lead to disputes, but that the countries can maintain a constructive partnership through transparent and respectful engagement. Such engagement has proven more challenging, however, since press reports disclosed that the National Security Agency (NSA) intercepted Brazilian communications, including those of President Dilma Rousseff and the state-owned oil company, Petrobras. The reports led Brazil to indefinitely postpone a state visit that Rousseff was scheduled to make in October 2013, and contributed to a general cooling of relations. Key Policy Issues: The 113 th Congress expressed interest in several aspects of U.S.-Brazil relations, though commercial ties received particular attention. In June 2013, the House Committee on Ways and Means, Subcommittee on Trade held a hearing examining the opportunities and challenges of the U.S.-Brazil trade and investment relationship (see Appendix B ). The hearing witnesses generally agreed with one another that there is considerable room for growth in commercial relations, and called for Brazil and the United States to work together to address barriers to trade and investment. As part of the farm bill reauthorization ( P.L. 113-79 ), signed into law on February 7, 2014, Congress approved modifications to the U.S. cotton program that appear to have helped resolve a long-running trade dispute with Brazil. In December 2014, Congress approved the FY2015 omnibus appropriations measure ( P.L. 113-235 ). Although the Obama Administration had not requested any funding for environmental programs in Brazil for FY2015, the bill provided $10.5 million in foreign aid to support conservation efforts in the Brazilian Amazon. According to H.Rept. 113-499 (which is considered part of the explanatory statement), the bill also provided resources to continue and strengthen the U.S.-Brazil Joint Action Plan to Eliminate Racial and Ethnic Discrimination and Promote Equality. For additional information, see CRS Report RL33456, Brazil: Political and Economic Situation and U.S. Relations , by [author name scrubbed] and CRS Report R43336, Status of the WTO Brazil-U.S. Cotton Case , by [author name scrubbed]. Because of their geographic location, many Caribbean nations are transit countries for illicit drugs from South America and the Caribbean destined for the U.S. and European markets. Currently, of the 15 countries in the Caribbean region, President Obama identified 4—the Bahamas, the Dominican Republic, Haiti, and Jamaica—as major drug-producing or drug-transit countries in September 2014 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 FY2014 amounted to an estimated $327 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. Key Policy Issues: For FY2015, the Obama Administration requested almost $57 million for the CBSI. The House and Senate Appropriations Committees reported out their respective FY2015 foreign aid appropriations bills ( H.R. 5013 and S. 2499 ) in June 2014. The report to the House bill ( H.Rept. 113-499 ) directed not less than the FY2014 level of assistance for the CBSI, or almost $64 million. It also would require a State Department report on CBSI funding on a country-by-country basis for FY2010 through FY2014. The report to the Senate bill ( S.Rept. 113-195 ) did not include a specific funding level for the CBSI, but indicated its support for the CBSI. Nevertheless, the Senate report also indicated that CBSI assistance should be made available only for governments that the Secretary of State determines demonstrate a clear and convincing commitment to punishing corruption and reforming their security forces. Ultimately, Congress completed action on foreign aid appropriations in the FY2015 omnibus appropriations measure approved in December 2014 ( P.L. 113-235 ). It appears that the CBSI will be funded at not less than $64 million, since the explanatory statement to the omnibus noted that Federal departments shall comply with directives and reporting requirement in the House and Senate reports to the FY2015 foreign aid appropriations measure. The explanatory statement also specified a level of $28 million from the Economic Support Fund (ESF) foreign aid account for the CBSI, the same amount requested by the Administration. Amounts for the CBSI from other foreign aid funding accounts—Foreign Military Financing (FMF), International Narcotics Control and Law Enforcement, and Nonproliferation, Antiterrorism, Demining and Related Programs (NADR)—were unspecified in the explanatory statement or the measure itself. In terms of oversight, the House Committee on Foreign Affairs, Subcommittee on the Western Hemisphere, held hearings examining the status of the CBSI in June 2013 and April 2014 (see Appendix B ). In recent years, U.S. policy makers have expressed significant concerns about security and human rights conditions in Central America. Countries in the region—particularly the "northern triangle" countries of El Salvador, Guatemala, and Honduras—have long struggled to deal with rising levels of crime and violence, which analysts have linked to inter-related factors such as widespread social exclusion and weak and corrupt security and justice sector institutions. These problems have been compounded by transnational criminal organizations seeking to control Central American territory in order to transport illicit narcotics from producers in South America to consumer markets in the United States and Europe. The U.S. government has sought to assist countries in the region through the Central America Regional Security Initiative (CARSI). The initiative provides partner nations with equipment, training, and technical assistance to support immediate law enforcement operations, build long-term institutional capacity, and address underlying socioeconomic challenges. Congress appropriated $803.6 million for CARSI between FY2008 and FY2014. Key Policy Issues: Security and human rights concerns in Central America continued to receive congressional attention during the 113 th Congress. The House Committee on Foreign Affairs, Subcommittee on the Western Hemisphere held a hearing that examined the effectiveness of CARSI in June 2013, and the Tom Lantos Human Rights Commission held a hearing that examined the human rights situation in Honduras in July 2013. Moreover, numerous congressional hearings were held in both houses to examine why an increasing number of Central American children were leaving their homes and being apprehended at the U.S. border (see Appendix B for links to the hearings). The 113 th Congress also continued to appropriate funding for security programs in Central America. The FY2015 omnibus appropriations measure ( P.L. 113-235 ), approved by Congress in December 2014, provided $260 million for CARSI programs in FY2015—a $100 million increase over the FY2014 funding level. According to the accompanying explanatory statement, the additional resources were provided to improve prosperity in the region, strengthen border security initiatives, implement anti-trafficking and anti-gang programs, and support counternarcotics and law enforcement activities. In addition to appropriations for CARSI, the bill provided $5 million for the International Commission against Impunity in Guatemala (CICIG) and $3 million for Guatemalan police units dealing with sexual assaults. The legislation maintained, but slightly altered, human rights conditions on security aid to Guatemala and Honduras. For additional information, see 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 Report RS21655, El Salvador: Political and Economic Conditions and U.S. Relations , by [author name scrubbed]; CRS Report R42580, Guatemala: Political, Security, and Socio-Economic Conditions and U.S. Relations , by [author name scrubbed]; CRS Report RL34027, Honduras: Background and U.S. Relations , by [author name scrubbed]; and CRS Report R43620, Panama: Background and U.S. Relations , by [author name scrubbed] and [author name scrubbed]. A key U.S. ally in the region, Colombia has endured an internal armed conflict for half a century. Drug trafficking has helped to perpetuate Colombia's conflict by funding both left-wing and right-wing armed groups. Over the years, Colombia and the United States forged a close partnership focused initially on counternarcotics and later counterterrorism. Building on that cooperation, the U.S.-Colombia partnership has broadened to include sustainable development, human rights, trade, regional security and many other areas. The Colombian government, in close cooperation with the United States through a strategy known as Plan Colombia, has reestablished government control over much of its territory, reduced poverty and homicide rates, and made significant headway in combating drug trafficking and terrorist activities. Colombia has substantially improved citizen security and economic stability, but some observers continue to raise concerns about human rights conditions in the country. Between FY2000 and FY2014, the U.S. Congress provided Colombia more than $9.5 billion in assistance to carry out Plan Colombia and its follow-on strategies. This support is gradually being reduced as programs are turned over to Colombian control. The Colombian government's long-term strategy has moved from a policy of defeating insurgents in combat and consolidating its gains with its "whole of government" approach, to a new stage of preparing for the post-conflict period. President Juan Manuel Santos, inaugurated for a second four-year term in August 2014, won in a heated runoff race in June advocating a peace platform. In his first term, he launched peace negotiations with the country's main leftist insurgent group, the Revolutionary Armed Forces of Colombia (FARC). During the campaign, President Santos announced that exploratory talks had also begun with Colombia's second-largest guerrilla group, the National Liberation Army (ELN). In legislative elections held in March, former President Álvaro Uribe (2002-2010), a harsh critic of Santos and the peace negotiations, won a seat in the Colombian Senate. In the new Congress, Santos's "national unity" coalition of parties retained a majority in the lower house and has a working majority in the Senate. Nevertheless, Santos now faces a divided Congress with Uribe and his right-leaning Democratic Center party leading the opposition. Prospects for concluding the peace talks with the FARC remain uncertain although they have progressed halfway through a six-point negotiating agenda in a little over two years. There are five substantive topics—land and rural development; political participation; ending the armed conflict including reinsertion of rebel forces into civilian life; illegal drug trafficking; and victims' reparations—and a final procedural point, terms for implementing the final agreement, including its ratification and verification. With the caveat that no agreement is final until an entire agreement is concluded, negotiators have resolved issues of land and rural development (May 2013), the FARC's political participation after disarmament (November 2013), and illegal drugs and drug trafficking (May 2014). In mid- August 2014, as negotiators wrestled with the challenging issue of reparation and justice for conflict victims, victim representatives joined the talks. The final substantive topic—how to end the conflict—may be the most controversial. The 2014 elections demonstrated that the Colombian people remain deeply ambivalent about the scope of punishment and forgiveness for FARC crimes, the delicate issue of extradition, and other aspects of disarmament and reintegration. In November 2014, the talks were temporarily suspended by the Santos government when the FARC captured a Colombian general and two others. The talks resumed on December 10, 2014, following the captives release by the FARC. Key Policy Issues. The 113 th Congress maintained a strong interest in Colombia's progress in security, counternarcotics, human rights, and trade. Members of Congress monitored Colombia's peace negotiations, and in the future may consider whether and how U.S. assistance might shift in the event a peace accord is signed. Members were also concerned with role the United States should continue to play in Colombia's ongoing struggle with drug trafficking and illegal armed groups. On trade relations, Congress approved implementing legislation for the U.S.-Colombia Free Trade Agreement ( P.L. 112-42 ) in October 2011, which went into force in May 2012 and will eventually eliminate most tariffs and barriers to bilateral trade. For FY2015, the Obama Administration requested approximately $281 million in foreign assistance for Colombia. In the FY2015 omnibus appropriations measure ( P.L. 113-235 ), Congress appears to have fully funded the request in the Economic Support Fund (ESF) account, and exceeded it in the International Narcotics Control and Law Enforcement (INCLE) and Foreign Military Financing (FMF) foreign aid accounts by about $30 million. For additional information, see CRS Report R43813, Colombia: Background and U.S. Relations , by [author name scrubbed]; CRS Report R42982, Peace Talks in Colombia , by [author name scrubbed]; and 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 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. 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 has increased since 2012; moreover, 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. While U.S. policy for more than 50 years 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. Until December 2014, the Obama Administration continued this similar dual-track approach. While the Administration lifted all restrictions on family travel and remittances, eased restrictions on other types of purposeful travel, and moved to reengage Cuba on several bilateral issues, it also maintained most U.S. economic sanctions in place. The Administration also continued to call for the release of U.S. government subcontractor Alan Gross, detained in 2009 and subsequently sentenced to 15 years in prison in 2011, and maintained that Gross's detention remains an impediment to more constructive relations. On December 17, 2014, however, just after the end of the 113 th Congress, President Obama announced major developments in U.S.-Cuban relations. He announced that the Cuban government had released Alan Gross on humanitarian grounds, and that in a separate action the Cuban government released an imprisoned U.S. intelligence asset in Cuba (a Cuban national) in exchange for three Cuban intelligence agents imprisoned in the United States since 1998. Most significantly, 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: 1) reestablish diplomatic relations with Cuba (relations were severed in 1961); 2) review 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) increase travel, commerce, and the flow of information to and from Cuba. The third step includes numerous policy changes that will require changes to U.S. embargo regulations administered by the Departments of the Treasury and Commerce. 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. Key Policy Issues : Strong interest in Cuba continued in the 113 th 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 ), and in January 2014, it completed action on an FY2014 omnibus appropriations measure, H.R. 3547 ( P.L. 113-76 )—both of these measures continued funding for Cuba democracy and human rights 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 ). For FY2015, the Administration requested $20 million for Cuba democracy projects (the same being provided for FY2014) and $23.130 million for Cuba broadcasting ($3.9 million less than in FY2014). The House Appropriations Committee reported out its foreign aid appropriations bill, H.R. 5013 ( H.Rept. 113-499 ), on June 27, 2014, which would have made available $20 million "to promote democracy and strengthen civil society in Cuba," and provided not less than $28.266 million for Cuba broadcasting. The Senate Appropriations Committee reported out its version, S. 2499 ( S.Rept. 113-195 ), on June 19, 2014, which would have provided up to $10 million for Cuba democracy programs and an additional $5 million for programs to provide technical and other assistance to support the development of private businesses in Cuba; the Senate measure would also provide $23.130 million for Cuba broadcasting. Ultimately Congress completed action on foreign aid appropriations in the FY2015 omnibus appropriations measure approved in December 2014 ( P.L. 113-235 ). The measure stated that Economic Support Funds should be made available for programs in Cuba, but did not specify an amount. The explanatory statement to the measure provides for $27.130 million to be provided for the Office of Cuba Broadcasting (OCB) at the Broadcasting Board of Governors, but also indicated that funds may be transferred to the OCB from appropriated Economic Support Funds to restore OCB program reductions. With regard to U.S. sanctions on Cuba, the House version of the FY2015 Financial Services and General Government Appropriation bill, H.R. 5016 ( H.Rept. 113-508 ), approved July 16, 2014, had a provision that would have prohibited the use of any funds in the act "to approve, license, facilitate, authorize or otherwise allow" people-to-people travel. The FY2015 omnibus appropriations measure ( P.L. 113-235 ) did not include such a provision. The 113 th Congress had already ended when President Obama announced his policy changes on Cuba. 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 are likely to be hotly debated in the 114 th Congress. For additional information, see CRS Report IN10202, Cuba: Release of Alan Gross and Major Changes to U.S. Policy ; CRS Report R43024, Cuba: U.S. Policy and Issues for the 113 th Congress , by [author name scrubbed]; and CRS Report RL31139, Cuba: U.S. Restrictions on Travel and Remittances , by [author name scrubbed]. Haiti is in a political crisis as the expiration date for terms of most of the Haitian legislature approaches. In the fourth year of President Michel Martelly's five-year term, Congress and the donor community have expressed growing concern about his commitment to the democratic process due to his government's failure to hold legislative elections more than two years overdue. Haiti took some steps to move the process forward, but the Senate has failed to pass the necessary electoral law amendments. Saying they lack confidence in the provisional electoral council (CEP) that is to oversee the elections, some opposition members refuse to vote for the bill. Several major opposition parties are boycotting the elections. Thousands of protesters have called for Martelly's resignation. If the elections do not occur before January 12, 2015, the parliament will lack a quorum and Martelly could rule by decree, increasing already-high political tensions. On December 14, 2014, Haitian Prime Minister Laurent Lamothe (a close ally of Martelly) resigned after a commission appointed by Martelly had called for him to do so and for a consensus government to be formed. Other commission recommendations, such as the resignation of the CEP, have not yet been acted upon. Approaching the fifth anniversary of the January 2010 earthquake that devastated its 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. A cholera epidemic broke out in late 2010. Scientific studies link its introduction to inadequate sanitation at a U.N. peacekeepers' camp. Victims filed a class action suit against the U.N. in a U.S. federal court in October 2013, seeking establishment of a U.N standing claims commission to address claims for harm, and compensation for victims, including $2.2 billion for the Haitian government to eradicate cholera. Citing diplomatic immunity, the U.N. says that it will not compensate cholera victims. In March 2014, the independent expert on the situation of human rights in Haiti issued a report disagreeing with that position. He instead said that full reparation should be provided and that those responsible should be punished. To enhance citizen security, donors have encouraged Haiti to focus on further strengthening the Haitian National Police. Some 2,000 new officers were graduated from the police academy in 2012-2013. As of November 2014, the police force has about 11,200 officers. The Haitian government and the U.N. Stabilization Mission in Haiti (MINUSTAH) have a goal of having at least 15,000 police officers by 2016. Despite opposition at home and abroad, Martelly has taken steps to re-create an army. Ecuador trained 41 Haitian military recruits last year to work on engineering projects. The opposition-controlled Parliament would have to vote to reconstitute the army, which was abolished in 1995 after decades of gross violations of human rights and repeated coups. 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 U.S. aid; protecting human rights; combating narcotics-, arms-, and human-trafficking; and alleviating poverty. Congress shares these concerns. The Obama Administration granted Temporary Protected Status to Haitians living in the United States at the time of the earthquake, and has extended it on a yearly basis since then. In late 2014 the Department of Homeland Security (DHS) announced that it would begin to implement the Haitian Family Reunification Parole Program in early 2015, for Haitian relatives of U.S. citizens or permanent residents. Because this program will expedite 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. Others will still wait, sometimes for as long as 12 years. Key policy issues . A pressing issue for the 113 th Congress was Haiti's failure to hold overdue elections, which will leave Haiti with a non-functioning parliament as of mid-January 2015. Another concern was the impact on Haiti of a September 2013 court ruling in the Dominican Republic that could render some 200,000 Dominicans, mostly of Haitian descent, stateless. If the Dominican Republic were to render those people stateless and send them to Haiti, the impact on Haiti could be enormous. Under a law passed in May 2014, Dominican-born people without birth certificates, the majority of whom are of Haitian descent, were given 90 days, beginning in June 2014, to prove they were born in the Dominican Republic and apply for a process that could lead to naturalization. The issue has caused tensions between Haiti and the Dominican Republic, who have held talks to resolve remaining issues. About 65 Members of Congress called on the U.N. to "acknowledge its legal responsibility" for the cholera outbreak and "fully fund the Cholera Elimination Plan" of the Haitian government. Two major reports released in late 2013 criticized labor practices in Haitian factories, including at the U.S.-funded Caracol Industrial Park, alleging widespread underpayment of workers and unsafe working conditions at many of them. In July 2014, both houses approved S. 1104 , the Assessing Progress in Haiti Act of 2014, and the measure was signed into law on August 8, 2014 ( P.L. 113-162 ). The law 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 FY2015 omnibus appropriations measure ( P.L. 113-235 ), approved by Congress in December 2014, conditions aid to Haiti. It prohibits assistance to the central government of Haiti until the Secretary of State certifies that Haiti "is taking steps" to hold free and fair parliamentary elections and to seat a new Haitian Parliament. It further conditions aid on the Haitian government's respecting judicial independence and selecting judges in a transparent manner; combating corruption; and improving governance and financial transparency. The bill also prohibits the obligation or expenditure of funds for Haiti except as provided through the regular notification procedures of the Committees on Appropriations. It allows Haiti to purchase defense articles and services under the Arms Export Control Act for its Coast Guard. For background information, see CRS Report R42559, Haiti Under President Martelly: Current Conditions and Congressional Concerns , by [author name scrubbed]. Congress has maintained significant interest in Mexico and played an important role in shaping U.S.-Mexico relations. President Enrique Peña Nieto of the centrist Institutional Revolutionary Party (PRI) assumed the Mexican presidency on December 1, 2012, after 12 years of rule by the conservative National Action Party (PAN). Peña Nieto has enacted structural reforms and bolstered economic relations with the United States, but observers maintain he has mishandled recent high-profile human rights cases and allegations of a conflict of interest between his family and a government contractor. President Peña Nieto's first two years in office brought mixed results for Mexico. During 2013, Peña Nieto's "Pact for Mexico" agreement with the PAN and leftist Party of the Democratic Revolution (PRD) facilitated the passage of significant financial, education, telecommunications, and energy reforms. Still, the economy faltered (GDP growth fell from 3.7% in 2012 to 1.2% in 2013) and some types of violent crime—including kidnapping and extortion—increased. Implementation of the reforms began in 2014, but has been overshadowed by the government's inability to resolve a case involving 43 students who were forcibly abducted from Guerrero in September. Local and state officials' alleged complicity in the forced disappearance—and likely murder—of the students, as well as federal mishandling of the investigation, have been widely criticized and sparked ongoing protests. As Mexico experienced a presidential transition from a PAN to a PRI government, U.S.-Mexican relations evolved. President Obama embraced Peña Nieto's desire to bolster economic ties and focus on issues beyond security, including education and trade facilitation. Those issues figured prominently during President Obama's participation in the February 2014 North American Leaders' Summit and are likely to be discussed at a bilateral meeting between Presidents Obama and Peña Nieto scheduled for January 6, 2015, and at a second High-Level Economic Dialogue of cabinet officials also occurring at that time. Now that Mexico has implemented historic energy reforms, energy cooperation has accelerated. U.S.-Mexican security cooperation has continued under the Mérida Initiative framework; its focus is on justice sector reform and securing Mexico's southern border. Mexico has stepped up efforts to combat illegal Central American migration. However, some U.S. stakeholders remain frustrated at Mexico's failure to fully and predictably make water deliveries in the Rio Grande Valley, as per a 1944 water sharing treaty. Key Policy Issues: A range of issues in U.S.-Mexican relations received congressional attention during the 113 th Congress. The Senate passed S. 744 in June 2013, a comprehensive immigration reform bill that includes additional funding for border security; in contrast, House committees approved a series of discrete immigration measures. In December 2013, Congress approved the U.S.-Mexico Transboundary Hydrocarbons Agreement that is intended to facilitate joint development of oil and natural gas in part of the Gulf of Mexico ( P.L. 113-67 ). Congress continued oversight of the Mérida Initiative, and provided $194 million in Mérida assistance to Mexico in the FY2014 Consolidated Appropriations Act, P.L. 113-76 , subject to human rights conditions. For FY2015, the Obama Administration requested $115 million for Mérida and $137 million in total aid to Mexico. In December 2014, Congress approved a FY2015 omnibus appropriations measure ( P.L. 113-235 ), which provided $194 million in Mérida Initiative aid, $79 million above the Administration's request, with the additional assistance intended to be used to bolster security on Mexico's southern border. During the 113 th Congress, U.S.-Mexican energy cooperation and the reforms that Mexico enacted generated congressional interest, as did Mexico's participation in the proposed Trans Pacific Partnership (TPP) negotiations, which may deepen U.S.-Mexico economic relations. For additional information, see CRS Report R42917, Mexico: Background and U.S. Relations , 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 Report RL32934, U.S.-Mexico Economic Relations: Trends, Issues, and Implications , by [author name scrubbed]; CRS Report R43313, Mexico's Oil and Gas Sector: Background, Reform Efforts, and Implications for the United States , coordinated by [author name scrubbed]; and CRS Report R43312, U.S.-Mexico Water Sharing: Background and Recent Developments , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. While historically the United States has had close relations with Venezuela, a major oil supplier, friction in bilateral relations rose over the past decade under the leftist populist government of President Hugo Chávez, 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 serving as Chávez's vice president, defeated opposition candidate Henrique Capriles by a margin of just 1.49%, with the opposition alleging significant irregularities. Venezuela's December 2013 municipal elections demonstrated mixed results for the ruling United Socialist Party of Venezuela (PSUV) and the opposition Democratic Unity Roundtable (MUD). In 2014, the Maduro government faced significant challenges, including high rates of crime and violence and deteriorating economic conditions, with high inflation, shortages of consumer goods, and in the second half of the year, a rapid decline in oil prices. In February, student-led street protests erupted into violence with protestors attacked by Venezuelan security forces and militant pro-government civilian groups. While the protests largely had dissipated by June, 42 people were killed on both sides of the conflict, more than 800 were injured, and more than 3,000 were arrested. A major opposition figure, Leopoldo López, was arrested in February, and two opposition mayors were imprisoned in March. Diplomatic efforts to deal with the crisis at the OAS were frustrated in March. UNASUR was successful in getting the government and a segment of the opposition to begin talks in April, but the talks broke down in May because of a lack of progress. U.S. policy makers and Members of Congress have been concerned in recent years about the deterioration of human rights and democratic conditions in Venezuela as well as the Venezuelan government's lack of cooperation on anti-drug and counterterrorism efforts and its relations with Iran. The United States has imposed financial sanctions on eight current or former Venezuelan officials for allegedly helping the Revolutionary Armed Forces of Colombia with drug and weapons trafficking. The United States has also imposed sanctions on three Venezuelan companies for support to Iran and on several Venezuelan individuals for supporting Hezbollah. Despite tensions in relations, the Obama Administration has maintained that the United States remains committed to seeking constructive engagement with Venezuela. The Obama Administration strongly criticized the Venezuelan government's heavy-handed response to the student-led protests in 2014, and called on the government to engage in meaningful dialogue with the opposition. In late July 2014, the State Department announced that it was imposing visa restrictions on Venezuelan officials considered to be responsible for human rights violations in the government's crackdown on the protests (reportedly 24 high-ranking officials were sanctioned). In November 2014, an Administration official stated that the Administration was not opposed to moving ahead with additional sanctions. In recent years, developments in Venezuela and U.S. relations with the country have largely been oversight issues for Congress. Congress has also appropriated funding for democracy projects in Venezuela through the annual foreign aid appropriations measure: for FY2014, an estimated $4.3 million was provided through P.L. 113-76 ; and for FY2015, the Administration requested $5 million. Key Policy Issues: In the 113 th Congress, three resolutions were approved regarding the political and human rights situation in Venezuela. S.Res. 213 , approved by the Senate in October 2013, condemned violence and intimidation against the country's political opposition and called for dialogue. In March 2014, two resolutions were approved in the aftermath of Venezuela's crackdown on protests in 2014: H.Res. 488 , approved by the House, and S.Res. 365 , approved by the Senate. In December 2014, Congress completed action on legislation, S. 2142 (signed by the President on December 18, but yet assigned a Public Law number) to impose targeted sanctions (visa restrictions and asset blocking) on those responsible for human rights abuses associated with the protests. As amended and passed by the Senate on December 8, and approved by the House on December 10, the measure requires the President to impose sanctions (asset blocking and visa restrictions) against those responsible for significant acts of violence or serious human rights abuses associated with the protests, or more broadly, anyone that has directed or ordered the arrest or prosecution of a person primarily because of the person's legitimate exercise of freedom of expression or assembly. The measure includes presidential waiver authority for the application of sanctions if the President determines it is in the national security interest of the United States, and also includes a provision for the termination, at the end of 2016, of the requirement to impose sanctions. For further information, see CRS Report R43239, Venezuela: Background and U.S. Relations , by [author name scrubbed]. For additional background, see the following archived reports: CRS Report R42989, Hugo Chávez's Death: Implications for Venezuela and U.S. Relations ; and CRS Report R40938, Venezuela: Issues for Congress, 2009-2012 . Appendix A. U.S. Trade with Latin America and the Caribbean, 2007-2013 Appendix B. Hearings in the 113 th Congress
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Geographic proximity has ensured strong linkages between the United States and the Latin American and Caribbean region, with diverse U.S. interests, including economic, political, and security concerns. U.S. policy toward the region under the Obama Administration has 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. Nevertheless, the Obama Administration made several significant policy changes, including an overall emphasis on partnership and shared responsibility. Moreover, just after the end of the 113th Congress in December 2014, President Obama unveiled a new policy approach toward Cuba that substantially broke with the long-standing U.S. sanctions-based policy and moved toward a policy of engagement. U.S. policy toward the region is conducted in the context of a Latin America that has become increasingly independent from the United States. The region 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, including the Community of Latin American and Caribbean States (CELAC) designed to boost regional integration and cooperation. While to some extent CELAC's establishment reflected declining U.S. influence in Latin America, the United States still remains very much engaged in the region bilaterally and multilaterally. A looming challenge for the United States was how to deal with the next Summit of the Americas, scheduled to be hosted by Panama in April 2015. Cuba had expressed interest in attending the sixth summit in 2012 in Colombia, 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, and as a result, Panama announced in August 2014 that it would invite Cuba to the summit. In December 2014, as President Obama was announcing a new policy approach toward Cuba, the White House announced that the President would participate in the summit, but emphasized that human rights and democracy would be key summit themes. Congress plays an active role in policy toward Latin America and the Caribbean. Legislative and oversight attention to the region during the 113th Congress focused on such issues as U.S. support to countries contending with drug trafficking and transnational crime, including Mexico and Central American and Caribbean countries; continued counternarcotics and security support to Colombia as it moved toward a potential peace agreement; and continued support to Haiti as it continued to recover from the 2010 earthquake. Hearings on the region covered these issues as well as a variety of other topics, including overall U.S. interests and policy in the Western Hemisphere; energy issues; U.S. foreign aid to the region; challenges to democracy, including media freedom, the rule of law, and political unrest in Venezuela; concerns about Iranian activities in the region; U.S. relations with such countries as Brazil, Mexico, and the Dominican Republic; and the surge of unaccompanied minors from Central America. Legislative action in the 113th Congress included the following: a measure directing the Secretary of State to develop a strategy for adoption of proposed reforms at the Organization of American States (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 legislation 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 (visa restrictions and assets blocking) on those persons responsible for certain human rights abuses in Venezuela (S. 2142, not yet assigned a Public Law number). Resolutions approved by either the House or the Senate included S.Res. 12, on Haiti's reconstruction and recovery; and three resolutions on the political and human rights situation in Venezuela—S.Res. 213, H.Res. 488, and S.Res. 365. This report provides an overview of U.S. policy toward Latin America and the Caribbean during the 113th Congress, including the Obama Administration's priorities; examines changes in the region's economic and political environment that affect U.S. relations with the region; and analyzes U.S. policy toward the region. The report then examines congressional interests in Latin America, looking at selected regional and country issues and congressional actions taken. Appendices provide U.S.-Latin America trade statistics and links to hearings focused on Latin America. For additional information and access to over 30 CRS reports on the region, see the CRS Issues in Focus webpage on "Latin America and the Caribbean."
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T he digital currency called Bitcoin has been in existence since 2009 and for most of that time it remained little more than a technological curiosity of interest to a small segment of the population. However, over the last year and a half, Bitcoin use has grown substantially; attention by the press has surged, and recently Bitcoin caught the attention of Congress, being the subject of two Senate hearings. This report has three major sections. The first section answers some basic questions about Bitcoin and the operation of the Bitcoin network and its interaction with the current dollar-based monetary system. The second section summarizes likely reasons for and against widespread Bitcoin adoption. The third section discusses legal and regulatory matters that have been raised by Bitcoin and other digital currencies. Bitcoin first appeared in January 2009, the creation of a computer programmer using the pseudonym Satoshi Nakamoto. His invention is an open source (its controlling computer code is open to public view), peer to peer (transactions do not require a third-party intermediary such as PayPal or Visa), digital currency (being electronic with no physical manifestation). Like the U.S. dollar, the Bitcoin has no intrinsic value in that it is not redeemable for some amount of another commodity, such as an ounce of gold. Unlike a dollar, a Bitcoin has no physical form, is not legal tender, and is not backed by any government or any other legal entity, and its supply is not determined by a central bank. The Bitcoin system is private, but with no traditional financial institutions involved in transactions. Unlike earlier digital currencies that had some central controlling person or entity, the Bitcoin network is completely decentralized , with all parts of transactions performed by the users of the system. Bitcoin is sometimes referred to as a cryptocurrency because it relies on the principles of cryptography (communication that is secure from view of third parties) to validate transactions and govern the production of the currency itself. Each Bitcoin and each user is encrypted with a unique identity, and each transaction is recorded on a decentralized public ledger (also called a distributed ledger or a blockchain ) that is visible to all computers on the network but does not reveal any personal information about the involved parties. Cryptographic techniques enable special users on the bitcoin network, known as miners , to gather together blocks of new transactions and compete to verify that the transactions are valid—that the buyer has the amount of Bitcoin being spent and has transferred that amount to the seller's account. For providing this service, miners that successfully verify a block of transactions are rewarded by the network's controlling computer algorithm with 25 newly created Bitcoins. This decentralized management of the public ledger is the distinguishing technological attribute of Bitcoin (and other decentralized cryptocurrencies) because it solves the so-called double spending problem (i.e., spending money you do not own by use of forgery or counterfeiting) and the attendant need for a trusted third party (such as a bank or credit card company) to verify the integrity of electronic transactions between a buyer and a seller. Public ledger technology could have implications not just for the traditional payments system but possibly also for a wide spectrum of transactions (e.g., stocks, bonds, and other financial assets) in which records are stored digitally. To interact on the Bitcoin network users first need to download the free and open-source software. Once connected to the network, there are three ways to obtain Bitcoins. First, a user can exchange conventional money (e.g., dollars, yen, and euros) for a fee on an online exchange (e.g., Okcoin, Coinbase, and Kraken). The exchange fee falls with the size of the transaction, ranging from 0.5% for small transactions down to 0.2% for large transactions. The price of Bitcoin relative to other currencies is determined by supply and demand. In mid-January 2015, a single Bitcoin was valued at around $220. However, the price has been quite volatile, having been less than $20 in January 2013, above $1,100 in December 2013, and around $320 as recently as mid-December 2014 (representing more than a 30% fall in value in about one month). Second, a user can obtain Bitcoins in exchange for the sale of goods or services, as when a merchant accepts Bitcoin from a buyer for the sale of his product. Third, as discussed earlier, a user can acquire new Bitcoins by serving as miner and applying his or her computer's processing power to successfully verify the validity of new network transactions. The probability of an individual discovering Bitcoins through mining is proportional to the amount of computer processing power that can be applied. This prospect is likely to be very small for the typical office or home computer. The difficulty of the verification problem increases so that Bitcoins will be discovered at a limited and predictable rate system-wide. But the increased difficulty of verification means that the computational cost of that service also rises. Therefore, the supply of Bitcoins does not depend on the monetary policy of a virtual central bank. In this regard, despite being a currency with no intrinsic value, the Bitcoin system's operation is similar to the growth of money under a gold standard, although historically the amount of gold mined was more erratic than the growth of the supply of Bitcoins is purported to be. Depending on one's perspective, this attribute of the bitcoin network can be a virtue or a vice. Currently, about 13.7 million Bitcoins are in circulation. However, the total number of Bitcoins that can be generated is arbitrarily capped at 21 million coins, which is predicted to be reached in 2140. However, because a Bitcoin is divisible to eight decimal places, the maximum amount of spendable units is more than 2 quadrillion (i.e., 2,000 trillion). Purchased or mined Bitcoins are thereafter stored in a digital wallet on the user's computer or at an online wallet service. Bitcoin transactions are not truly anonymous. An example of an anonymous transaction is an exchange for cash between two strangers. In this case, no personal information need be revealed nor does there need to be a record of the transaction. At the other extreme a non-anonymous transaction is a typical online purchase using a credit card. This transaction requires validation by a third-party intermediary to whom the buyer's and seller's identities and pertinent financial information is known and who maintains a record of the transaction. A Bitcoin transaction falls between these two extremes. With a Bitcoin transaction there is no third-party intermediary. The buyer and seller interact directly (peer to peer), but their identities are encrypted and no personal information is transferred from one to the other. However, unlike a fully anonymous transaction, there is a transaction record. A full transaction record of every Bitcoin and every Bitcoin user's encrypted identity is maintained on the public ledger. For this reason Bitcoin transactions are thought to be pseudonymous, not anonymous. Because of the public ledger, researchers have found that, using sophisticated computer analysis, transactions involving large quantities of Bitcoin can be tracked and claim that if paired with current law enforcement tools it would be possible to gain a lot of information on the persons moving the Bitcoins. Also, if Bitcoin exchanges (where large transactions are most likely to occur) are to be fully compliant with the bank secrecy regulations (i.e., anti-money laundering laws) required of other financial intermediaries, Bitcoin exchanges will be required to collect personal data on their customers, limiting further the system's ability to maintain the user's pseudonymity. Despite significant growth since its inception, Bitcoin's scale of use remains that of a "niche" currency. As of mid-January 2015, the total number of Bitcoins in circulation globally was about 13.7 million, up about 1 million coins from a year earlier. With its recent market price of near $200, Bitcoin's current market capitalization (price × number of coins in circulation) is about $2.7 billion. However, large swings in the price of Bitcoin have caused that market capitalization to exhibit similarly large changes during the year. As recently as December 2013, with Bitcoin exchanging at near $1,100, the market capitalization was above $140 billion. Although numerous vendors accept Bitcoin, the volume of transactions remains modest. During 2014, the value of Bitcoin's global daily transaction volume fluctuated in a range of between $40 million and $60 million, representing between 50,000 and 90,000 daily transactions. For comparison, in June 2014, the U.S. money supply (the sum of currency, demand deposits, saving deposits including money market saving accounts) was about $11.3 trillion (about 1,000 times larger). The credit card company Visa reports that for 2013 its total dollar volume was $6.9 trillion, with an average number of daily individual transactions of near 24 million. In 2013, daily transactions in dollars on global foreign exchange markets averaged over $4 trillion. The Federal Reserve conducts monetary policy to affect the flow of money and credit to the economy to achieve stable prices, maximum employment, and financial market stability. At Bitcoin's current scale of use, it is likely too small to significantly affect the Fed's ability to conduct monetary policy and achieve those three goals. However, if the scale of use were to grow substantially larger, there could be reason for some concern. Conceptually , Bitcoin could have an impact on the conduct of monetary policy to the extent that it would (1) substantially affect the quantity of money or (2) influence the velocity (rate of circulation) of money through the economy by reducing the demand for dollars. Regarding the money supply, if Bitcoin transactions occur on a pre-paid basis whereby Bitcoins enter into circulation when dollars are exchanged and then are withdrawn from circulation when exchanged back to dollars, the net effect on the money supply would be small. Regarding the velocity of money, if the increase in the use of Bitcoin leads to a decrease in need for holding dollars, it would increase the dollar's velocity of circulation and tend to increase the money supply associated with any given amount of base money (currency in circulation plus bank reserves held with the Fed). In this case, for the Fed to maintain the same degree of monetary accommodation, it would need to undertake a compensating tightening of monetary policy. At a minimum, a substantial use of Bitcoins could make the measurement of velocity more uncertain, and judging the appropriate stance of monetary policy uncertain. In addition, a substantial decrease in the use of dollars would also tend to reduce the size of the Fed's balance sheet and introduce another factor into its consideration of how to affect short-term interest rates (the instrument for implementing monetary policy). However, the Fed's ability to conduct monetary policy rests on its ability to increase or decrease the reserves of the banking system through open market operations. So long as there is a sizable demand by banks for liquid dollar-denominated reserves, the Fed would likely continue to be able to influence interest rates and conduct monetary policy. Again, any sizable effect on the U.S. monetary system is predicated on Bitcoin's scale of use becoming substantially greater than it is at present. An important force that is likely to hinder such growth in Bitcoin use is the strong preference for dollar use generated by what economists call network externalities (i.e., the value of a product or service is dependent on the number of others using it). Network externalities create a self-generating demand for a dominant currency. The more often a currency is used as a medium of exchange, the more liquid it becomes and the lower are the costs of transacting in it, leading, in turn, to its becoming even more attractive to new users. Network externalities create a tendency toward having one dominant currency and confer a substantial incumbency advantage to the dollar in both domestic and international use. The legal tender status of the dollar, discussed below, reinforces this advantage. The U.S. economy reaps considerable benefit from having a single well-defined and stable monetary unit to work as a medium of exchange, a store of value, and unit of account to facilitate its vast number of daily economic transactions. If greater use of Bitcoin (and other cryptocurrencies) leads to multiple monetary units and fragmentation of the economy's currency system, these benefits could be threatened. However, Bitcoin does not currently pose a significant challenge to the dollar as the principal circulating currency. As already discussed, Bitcoin is currently a minor medium of exchange. Its substantial price volatility makes it a poor store of value (discussed more fully below), and there is little evidence that it is being used as a unit of account (e.g., companies pricing products exclusively in Bitcoin). Bitcoin purportedly offers three potential benefits to users: lower transaction costs, increased privacy, and no erosion of purchasing power due to inflation. Because there is no third-party intermediary, Bitcoin transactions are purported to be substantially less expensive for users than those using traditional payments systems such as Paypal and credit cards, which charge merchants significant fees for their role as a trusted third-party intermediary to validate electronic transactions. In addition, Bitcoin sales are non reversible , which removes the possibility for misuse of consumer charge-backs, which merchants find costly. Merchants would presumably pass at least some of these savings on to the customer. There is considerable anecdotal evidence to support this assumption, but no comprehensive data exist on the size of Bitcoin's transaction cost advantage. Some of the transaction cost advantage could be offset by the slow speed at which Bitcoin transactions currently occur, which, depending on the size of the transaction, can take a minimum of 10 minutes or as long as an hour. In addition, Bitcoin's advantage in transaction cost could be offset by the substantial volatility of Bitcoin's price. A rising dollar price of Bitcoin is likely to deter potential buyers who would expect to see their purchasing power be greater in the future. A falling Bitcoin price is likely to deter potential sellers who would expect to see their potential sales receipts be greater in the future. In the long run, the Bitcoin system will stop creating new coins, eliminating the subsidy to miners to verify transactions. Without that subsidy, the cost of verifying a transaction is likely to increase. Those who seek a heightened degree of privacy may find more comfort using Bitcoins for their (legal) commercial and financial transactions. The risk of identity theft may also be less, and some may find the removal of government from a monetary system attractive. However, as discussed above, Bitcoin transactions do not have the anonymity afforded by cash transactions, as there is a permanent and complete historical record of Bitcoin amounts and encrypted identities for all transactions on the Bitcoin system that are potentially traceable. Inflation is defined as a broad increase in the prices of goods and services. This is equivalent to saying that there is a fall in the value of the circulating currency. That fall in value means that each unit of the currency is exchangeable for a reduced amount of goods and services. Inflation is commonly thought to be a monetary phenomenon in which the supply of the currency outpaces the demand for the currency causing its unit value (in terms of what it can buy) to fall. Most often governments (or their central bank) regulate the supply of money and credit and most often some degree of mismanagement of this government function is at the root of a persistent high inflation problem. In the case of Bitcoin, however, there is no government or central bank regulating the supply of Bitcoins. The supply of Bitcoins is programmed to grow at a steady rate regulated by the degree of mining activity (a process likely linked to a growing demand for Bitcoin) and then is capped at a fixed amount. Inflation could occur if the demand for Bitcoin decreases relative to the fixed supply. Inflation could also occur if the Bitcoin network develops fractional reserve banking (i.e., banks that hold only a fraction of their deposits in reserve and lend out the rest), which would also be a vehicle that effectively increases the supply of circulating Bitcoins. If these digital banks move to a situation where held reserves stabilize, this source of inflation would diminish. There are a number of factors that could discourage widespread use of Bitcoin. The dollar is legal tender and by law can be used to extinguish public or private debts. A creditor is required to accept legal tender for the settlement of a debt. At a minimum, the payment of taxes forces U.S. individuals to hold dollars. Arguably, for many, such a government endorsement is comforting and creates a strong underlying demand for the dollar. By contrast, a currency like Bitcoin that is linked to a complex computer program that many do not understand and that operates without accountability to any controlling entity could be an unattractive vehicle for holding wealth for many people. As noted above, the attractiveness of using a dollar is dependent on the number of people already using it. Thus widespread use of the dollar encourages its continued use and is an impediment (although not an insurmountable barrier) to the use of other currencies, including Bitcoins. Bitcoin's price has been volatile since its creation in 2009, subject to sharp appreciations and precipitous depreciations in value. During March 2013 and April 2013, Bitcoin's dollar exchange rate rose from about $50 to $350 and then fell back to near $70. Bitcoin's price moved up even more sharply during the fall of 2013, rising from near $50 in September to more than $1,100 by early December. During 2014, Bitcoin's price showed large day-to-day variations but generally trended down. By mid-January 2015, a Bitcoin was priced near $200. This is a price pattern more typical of a commodity than of a currency to be used as a medium of exchange or a store of value. The volatile price behavior suggests the market for Bitcoin is currently being driven by speculative investors, not by a growing demand for Bitcoin due to increased transactions by traditional merchants and consumers. One problem with having the Bitcoin network dominated by speculators is that it gives users an incentive to hoard Bitcoins rather than spend them—just the opposite of what would need to happen to make a currency a successful medium of exchange such as the dollar. Speculation could be more likely to dominate the market for Bitcoins because its value cannot be anchored to some underlying 'fundamental' such as an amount of some physical commodity such as gold, the value of an earnings stream that undergirds the price of a company's stock, or the perceived basic soundness and stability of an economy and its governing institutions (as is, arguably, true for the dollar). Because the supply is capped in the long run, widespread use of Bitcoin would mean that the demand for Bitcoin would likely outstrip supply, causing Bitcoin's price to steadily increase. The corollary of that increase is that the Bitcoin price of goods and services would steadily fall causing deflation. Faced with deflation, there is a strong incentive to hoard Bitcoins and not spend them, causing the current level of transactions to fall. If generalized to an economy-wide phenomenon deflation could cause slower than normal economic growth and higher than normal unemployment. This possible outcome highlights the likely importance of the economy's principal currency being elastic , its supply increasing and decreasing to meet the changing needs of the economy, and of the important role of the central bank in implementing such a monetary policy. The perils of an inelastic currency were evident, for a period from about 1880 to 1914, when the United States monetary system operated under a gold standard. At this time, the deflationary bias of an inelastic supply of gold led to elevated real interest rates, caused periodic banking panics, and produced increased instability of output. The Federal Reserve was created in 1913 to provide an elastic currency. In particular, the generally good economic performance of the post-war era speaks to the benefits of having a central bank to administer an elastic currency, not only to meet the changing transaction needs of the economy, but also to proactively use monetary policy to stabilize output and inflation. Although counterfeiting purportedly is not possible, Bitcoin exchanges and wallet services have at times struggled with security. Cash and traditional electronic payment systems also have periodic security problems, but a high incidence of security problems on a system trying to establish itself and gain customer confidence could be more damaging. Some notable examples of security breaches on the Bitcoin network have included the following: In January 2015, Bitstamp, a large European Bitcoin exchange, suspended services after a security breach involving the loss of 19,000 Bitcoin, valued at about $5 million. Hackers mounted a massive series of distributed denial-of-service attacks against the most popular Bitcoin exchange, Mt. Gox, in 2013. About 850,000 Bitcoin valued at over $400 million were stolen. Mt. Gox subsequently declared bankruptcy. In late August 2012, an operation titled Bitcoin Savings and Trust was shut down by the owner, allegedly leaving around $5.6 million in bitcoin-based debts. In September 2012, Bitfloor, a Bitcoin exchange, reported being hacked, with 24,000 Bitcoins (roughly equivalent to $250,000) stolen. As a result, Bitfloor temporarily suspended operations. On April 3, 2013, Instawallet, a web-based wallet provider, was hacked, resulting in the theft of over 35,000 Bitcoins. With a price of $129.90 per Bitcoin at the time, or nearly $4.6 million in total, Instawallet suspended operations. On August 11 2013, the Bitcoin Foundation announced that a bug in the software within the Android operating system had been exploited to steal from users' wallets. October 23 and 26, 2013, a Bitcoin bank operated from Australia but stored on servers in the United States was hacked, with a loss of 4,100 Bitcoins, or over 1 million Australian dollars. In order to provide some information on recent efforts by federal, state, and international authorities to study, monitor, or regulate digital currencies, this section of the report (1) identifies the clause in the U.S. Constitution giving power to Congress over money; (2) describes some of the recent federal, state, and international activities and studies dealing with digital money; and (3) identifies some of the federal laws that might be implicated or that have been used with respect to digital money. In providing this information, we have identified some federal statutes and regulatory regimes that may have some applicability to digital currency, although none contains explicit language to that effect or explicitly mentions currency not issued by a government authority. Some federal statutes, because of their broad coverage, are likely to be held by courts to apply in connection with digital currency. For example, courts are likely to hold that the federal criminal mail and wire fraud statutes apply to fraudulent schemes designed to result in monetary losses in connection with buying, selling, or trading digital currencies. Federal statutes providing consumer protection with respect to consumer financial transactions, however, such as the Truth in Lending Act and the Truth in Savings Act, include no language specifically referencing digital currency transactions. One of the direct powers of Congress under the U.S. Constitution, the grant of authority "to coin Money" and "regulate the Value thereof," appears to provide sufficient authority for extensive oversight and control of digital money. The Supreme Court has interpreted this clause broadly. The clause has been upheld to authorize legislation chartering the First Bank of the United States and giving it power to issue circulating notes. Legislation requiring U.S. Treasury notes to be treated as legal tender for antecedent debts and legislation that abrogated gold clauses in private contracts have also been upheld on the basis of this clause of the Constitution. The breadth of the power can be discerned from a statement of the Court in the Legal Tender Cases when the Court opined that "[e]very contract for the payment of money simply is necessarily subject to the constitutional power of the government over the currency, whatever that power may be, and the obligation of the parties is therefore assumed with reference to that power." This section provides a brief survey of some of the concerns and activities of federal, state, and international governmental entities with respect to the emergence of digital currencies. In Congress, interest in virtual currencies is at the exploratory stage. The Senate Finance Committee directed the Government Accountability Office (GAO) to review any tax requirements and compliance risks implicated and to assess the Internal Revenue Service (IRS) efforts at informing the public in view of the offshore and Internet sources of these currencies. On May 13, 2013, GAO released a survey describing the types of virtual currencies, the inadequacy of available data on them, and the extent of IRS efforts. It noted that IRS guidance on virtual currencies concentrates on currencies used in virtual communities, such as Linden Dollars in Second Life, and overlooks currencies, such as Bitcoin, that can be used in the real economy. GAO also noted that the tax code lacked clarity about how virtual currency is to be treated for reporting purposes. Is it property, barter, foreign currency, or a financial instrument? The Senate Homeland Security and Governmental Affairs Committee has begun to look into how federal agencies are confronting the rise of virtual currencies. On August 12, 2013, the committee's chairman and ranking Member sent letters to several federal agencies, including the Departments of Justice (DOJ), the Treasury, and Homeland Security; the Securities and Exchange Commission (SEC); the Commodity Futures Trading Commission (CFTC); and the Federal Reserve, seeking information on their virtual currency policies, initiatives, activities, guidelines, or plans regarding virtual or digital currency. The committee envisions a government-wide approach to the threats and promises of digital currency. The committee requested that the GAO examine possible policy issues related to the emergency of digital currency. In response to the Senate Homeland Security and Governmental Affairs Committee request, GAO issued a GAO report in May 2014, Virtual Currencies: Emerging Regulatory, Law Enforcement, and Consumer Protection Challenges . The GAO report details the responsibilities of and efforts undertaken by various federal financial services regulators and law enforcement agencies to address the implications of virtual currency. The report includes a chart that lists interagency working groups along with their participating agencies, missions, and how they are addressing virtual currencies. GAO's evaluation of the current responsibilities of the various federal agencies, the work of the interagency working groups, and the kinds of actions undertaken to date led it to focus on the lack of efforts to tackle consumer protection issues related to virtual currencies. The report noted that the federal agency charged with implementing the federal laws that cover financial services provided to consumers, the Consumer Financial Protection Bureau (CFPB), was not heavily involved in the interagency task forces. The report, therefore, recommended more attention to consumer protection and increased CFPB participation in interagency task forces: recent events suggest that consumer protection is an emerging risk, as evidenced by the loss or theft of bitcoins from exchanges and virtual wallet providers and consumer warnings issued by nonfederal and non-U.S. entities. However, federal interagency working groups addressing virtual currencies have thus far not emphasized consumer-protection issues, and participation by the federal government's lead consumer financial protection agency, CFPB, has been limited. The CFPB responded by indicating that, as of the date of the GAO inquiry, all of CFPB's efforts to deal with virtual currency had been informal exchanges with federal, state, and international regulators. It assured GAO that, in the future, it would "identify interagency working groups addressing virtual currencies where the CFPB's participation would enhance its own work ... and ... contribute valuable consumer protection expertise to those efforts." Subsequently, on August 11, 2014, the CFPB issued a consumer advisory identifying characteristics of Bitcoin and describing pitfalls and issues of virtual currency, in general, and Bitcoin, in particular. Federal regulators are increasingly scrutinizing how virtual currency and Bitcoin relate to their mandates. Law enforcement agencies have had to confront criminal hacking of Bitcoin wallets and kidnappers requiring ransom payment in Bitcoins. Moreover, the Department of the Treasury stated that terrorists are embracing Bitcoin. In a June 26, 2015, speech at a conference on digital currencies, a Department of Justice official provided a brief sketch of some federal Bitcoin prosecutions and called upon the financial services industry to be alert to possible abuses involving digital currencies. Some federal agencies, including the CFPB, are contemplating further action. After issuing a consumer advisory on the pitfalls associated with Bitcoin, the CFPB began accepting consumer complaints on virtual currency and Bitcoin issues. Other federal regulatory activity includes guidance issued by Treasury's Financial Crimes Enforcement Network (FINCEN) and a Winkelvoss Bitcoin Trust registration statement filed with the SEC. In addition, the SEC published advisories for investors in 2013 and 2014 on the threat of virtual currency scams on the Internet; filed a criminal fraud complaint charging a Bitcoin exchange with engaging in a Ponzi scheme; and successfully convinced a federal district court that Bitcoins are money. The court reasoned that because Bitcoins are used as money to purchase goods or services and can be exchanged for conventional currencies, they are money, and, thus, a contract for the investment of Bitcoins is an "investment contract," and, therefore, a security under federal securities law. In another enforcement action, the Department of Homeland Security charged Mt. Gox, which is the Japanese-based largest Bitcoin exchange in the United States, with operating an unlicensed money services business in violation of 18 U.S.C. Section 1960 and seized its bank account. Subsequently, Mt. Gox filed for bankruptcy in Japan, and on June 14, 2014, a federal bankruptcy judge approved its petition under Chapter 15 of the U.S. Bankruptcy Code, allowing the U.S. bankruptcy court to protect its U.S. assets while the bankruptcy proceedings continue abroad. The federal banking regulators have yet to issue guidance or regulations governing how banks are to deal with Bitcoin, outside of the anti-money laundering framework. Under current law, the federal banking regulator with the greatest responsibility over the payment system is the Board of Governors of the Federal Reserve System. In February 2014, Federal Reserve Chair Janet Yellen told the Senate Banking Committee that "Bitcoin is a payment innovation that's taking place outside the banking industry. To the best of my knowledge there's no intersection at all, in any way, between Bitcoin and banks that the Federal Reserve has the ability to supervise and regulate." Nonetheless, the Federal Reserve Board, in its May 9, 2014, joint meeting with its Federal Advisory Council, considered Bitcoin's potential as "a threat to the banking system, economic activity, or financial stability" and appears to have adopted a policy that may be characterized as watchful waiting. That policy produced no regulatory issuances in 2014. However, studies of the technical aspects of Bitcoin were featured in three research papers, two issued by Federal Reserve regional banks and one published by the Federal Reserve Board's Divisions of Research and Statistics and Monetary Affairs. At least three Federal Reserve economists are studying digital currencies and Bitcoin in particular. Moreover, a director of Risk, Policy, and Analytics in the Banking, Supervision and Regulation Division of the Federal Reserve Bank of San Francisco recently published an article geared to alerting community bankers to the implications, including the "potential opportunities and risks." State authorities moving in the direction of regulating virtual currencies sometimes discover problems in applying existing laws to technological currencies. Three states—New York, California, and Connecticut—have taken steps to devise a regulatory framework that could usher in increased use of digital currencies, provided adequate consumer protections and regulatory safeguards can be developed. In an effort to assist states in developing regulations to license and supervise virtual currency operations, the Conference of State Bank Supervisors (CSBS), released a CSBS Model Regulatory Framework for State Regulation of Certain Virtual Currency Activities (CSBS Model Framework) on September 15, 2015. According to the CSBS, the CBSB Model Regulatory Framework "includes components that CSBS has identified as key to a virtual currency regulatory regime that protects consumers and the larger marketplace, while supporting responsible innovation." On June 3, 2015, New York State became the first state to establish a framework for regulating digital currency businesses when the New York State Department of Financial Services (NYSDFS) issued regulations providing for prudential supervision of virtual currency businesses operating in New York State. Moreover, on May 7, 2015, New York State issued its first virtual currency license to a Bitcoin exchange, itBit Trust Company, LLC, which also received a license to operate as a trust under New York State banking law. In September 2015, New York granted the first BitLicense application to a virtual currency firm, Circle Internet Financial. On October 5, 2015, a New York license to operate as a trust was issued to a Bitcoin exchange, Gemini Trust Company LLC, which was founded by Cameron and Tyler Winlevoss. The New York regulations are the result of efforts of the NYSDFS that began in 2014 with the issuance of subpoenas seeking information on a raft of virtual currency issues. On January 28-29, 2014, the NYSDFS held public hearings on possible regulation of virtual currencies and, on July 17, 2014, issued, for public comment, a proposal to license and regulate virtual currency businesses operating in New York State. A revised proposal was issued in February 2015. The final regulations require that businesses involved in transmitting, storing, buying, selling, exchanging, issuing, or administering a virtual currency must be licensed by the NYSDFS. Licenses are not required for digital currencies used exclusively in an online gaming environment or for digital currencies that can be redeemed for goods and services, provided they cannot be exchanged for fiat money (such as U.S. currency). Licenses are not required for software developers or merchants investing in virtual currencies or using virtual currencies solely to buy and sell goods and services. A state-chartered bank may be approved by the NYSDFS to operate as a virtual currency exchange without securing a virtual currency license. The regulations prescribe standards for virtual currency businesses and establish procedures for the NYSDFS to use in approving, suspending, or revoking virtual currency licenses. Before granting a license, the NYSDFS must investigate the financial condition, character, and general fitness of any applicant. A license may be granted only when it has been determined that the business will be conducted "honestly, fairly, equitably, carefully, and efficiently ... and in a manner commanding the confidence and trust of the community." The regulations provide the NYSDFS with broad authority to prescribe minimum capital requirements and to subject licensees to any condition deemed "appropriate." The licensing process requires the submission of detailed information on principal officers, principal stockholders, principal beneficiaries, and members of the board of directors, and fingerprints from certain officers and employees with access to customer funds. Applicants are also required to supply information on banking arrangements; fulfillment of tax obligations; methodology for valuing the virtual currency; and products and services to be offered. The regulation requires regulatory periodic examinations; financial disclosures; and approval of change of control and mergers or acquisitions. There are anti-money laundering provisions in addition to those required under federal law, cybersecurity, and anti-fraud requirements, and an array of consumer protection provisions. Customers must be provided with disclosures that address such matters as price volatility; whether transactions are reversible; risk of fraud; liability for unauthorized transactions; and the possibility that future legislation will have an adverse impact. Under the regulations, each virtual currency business operating in New York will be required, before each transaction, to disclose specified information in writing and have the disclosure acknowledged by the customer. Start-up virtual currency businesses will be able to qualify for a conditional license that would be issued for two years that would be renewable at the discretion of the New York State Superintendent of Financial Services. Before a conditional license is issued, the NYSDFS must consider various factors, including the potential risks and measures to be taken to mitigate them; whether the business is a regulated or licensed financial service provider; and previous business experience of the applicant. California has enacted legislation opening the way for virtual currency to be used to purchase goods and services. California Assembly bill no. 129, signed into law by Governor Jerry Brown on June 29, 2014, repeals a provision of California law that outlawed anything circulating as money other than the lawful money of the United States. In addition, it appears that the California Department of Business Oversight is in the process of considering whether to regulate virtual currency businesses. On June 19, 2015, Connecticut enacted legislation amending the Connecticut Money Transmission Act to require licenses for all virtual currency businesses operating in Connecticut. The legislation not only subjects them to requirements imposed on money services businesses, such as currency exchanges and money transmitters, it includes provisions establishing additional standards for virtual currency businesses. The legislation defines "virtual currency business" to mean "any type of digital unit that is used as a medium of exchange or a form of digitally stored value or that is incorporated into payment system technology." Virtual currency used solely for online gaming and virtual currency that is part of a consumer rewards program that cannot be converted into fiat currency are not covered by the definition. Under the legislation, virtual currency businesses must maintain a surety bond sufficient to account for the potential volatility of the digital currency. Under the legislation, the Connecticut Banking Commissioner has broad authority to impose conditions when granting a virtual currency license and may disapprove an application upon determining that issuing the license would subject "undue risk of financial loss to consumers, considering the applicant's proposed business model." On December 14, 2014, the CSBS issued its Draft Model Regulatory Framework in an attempt to begin a process for states to develop some level of consistency in their approaches to the regulation of virtual currency businesses while emphasizing the need for flexibility. The release of the draft framework was accompanied by requests for public comment on 20 questions that attempted to discern such matters as the extent to which regulatory frameworks that cover money services businesses must be tailored to cover companies handling diverse virtual currency activities. Issues covered in the questions ranged from the advisability of one-size-fits-all regulation to such matters as how to denominate capital requirements—dollars or virtual currency. After reviewing comments received from the public and conducting consultations with regulators and other stakeholders, the CSBS finalized the draft framework and released the "CSBS Model Regulatory Framework for State Regulation of Certain Virtual Currency Activities" (Model Framework) on September 15, 2015. The Model Framework sets a standard for state regulation of virtual currency activities by entities not included in state regulation of depository institutions. It recommends that states adopt laws to cover firms and activities handling virtual currency that parallel their laws governing firms and activities involving sovereign currency. The Model Framework, therefore, covers firms transmitting virtual currency and firms exchanging virtual currency. It also includes firms providing services to virtual currency transmitters and exchanges, such as purveyors of wallets, payment processors, and merchant acquirers. The Model Framework, however, does not include a special regime for startup companies. Instead, the CSBS advises any state that chooses to include separate arrangements for new companies to devise adequate consumer protections. The Model Framework's definition of v irtual currency begins by stating that "[v]irtual currency is a digital representation of value used as a medium of exchange, a unit of account, or a store of value, but does not have legal tender status as recognized by the United States government." The definition excludes the software employed in virtual currency operations and certain stored value and rewards programs as well as the following types of activities: Merchants and consumers who use virtual currencies solely for the purchase or sale of goods or services; Activities that are not financial in nature but utilize technologies similar to those used by digital currency; Activities involving units of value that are issued in affinity or rewards programs and that cannot be redeemed for either fiat or virtual currencies; or Activities involving units of value that are used solely within online gaming platforms and have no market or application outside of those gaming platforms. The Model Framework embodies a regulatory scheme that is similar to the types of regulation currently applicable under state law to financial firms handling transactions involving U.S. dollars or other fiat money. The Model Framework includes requirements for supervision, examination, and enforcement authority over virtual currency businesses and activities. It specifies that a state's virtual currency regulatory regime should cover licensing, capital and investment standards, consumer protection, cybersecurity, and compliance standards. Although the Model Framework includes requirements for surety bonds, it does not require cyber insurance. The basic governmental interest in enacting laws against counterfeiting obligations of the United States is protecting the value of the dollar and the monetary system. Under title 18 U.S.C. Sections 470-477 and 485-489 counterfeiting and forging of U.S. coins, currency, and obligations is subject to criminal sanctions, and under 18 U.S.C. Sections 478-483, criminal sanctions are prescribed for counterfeiting foreign coins, currency, and obligations. None of these statutes, however, applies expressly to a currency that exists only on the Internet and in computers in a digital form. Although the usual prosecution under these statutes involves attempts to replicate Federal Reserve notes or coins produced by the U.S. Mint, at least one case involved a conviction for issuing and circulating Liberty Dollars, designed as similar to but distinguishable from U.S. dollars and intended to "limit reliance on, and to compete with, United States currency." Whether a digital currency, even if it is designed to attack the value of U.S. legal tender, could be prosecuted under the current language of these statutes is not clear. The Stamp Payments Act makes it a crime to issue, circulate, or pay out "any note, check, memorandum, token or other obligation, for a less sum than $1, intended to circulate as money or to be received or used in lieu of lawful money of the United States." This law was enacted in 1862 to protect postage stamps from competition by private tokens. Congress had approved stamps as currency for fractions of $1 because metal coins were being hoarded and were virtually out of circulation. It does not seem likely that a currency that has no physicality would be held to be covered by this statute even though it circulates on the Internet on a worldwide basis and is used for some payments of less than $1. The language of the statute, "note, check, memorandum, token," seems to contemplate a concrete object rather than a computer file; moreover, a digital currency such as Bitcoin, without a third-party issuer, cannot be said to be an obligation. However, there are some arguments that could be made, particularly should a digital currency become pervasive enough to be considered a possible competitor to U.S. official currency. The Electronic Fund Transfer Act (EFTA) establishes a framework for transfers of money electronically, but its coverage is limited in such a way that it appears not to be applicable to a digital currency in transactions involving no depository institution. The EFTA specifically applies to transfers of funds initiated by electronic means from a consumer's account held at a financial institution. It covers transfers "initiated through an electronic terminal, telephonic instrument, or computer." Its application is limited to deposit accounts "established primarily for personal, family, or household purposes," "held by a financial institution," with "financial institution" limited to banks, thrifts, savings associations, and credit unions. Digital currencies have characteristics of traditional tax haven jurisdictions: earnings are not reported to the IRS and users are provided some level of anonymity. Unlike traditional tax havens, however, digital currencies are able to operate without involving a financial institution. Until March 2014, the IRS provided limited guidance on the tax consequences of activities involving the virtual world. It cautioned: [i]n general, you can receive income in the form of money, property, or services. If you receive more income from the virtual world than you spend, you may be required to report the gain as taxable income. IRS guidance also applies when you spend more in a virtual world than you receive, you generally cannot claim a loss on an income tax return. The guidance was limited and did not appear to target a digital currency such as Bitcoin that is used as a medium of exchange for goods and services in the real world. A GAO report in 2013 had found inadequate IRS efforts to address tax implications of virtual currencies not used within a virtual economy. GAO recommended that IRS take a step to counter misinformation circulating about virtual currencies in view of the possibility for growth in such currencies. Rather than recommending a costly rigorous compliance approach, GAO recommended that IRS "find relatively low-cost ways to provide information to taxpayers, such as the web statement IRS developed on virtual economies, on the basic tax reporting requirements for transactions using virtual currencies developed and used outside virtual economies." It appears that the IRS heeded the GAO recommendation. On March 25, 2014, the IRS posted on its website a notice, IRS Virtual Currency Guidance: Virtual Currency is Treated as Property for U.S. Federal Tax Purposes; General Rules for Property Transactions Apply . The guidance advises U.S. taxpayers that virtual currency is treated as property for federal tax purposes and provides answers to 16 Frequently Asked Questions. It advises taxpayers on a range of matters such as when to include the fair market value of virtual currency in computing gross income; how to determine the fair market value of virtual currency; and whether payments made using virtual currency are subject to backup withholding. According to the IRS, some of the general implications of the requirement that virtual currency be treated as property for federal tax purposes are Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes. Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply. Normally, payers must issue Form 1099. The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer. A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property. Under the criminal anti-money laundering laws, engaging in financial transactions that involve proceeds of illegal or terrorist activities or that are designed to finance such activities is prohibited. Money laundering crimes generally involve transactions processed by financial institutions, which is why the Bank Secrecy Act (BSA) imposes various recordkeeping requirements on banks and other financial institutions. Under the Currency and Foreign Transaction Reporting Act component of the BSA, financial institutions must file reports of cash transactions exceeding amounts set by the Secretary of the Treasury in regulations, and file suspicious activity reports (SARs) for transactions meeting a certain monetary threshold or intended to evade reporting requirements. Financial institutions, as required by the Secretary of the Treasury, must also develop and follow anti-money laundering programs and customer identification programs. All of these requirements apply to money services businesses (MSBs), a category of financial institution that must register with the Department of the Treasury. MSBs include a variety of businesses, including dealers in foreign exchange, check cashers, traveler's check issuers, providers of prepaid access cards, and money transmitters. These entities must register with the Department of the Treasury and comply with BSA requirements. On March 18, 2013, Treasury's Financial Crimes Enforcement Network (FINCEN) issued interpretative guidance requiring Bitcoin exchanges—individuals and businesses that change Bitcoins into U.S. or foreign currency—to register as MSBs pursuant to the BSA. Subsequently, FINCEN issued rulings indicating that (1) individuals or companies that mine Bitcoins, use them, and convert them into real currency for their own use are not exchanges and do not have to register as MSBs and (2) companies investing in Bitcoins exclusively for their own account are not exchanges and do not have to register as MSBs. On October 27, 2014, FINCEN released two administrative rulings denying exemptions from MSB regulations for two companies involved in virtual currency activities. One ruling applied to a business proposing to act as an intermediary between credit card holders and hotels dealing only in Bitcoins; the other proposed to set up a trading platform to match offers to buy and sell virtual currency for legal tender. In both cases, FINCEN ruled that the companies qualified as money transmitters under the MSB regulations and did not meet the criteria for exemption as payment processors. Specifically, FINCEN ruled that a company that sets up a payment system to facilitate payments between U.S. credit card holders and certain businesses that deal only in virtual currencies qualifies as a MSB and must register and be subject to regulation as such. In the first ruling, the business in question was proposing to offer U.S. credit card holders a means of paying for reservations in certain Latin American hotels that operate solely on the basis of Bitcoins and do not accept credit card payments or payments in dollars or other sovereign currencies. According to the information provided to FINCEN, the company would supply the hotels with software through which credit card charges would be directed to the company rather than to the hotel. The company would then pay the hotel in Bitcoins, after deducting a fee, using Bitcoins that it had purchased from Bitcoin exchanges at wholesale. The company would charge the credit card holders the dollar equivalent of the hotel charges and bear the risk of exchange rate fluctuation between the time of the credit card charge and payment to the hotel. The company argued that it did not meet FINCEN's definition of virtual currency exchanger and that it was acting as a payment processor and not a money transmitter. FINCEN ruled that the proposed activities fall squarely within the regulatory definition of money transmission services and, because the business does not operate through a clearing and settlement system involving only businesses regulated under the BSA, the company does not qualify for an exception as a payment processor. In the second ruling, FINCEN determined on October 27, 2014, that a company proposing to set up a virtual currency trading platform would be required to register as an MSB. Under the proposal, customers would deposit U.S. dollars and virtual currency in accounts that would be maintained separately in their names and could be used to execute orders to the company to buy or sell the currency at a given price. Orders would be executed automatically through the platform, which would attempt to match buy and sell orders from among the customers maintaining accounts with the company. If no match was found at the given price, no transaction would be executed. The company argued for an exemption from the MSB regulations on the grounds that its operations were similar to those of commodities or securities exchanges and that it was not transmitting money to counterparties. FINCEN characterized these arguments as irrelevant. Instead, FINCEN looked to the regulatory definition of money transmitter and found it to cover the company's activities. According to FINCEN, "in each trade conducted through the Platform, two money transmission transactions occur: one between the Company and the Customer wishing to buy virtual currency, and another between the Company and the Customer wishing to sell such virtual currency at the same exchange rate." On May 5, 2015, FINCEN brought its first enforcement action against a virtual currency exchange, Ripple Labs, Inc. (Ripple), which sells XRP ("ripples"), a virtual currency with market capitalization second to that of Bitcoins. The charges against Ripple, by both FINCEN and the U.S. Attorney for the Northern District of California, involve failure to register as a money services business and to maintain an adequate anti-money laundering program. The DOJ had investigated Ripple for operating an unlicensed money services business in violation of a federal criminal statute. Under an agreement reached with FINCEN and DOJ, Ripple is subject to a total penalty of $700,000, $450,000 of which is to be forfeited to DOJ and the remainder paid to the U.S. Treasury. In addition, Ripple has agreed to take certain remedial measures. Under the settlement agreement, DOJ will not prosecute Ripple for any of the conduct detailed in a Statement of Facts and Violations, and Ripple has agreed to continue to cooperate with DOJ in related Bank Secrecy Act (BSA) investigations of the conduct of Ripple "and its officers, directors, employees, agents, and consultants." Ripple has also agreed to take certain remedial steps, including continuing to implement and improve its BSA compliance program and to move one of its organizational components to a money services business registered with FINCEN. That component functions in such a way that its "end users" are able "to interact with the Ripple protocol to view and manage their XRP and fiat currency balances." In what the Washington Post characterized as "one of the first rulings by a government agency on how to treat the virtual currency," the Federal Election Commission (FEC) voted unanimously to permit a nonconnected political committee to accept Bitcoin contributions and to purchase Bitcoins as an investment. The FEC released an Advisory Opinion on May 13, 2014, that focuses on the specifics of the particular request that the FEC was approving. Whether the ruling will be limited with respect to (1) the amounts that may be received from each contributor per election and (2) the screening procedures specified in the request approved by the FEC appears to be uncertain. The request came from Make Your Laws PAC, Inc. (MYL), a nonconnected political action committee (PAC) registered with the FEC. MYL sought and received permission to accept Bitcoins of up to $100 per contributor per election. MYL proposed to obtain online the contributor's name, address, occupation and employer, as well as an affirmation that the donor is not a foreign national and is the owner of the Bitcoins. These screening procedures satisfied the FEC as adequate with respect to MYL's obligation to examine contributions and determine eligibility of contributors. MYL also received permission to buy Bitcoins and to hold Bitcoins for sale. Permission was refused with respect to using Bitcoins to pay expenses. Under the ruling the Bitcoins are to be treated as contributions of "anything of value," as authorized under the Federal Election Campaign Act. They may be held in MYL's Bitcoin wallet until liquidated, when they are to be deposited in a campaign depository. The Federal Trade Commission (FTC) Act prohibits "unfair or deceptive acts or practices in or affecting commerce" and authorizes the FTC to enforce those prohibitions. On September 15, 2014, the FTC brought a civil action under the FTC Act against Butterfly Lab, a Wyoming corporation with Kansas and Missouri offices. The suit was filed in the U.S. District Court for the Western District of Missouri. It charged Butterfly Lab with engaging in deceptive practices in violation of Section 5(a) of the FTC Act. The complaint alleged that Butterfly misled consumers who prepaid for Bitcoin mining machines and services that the company sold on the Internet. According to the allegations, encryption machines and services that Butterfly sold from its website and through Facebook and Twitter were either not delivered as promised or, if delivered, failed to produce Bitcoins profitably, as advertised. Without hearing from the defendant, the court, on September 18, 2014, issued a temporary order freezing Butterfly's assets, appointing a receiver, and granting the FTC immediate access to the company's premises and records. The FTC's allegation charges Butterfly with receiving upfront payments amounting to thousands of dollars from consumers who responded to false and misleading advertisements claiming that the machines would conduct complex computations at high speed, using low electrical power. According to the complaint, buyers of these machines were misled by assertions that the machines would solve the mathematical puzzles involved in mining Bitcoins and that buyers of the Butterfly machines or services would receive Bitcoins as rewards for solving these puzzles at a rate to make up for the cost of the initial outlay and, in short order, show a profit. Instead, some of the machines promised were never delivered; others were not delivered as promised or were defective when delivered. The result, according to the FTC, was that consumers could not produce Bitcoins, the company was unjustly enriched, and the court's intervention was required to stop a continuing substantial injury to consumers. The court found that the FTC had offered sufficient evidence for the court to conclude that Butterfly had likely violated and would continue to violate the FTC Act. The court further concluded that consumers would likely suffer "immediate and continuing harm" unless the court stopped the Butterfly operation. Because the court found that irreparable damage to consumers was likely if the defendant were notified of the case and able to transfer assets, the court found that there was good cause to appoint a receiver and to allow the FTC immediate access to the company and its records to, among other things, identify its assets. Securities regulation focuses on two different legal issues involving Bitcoins—investments purchased with Bitcoins and investing in Bitcoins. The SEC has been active in investigating issues related to Bitcoins and has published an investor alert on Bitcoin and other virtual currency-related investments. The United States District Court for the Eastern District of Texas held in August 2013 that it had subject matter jurisdiction over possible fraud in investments purchased with Bitcoins because of its determination that investments purchased with Bitcoins are securities. The Securities and Exchange Commission (SEC) alleged that the defendant had violated provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934 and had conducted a kind of Ponzi scheme. According to the facts stated by the SEC, the defendant, Trendon T. Shavers, who was the founder and operator of Bitcoin Savings and Trust (BTCST), had "made a number of solicitations aimed at enticing lenders to invest in Bitcoin-related investment opportunities." Shavers had advertised that he sold Bitcoins and that he would pay an investor up to 1% interest daily until the investor withdrew the funds or until BTCST could no longer be profitable. Investors lost a considerable amount of money, and the SEC brought suit. Shavers defended that the BTCST investments were not securities under federal securities laws because Bitcoins are not money and are not regulated by the United States. Shavers seemed also to argue that, because the investments were not securities, the court had no jurisdiction over a lawsuit alleging violations of the federal securities laws. The SEC argued that the BTCST investments were investment contracts, thus bringing them within the definition of "securities" and therefore subject to regulation by the SEC. The court held that it did have jurisdiction over the case because of its determination that investments purchased with Bitcoins are securities. 15 U.S.C. Section 77b defines a "security" in a very broad way as "any note, stock, treasury stock, security future, security-based swap, bond ... [or] investment contract." Cases such as SEC v. W.J. Howey & Co and Long v. Schultz Cattle Co. have set out a kind of template for an investment contract: An investment contract involves (1) an investment of money (2) in a common enterprise (3) with the expectation of profits from the efforts of a promoter or a third party. Thus, according to the court, it had to determine whether the BTCST investments were an investment of money. The court found that, because Bitcoins can be used to purchase goods or services and even used to pay for individual living expenses, they are a "currency or form of money" and that "investors wishing to invest in BTCST provided an investment of money." The court also found that there was a common enterprise because the investors were dependent upon Shavers's expertise in Bitcoin markets and that Shavers promised a significant return on their investments. Finally, the Eastern District of Texas found that the third prong of the investment contract template was met because the BTCST investors had an expectation of deriving profits from their investments. Because it found that the BTCST investments satisfied the investment contract definition, the court held that it had subject matter jurisdiction over possible fraud in investments purchased with Bitcoins. On September 21, 2015, Shavers pled guilty to a count of securities fraud in U.S. District Court for the Southern District of New York. The SEC is conducting investigations into bitcoin investments. For example, in June 2014, the SEC charged the co-owner of two Bitcoin-related websites with offering publicly traded securities without registering them. An SEC investigation found that a co-owner of the websites published prospectuses on the Internet and solicited investors to buy shares in SatoshiDICE and FeedZeBirds. However, the co-owner had not registered the offerings with the SEC. Investors paid for their shares with Bitcoins. The charges were settled, with disgorgement of the profits plus a penalty. Andrew J. Ceresney, director of the SEC's Division of Enforcement, stated, All issuers selling securities to the public must comply with the registration provisions of the securities laws, including issuers who seek to raise funds using Bitcoin. We will continue to focus on enforcing our rules and regulations as they apply to digital currencies. The SEC is considering an application filed by Cameron and Tyler Winkelvoss to form a public exchange-traded fund (ETF) for Bitcoins. According to the filings, the ETF will be traded on the NASDAQ OMX under the symbol "COIN." The SEC's website states that an ETF is often registered as an open-end investment company or unit investment trust under the Investment Company Act of 1940. The regulatory requirements for ETFs include the following: As investment companies, ETFs are subject to the regulatory requirements of the federal securities laws as well as certain exemptions that are necessary for ETFs to operate under those laws. Together, the federal securities laws and the relevant exemptions apply requirements that are designed to protect investors from various risks and conflicts associated with investing in ETFs. For example, ETFs, like mutual funds, are subject to statutory limitations on their use of leverage and transactions with affiliates. ETFs also are subject to specific reporting requirements and disclosure obligations relating to investment objectives, risks, expenses, and other information in their registration statements and periodic reports. In addition, ETFs are subject to oversight by boards of directors. The Winkelvoss brothers have made amendments to their filings, and the SEC appears to be still reviewing them. In April 2015, Overstock.com, an online retailer headquartered near Salt Lake City, filed a registration statement with the SEC to register $500 million worth of equity in Overstock as the first digital stock. The SEC is reviewing the application. In May 2014, the SEC's Office of Investor Education and Advocacy issued an investor alert to attempt to make investors aware about the potential risks of investments involving Bitcoin and other forms of virtual currency. In the alert, the SEC expressed concern that Bitcoin and other virtual and digital currencies, as new products or technologies, have the potential to create fraud and high-risk investment opportunities. Potential investors can be easily enticed with the promise of high returns in a new investment space and also may be less skeptical when assessing something novel, new and cutting-edge. The North American Securities Administrators Association, an international investor protection organization, has included digital currency on its list of major threats to investors. In December 2014, the SEC issued a release in which it announced that it was imposing sanctions on a computer programmer, Ethan Burnside, for his online operation of two venues that traded securities using the virtual currencies Bitcoin and Litecoin. According to the SEC, the sanctions were necessary because Burnside had never registered the venues as stock exchanges or broker-dealers. In addition, the SEC sanctioned Burnside for conducting unregistered offerings. The SEC order indicates that Burnside cooperated in the agency's investigation and agreed to disgorge $68,000, made up of profits, interest, and penalties, and to a bar from participating in the securities industry. In the view of the SEC, Burnside's not registering the virtual currency venues violated several statutes. Because of the enlistment of securities issuers to offer investments for purchase or sale to the public, the non-registration is a violation of Section 6 of the Securities Exchange Act. This statute requires that "[a]n exchange shall not be registered as a national securities exchange unless the Commission determines that" various requirements assuring investor protection and other criteria are met. Despite making solicitations to the public to open accounts and trade securities, Burnside did not register the venues as broker-dealers, apparently a violation of Section 202(a)(11) of the Investment Advisers Act. The SEC's order found that Burnside violated other provisions of the federal securities laws, such as Sections 5(a) and 5(c) of the Securities Act, concerning requirements related to securities trading in interstate commerce, and Sections 5 (transactions on unregistered exchanges) and 15 (registration and regulation of brokers and dealers) of the Securities Exchange Act. In its release announcing the sanctions imposed on Burnside, the SEC emphasized the importance of investor protection in an area that may be new to the investing public. The agency stated that Burnside operated two online enterprises that weren't properly registered to engage in the securities business they were conducting.... The registration rules are vitally important investor protection provisions, and no exemption applies simply because an entity is operating on the Internet or using a virtual currency in securities transactions. In February 2014, the SEC suspended trading of Imogo Mobile Technologies' securities because of issues concerning the adequacy and accuracy of its public disclosures. Before the suspension, Imogo announced that it was in the process of developing a mobile Bitcoin platform. This announcement created increased movement in the trading price of Imogo's securities. In the Matter of Sand Hill Exchange, Gerritt Hall, and Elaine Ou , although not primarily focused on Bitcoin, did have a Bitcoin component. In June 2015, the SEC issued a settled cease and desist order against this website operator and its two principals who claimed to offer an opportunity to anyone to make profits based on the performance of companies that were not yet publicly traded. The major issue concerned the website's sale of complex financial instruments to persons who were not eligible to purchase them. The principals of the website tried to find people to fund its accounts with either dollars or Bitcoins, perhaps adding to the complexity and uncertainty of the investments. On December 1, 2015, the SEC charged two Bitcoin mining companies and their founder with conducting a Ponzi scheme. The SEC's complaint defined mining for Bitcoin and other virtual currencies in the way that the term "mining" has been used in other Bitcoin complaints—as applying computer power in order to solve difficult equations for the purpose of verifying a group of transactions in that currency. The first to solve the equation is awarded units of the virtual currency. The SEC has charged that Homero Joshua Garza used his Connecticut based companies, GAW Miners and ZenMiner, to offer shares of a Bitcoin mining operation. According to the SEC, the companies did not have enough computing power for the mining that it promised to conduct. As a result, investors paid for computing power that did not exist. Returns on the investment were paid to some investors, but those returns allegedly came from proceeds generated from sales to other investors; hence, an apparent Ponzi scheme. The SEC seeks permanent injunctive relief and the disgorgement of profits, in addition to interest and penalties. In March 2014, the Texas State Securities Board (Board) entered an emergency cease and desist order against a Texas oil and gas exploration company, Balanced Energy LLC, that claimed to be the first company in the industry to accept Bitcoin from investors. According to the Board, Balanced Energy failed to disclose to its investors that there are risks involved in using Bitcoin for investments and that the company was in violation of the Texas securities laws for not disclosing these risks to investors. The Commodity Futures Trading Commission (CFTC) has authority to regulate commodities futures, their markets, and certain foreign exchange instruments. On September 17, 2015, the CFTC issued an order against an online platform for facilitating the trading of Bitcoin options contracts. In March 2014, the Derivabit platform became available as a risk management platform enabling transactions in Bitcoin options and futures contracts. Although the strike and delivery prices were in U.S. dollars, the premiums and settlement payments were in Bitcoins. The CFTC charged Coinflip, which was the operator of the Derivabit platform, and Francisco Riordan, the CEO of Coinflip (respondents), with violating certain provisions of the Commodity Exchange Act (CEA), such as the prohibitions on trading unregulated options and on unregistered swap execution facilities. The respondents consented to the CFTC's order without admitting or denying the charges. In the order, the CFTC set out holdings and findings that establish its position on the regulatory characterization of Bitcoin. Among these holdings and findings are the following: (1) In note 2 of the order, the CFTC stated that Bitcoin is a virtual currency and defined virtual currency as a "digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value, but does not have legal tender status in any jurisdiction"; (2) The CFTC went on in the note to distinguish virtual currencies from "real" currencies, which it stated are the "coin and paper money of the United States or another country that are designated as legal tender, circulate, and are customarily used and accepted as a medium of exchange in the country of issuance"; and, perhaps most importantly, (3) The CFTC quoted the definition of commodity from Section 1a(9) of the CEA and noted that, because the definition is very broad, "Bitcoin and other virtual currencies are encompassed in the definition and properly defined as commodities." There may also be the possibility that the CFTC could include such a digital currency within its foreign exchange regulations because the CEA does not define foreign currency or foreign exchange , although it covers and defines foreign-exchange forwards and foreign-exchange swaps . The United States is not the only nation taking an interest in the potential impact of increased use of Bitcoin. Because digital currency knows no national boundaries, it may require an international solution and, thus, has drawn the attention of international regulators. Traditional payment systems are based on statutory-based monetary systems, overseen by central banks that process transactions of depository banks and other authorized or chartered financial institutions. With virtual currencies, however, no laws and regulations define the duties and obligations of parties or provide for finality of settlement, resolution of disputes, or supervision of services provided. An October 2012 study of digital currencies by the European Central Bank is premised on the possibility that growth of digital currencies will carry with it a need for international cooperation in developing a regulatory framework. According to the study, the current level of virtual currencies poses little risk to price stability; there are, however, risks to users and a potential for criminal schemes. The study also notes that neither the European Monetary Directive nor the European Payment Services Directive clearly applies to virtual currencies such as Bitcoin. The Financial Action Task Force, an inter-governmental organization of which the United States is a member, released a report assessing the risks that virtual currencies present to global efforts to combat money laundering and financing of terrorists in June 2014 and "Guidance for a Risk-Based Approach to Virtual Currencies" (FATF Guidance) in June 2015. The 2014 report provides a glossary of key definitions, such as digital currency, virtual currency, convertible (or open) currency, and non-convertible (or closed) currency. It includes sections on legitimate uses of virtual currency and potential risks of virtual currency. It summarizes three law enforcement actions involving virtual currency, all spearheaded by the U.S. Department of Justice. The 2015 FATF Guidance is aimed at explaining how FATF's risk-based approach to standards for anti-money laundering and anti-terrorist financing apply to exchanges of virtual currencies that can be converted into fiat money. The goal is to aid national authorities seeking to develop regulatory regimes. The FATF Guidance recommends specific standards for countries to take a risk-based approach to identify and mitigate money laundering and terrorist financing risks implicated in virtual currency activities. It includes summaries of approaches taken in certain jurisdictions—Canada, China, the European Banking Authority, France, Germany, Hong Kong, Italy, Russia, Singapore, South Africa, Switzerland, United Kingdom, and the United States. On July 4, 2014, the European Banking Authority (EBA), the European Union authority charged with monitoring financial activities and making recommendations for regulating banking concerns for safety and soundness purposes, released recommendations for steps to address the problems associated with the rise of virtual currencies, "EBA Opinion on 'virtual currencies." In this document, the EBA identified 70 risks associated with virtual currency, multiple difficulties of crafting a regulatory regime addressing those risks, and some interim measures for the member states of the European Union to institute. As interim measures, the EBA recommended (1) subjecting virtual currency exchanges to the anti-money laundering and counter-terrorist financing requirements and (2) discouraging credit institutions, payment institutions, and e-money institutions from buying, holding, or selling virtual currencies. One issue that has received some attention is the ability of the International Monetary Fund (IMF) to defend a traditional currency of one of its member countries from a speculative attack involving a digital currency such as Bitcoin because the IMF's Articles of Agreement do not explicitly permit it to acquire a currency not issued by one of its members. At least one commentary examines possible options for amending or reinterpreting the IMF's authority.
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Bitcoin first appeared in January 2009, the creation of a computer programmer using the pseudonym Satoshi Nakamoto. His invention is an open-source (its controlling computer code is open to public view), peer-to-peer (transactions do not require a third-party intermediary such as PayPal or Visa) digital currency (being electronic with no physical manifestation). The Bitcoin system is private, with no traditional financial institutions involved in transactions. Unlike earlier digital currencies that had some central controlling person or entity, the Bitcoin network is completely decentralized, with all parts of transactions performed by the users of the system. With a Bitcoin transaction there is no third-party intermediary. The buyer and seller interact directly (peer to peer), but their identities are encrypted and no personal information is transferred from one to the other. However, unlike a fully anonymous transaction, there is a transaction record. A full transaction record of every Bitcoin and every Bitcoin user's encrypted identity is maintained on the public ledger. For this reason, Bitcoin transactions are thought to be pseudonymous, not anonymous. Although the scale of Bitcoin use has increased substantially, it still remains small in comparison to traditional electronic payments systems, such as credit cards, and the use of dollars as a circulating currency. Congress is interested in Bitcoin because of concerns about its use in illegal money transfers, concerns about its effect on the ability of the Federal Reserve to meet its objectives (of stable prices, maximum employment, and financial stability), and concerns about the protection of consumers and investors who might use Bitcoin. Bitcoin offers users the advantages of lower transaction costs, increased privacy, and long-term protection of loss of purchasing power from inflation. However, it also has a number of disadvantages that could hinder wider use. These include sizable volatility of the price of Bitcoins, uncertain security from theft and fraud, and a long-term deflationary bias that encourages the hoarding of Bitcoins. In addition, Bitcoin raises a number of legal and regulatory concerns, including its potential for facilitating money laundering, its treatment under federal securities law, and its status in the regulation of foreign exchange trading.
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The U.S. Dept. of Agriculture (USDA) forecasts that U.S. agricultural exports for FY2008 will reach a record high of $91 billion, and forecasts that imports will reach $75.5 billion, also a record ( Figure 1 ). If these forecasts hold, the U.S. agricultural trade balance in FY2008 would be $15.5 billion. Since FY1991, high value exports (intermediate products such as wheat flour, feedstuffs, and vegetable oils or consumer-ready products such as fruits, nuts, meats, and processed foods) have outpaced such bulk commodity exports as grains, oilseeds, and cotton. In FY2008, high value agricultural exports are forecast to account for 60% of the value of total agricultural exports. Much of the growth in U.S. agricultural exports in 2007 and 2008 is expected to come from strong demand for bulk commodities such as wheat, feed grains, oilseeds, and cotton. Agricultural exports are important both to farmers and to the U.S. economy. Production from almost a third of U.S. cropland moves into export channels, according to USDA. USDA estimates that from 21% to 23% of U.S. agricultural production (crops and livestock) is exported. Exports account for almost half of wheat production, more than one-third of soybeans, and a fifth of corn. The share of exports of specialty crops such as almonds is 70%, while for other specialty crops such as walnuts or grapefruit, the export share is as high as 40%. Export share of livestock products is lower than for crops, as most meat and dairy products are consumed domestically. U.S. agricultural exports generate employment, income, and purchasing power in both the farm and nonfarm sectors. According to USDA, each $1 received from agricultural exports stimulates another $1.64 in supporting activities to produce those exports. Recent data show that agricultural exports generate an estimated 806,000 full-time civilian jobs, including 455,000 jobs in the non-farm sector. Many variables interact to determine the level of U.S. agricultural exports: income, population growth, and tastes and preferences in foreign markets; U.S. and foreign supply and prices; and foreign import barriers and exchange rates. U.S. domestic farm policies that affect price and supply, and trade agreements with other countries, also influence the level of U.S. agricultural exports. While many of these factors are beyond the scope of congressional action, farm bills have typically included a trade title (Title III in the 2002 farm bill, the Farm Security and Rural Investment Act of 2002) that authorizes programs that guarantee the private financing of U.S. agricultural exports, subsidize agricultural exports, promote U.S. farm products in overseas markets, or address foreign trade barriers. All of the agricultural export programs authorized in the farm bill are administered by the Foreign Agricultural Service (FAS) of the U.S. Department of Agriculture (USDA). Title III of the House-passed ( H.R. 2419 ) and the Senate Committee-reported farm bills reauthorize and extend these programs from 2008 through 2012, with increased funding for some of USDA's export promotion programs. The bills include new legislative authority for discretionary appropriations for initiatives aimed at strengthening U.S. participation in international food standard-setting organizations and enabling individuals and groups to challenge unfair trade barriers in international trade dispute settlement. On December 14, 2007, the Senate passed its version of the 2007 farm bill. The House of Representatives had passed its version on July 27, 2007. The bills, which would establish U.S. farm policy for 2008 through 2012, each contain a trade title (Title III) that authorizes and amends USDA agricultural export programs and U.S. international food aid programs. The bills incorporate many of the recommendations made by the Administration in its farm bill trade proposals, especially changes in USDA's export credit guarantee programs to make them consistent with World Trade Organization (WTO) rules limiting export subsidies. The trade title in each bill also incorporates Administration proposals for increased funding for export market promotion and for addressing sanitary and phytosanitary barriers to U.S. agricultural exports. Both bills also reflect provisions of farm legislation introduced earlier in the 110 th Congress, notably legislation introduced by Members representing the interests of fruit, vegetable, and tree nut (specialty crop) producers who advocate increased federal support for their production and marketing activities, including export market promotion. Export credit guarantee programs, administered by USDA's Foreign Agricultural Service (FAS), in association with the Farm Service Agency (FSA), guarantee payments for commercial financing of U.S. agricultural exports. U.S. financial institutions providing loans to foreign buyers for the purchase of U.S. agricultural commodities can obtain, for a fee, guarantees from USDA's Commodity Credit Corporation (CCC). If a foreign buyer defaults on the loan, the U.S. financial institution files a claim with the CCC for reimbursement, and the CCC assumes the debt. The aim of these programs is to facilitate exports to buyers in countries where official credit guarantees will help to maintain or increase U.S. export sales. The GSM-102 program guarantees repayment of short-term financing (six months to three years) extended to eligible countries that purchase U.S. farm products. The GSM-103 program guarantees repayment of commercial financing up to 10 years to buyers in eligible countries to purchase U.S. farm products. The Supplier Credit Guarantee Program (SCGP) guarantees payment by foreign buyers of U.S. commodities and products that are sold by U.S. suppliers on a short-term deferred payment basis. The duration of the credit is short, generally up to 180 days, although the 2002 farm bill permits guarantees of up to 360 days. The Facility Guarantee Program (FGP) guarantees financing of goods and services exported from the United States to improve or establish agriculture-related facilities in emerging markets that will improve the handling, marketing, storage, or distribution of imported U.S. agricultural commodities and products. The 2002 farm bill authorizes export credit guarantees of $5.5 billion worth of agricultural exports annually through FY2007, while giving FAS the flexibility to determine the allocation between short- and intermediate-term programs. The actual level of guarantees depends on market conditions and the demand for financing by eligible countries. In FY2006, financing for $1.4 billion of U.S. agricultural exports was guaranteed under the program ( Table 1 ). Export credit guarantee programs have become an issue in WTO dispute settlement as a result of a dispute raised by Brazil against certain aspects of the U.S. cotton program. The WTO dispute panel in the cotton case ruled in 2005 that three U.S. export credit guarantee programs (GSM-102, GSM-103, and SCGP) were prohibited subsidies because the financial benefits returned to the government by these programs did not cover their long-run operating costs. This ruling by the dispute settlement panel applied not only to cotton but to other commodities as well. The panel recommended that the United States take steps to remove the adverse effects of these subsidies or to withdraw them entirely. The Administration suspended operation of GSM-103 in 2006 and asked Congress to repeal the legislative authorization for the program and make other changes in the President's FY2007 and FY2008 budget requests. The effectiveness of the credit guarantee programs also has been an issue. The Office of Management and Budget (OMB) reviewed the programs and found that export credit guarantees were only moderately effective in meeting program goals. OMB noted also that there were substantial defaults, particularly in the SGCP program, a situation that led USDA to suspend operations of SCGP in 2006. The Administration, in its farm bill trade proposals, recommended changes in CCC export credit guarantee programs that would bring them into compliance with the findings of the WTO dispute resolution panel in the Brazil cotton case. To accomplish this, the Administration asked Congress to remove the 1% cap on fees that can be collected under the Short-Term Credit Guarantee Program (GSM-102) and to eliminate specific legislative authority for the Intermediate Export Credit Guarantee Program (GSM-103) and the SGCP. USDA also proposed repeal of the SGCP because of approximately $227 million in defaults and evidence of fraudulent activity. The Administration proposed to change the Facility Guarantee Program (FGP) to attract users who commit to purchasing U.S. agricultural products. No FGP funds have been allocated under the current farm bill. Both versions of the f arm bill make the changes in USDA's export credit guarantee programs recommended by the Administration: repeal of GSM-103 and the SGCP and removal of the 1% cap on origination fees for GSM guarantees. The GSM-102 program is extended through FY2012. The current farm bill authorizes direct export subsidies of agricultural products through the Export Enhancement Program (EEP) and the Dairy Export Incentive Program (DEIP). The last year of substantial EEP activity was 1995, and there has been no EEP spending under the current farm bill. DEIP spending, which has varied considerably, averaged $18 million per year under the 2002 farm bill ( Table 2 ). EEP was established in 1985, first by the Secretary of Agriculture under authority granted in the Commodity Credit Corporation Charter Act, and then under the Food Security Act of 1985 ( P.L. 99-198 ). EEP's main stated rationale, at its inception, was to combat "unfair" trading practices of competitors (other subsidizing countries such as the European Union) in world agricultural markets. The General Sales Manager administers EEP. Most EEP subsidies have been used to assist sales of wheat. Many exporters have received subsidies, but from 1985 to 1995, three exporting firms received almost half the total of all EEP subsidies, which totaled more than $7 billion. The United States agreed to reduce its agricultural export subsidies under the 1994 WTO Uruguay Round Agreement on Agriculture and, in ongoing multilateral trade negotiations, advocates that all agricultural export subsidies be eliminated. DEIP, most recently reauthorized in the commodity program title, not the trade title, of the 2002 farm bill, was established under the 1985 farm act to assist exports of U.S. dairy products. Its purpose was to counter the adverse effects of foreign dairy export subsidies, primarily those of the European Union. WTO export subsidy reduction commitments apply also to DEIP. EEP has been controversial since its inception. Many oppose the program outright on grounds of economic efficiency. EEP, they argue, like all export subsidies, interferes with the operations of markets and distorts trade. Others, noting that the Uruguay Round Agreement on Agriculture restricts but does not prohibit agricultural export subsidies, point out that as long as competitors, such as the European Union, use export subsidies, the United States should also be prepared to use them. The effectiveness of EEP also has been an issue. Several studies of the use of EEP found that wheat exports would have declined if EEP were eliminated, suggesting that the EEP program increased wheat exports. Other analysts, however, found that subsidizing wheat exports under EEP resulted in displacing exports of unsubsidized grains. While many oppose subsidizing dairy products for reasons similar to those held by EEP opponents, DEIP has strong support in Congress. OMB also has evaluated the effectiveness of EEP and DEIP. OMB found that the export subsidy programs were only moderately effective in meeting program goals of countering export subsidies or unfair trade practices of other countries. In OMB's judgment, the export subsidy programs have not been able to demonstrate an ability to permanently expand exports or build U.S. market share in targeted countries. The agency does note that DEIP was successful in offsetting EU export subsidies for dairy products to Mexico, which permitted the United States to develop and maintain a market for dairy product exports to that country. The Administration proposed the repeal of EEP because, it argued, EEP is not a useful tool for U.S. agricultural exports, it has been inactive for many years, and eliminating it would not materially affect U.S. agricultural exports. The Administration notes also that using EEP would be inconsistent with the U.S. goal of eliminating export subsidies in the WTO Doha Round of multilateral trade negotiations. The Administration made no proposals for either eliminating or reauthorizing DEIP, however. The Senate version of the farm bill calls for the repeal of EEP, while the House bill extends authority for EEP through FY2012. Both the Senate and House farm bills also extend the authorization for DEIP in Title I, the commodity title, through FY2012. The 2002 farm bill authorizes mandatory funding for four programs to promote U.S. agricultural products in overseas markets: the Market Access Program (MAP), the Foreign Market Development Program (FMDP), the Emerging Markets Program (EMP), and the Technical Assistance for Specialty Crops Program (TASC). (See Table 3 for spending activity for export market development under the 2002 farm bill.) MAP promotes primarily value-added products. The types of activities undertaken through MAP are advertising and other consumer promotions, market research, technical assistance, and trade servicing. Nonprofit industry organizations and private firms are eligible to participate in MAP promotions on a cost-share basis. No foreign for-profit company may receive MAP funds for the promotion of a foreign-made product. About 60% of MAP funds typically support generic promotion (i.e., non-brand name commodities or products), and about 40% support brand-name promotion (i.e., a specific company product). Only firms classified as small businesses by the Small Business Administration may receive direct MAP assistance for branded promotions. MAP is exempt from WTO export subsidy reduction commitments. The 2002 farm bill authorizes MAP through FY2007. The funding level for the program (previously capped at $90 million annually) gradually increases to $200 million for FY2006 and FY2007. The 2002 farm bill also reauthorizes CCC funding for FMDP through FY2007 at an annual level of $34.5 million. The program, which began in 1955, is similar to MAP in most major respects. Its purpose is to promote U.S. agricultural exports by undertaking activities such as consumer promotions, technical assistance, trade servicing, and market research. In contrast to MAP, FMDP mainly promotes generic or bulk commodities. As with MAP, projects under FMDP are jointly funded by the government and industry groups, and the government reimburses the industry organization for its part of the cost after the project is finished. Like MAP, FMDP is exempt from WTO export subsidy reduction commitments. EMP provides funding for technical assistance activities intended to promote exports of U.S. agricultural commodities and products to emerging markets in all geographic regions, consistent with U.S. foreign policy. An emerging market is defined in the authorizing legislation as any country that is taking steps toward a market-oriented economy through food, agricultural, or rural business sectors of the economy of the country. Additionally, an emerging market country must have the potential to provide a viable and significant market for U.S. agricultural commodities or products. Eligible countries must have per capita incomes of less than $10,065 in 2005-2006 and a population greater than 1 million. Funding for the EMP is set at $10 million each fiscal year through FY2007 in the 2002 farm bill. TASC aims to assist U.S. organizations by providing funds for projects that address sanitary, phytosanitary (SPS), and technical barriers that prohibit or threaten U.S. specialty crop exporters. The 2002 farm bill defines specialty crops as all cultivated plants, and the products thereof, produced in the United States, except wheat, feed grains, oilseeds, cotton, rice, peanuts, sugar, and tobacco. The types of activities covered include seminars and workshops, study tours, field surveys, pest and disease research, and pre-clearance programs. The 2002 farm bill authorizes $2 million of CCC funds each fiscal year through FY2007 for the TASC program. A basic issue raised by MAP and FMDP, and in some cases all the export programs, is whether the federal government should have an active role in helping agricultural producers and agribusinesses market their products overseas. Some argue that MAP and FMDP are forms of corporate welfare in that they fund activities that private firms would and could fund for themselves. Others argue that the principal beneficiaries are foreign consumers and that funds could be better spent, for example, to educate U.S. firms on how to export. Program supporters counter that foreign competitors, especially EU member countries, also spend money on market promotion, and that U.S. marketing programs help keep U.S. products competitive in third-country markets. OMB's reviews of the effectiveness of the market development efforts determined that the programs were moderately effective, but that the programs did not necessarily serve a clear need. Many of the groups that receive market development funds, it reported, receive at least some corporate funding and could afford to support their own export promotion efforts. OMB did note that the TASC program has helped to reduce barriers to U.S. agricultural exports, citing the example of TASC-funded efforts to open Taiwan's apple market to U.S. apples. The Administration proposed an increase in mandatory funding for MAP by $250 million over 10 years. The additional funds would be used to address perceived inequities between farm bill program crops (grains, oilseeds, and cotton) and non-program crops (especially specialty crops). Organic agriculture would be allowed to compete for MAP funding to help develop the export of organic products. In addition, the Administration proposed to increase mandatory funding for TASC to $68 million over 10 years and to increase the maximum allowable project award to $500,000. To address SPS issues generally, the Administration called for the establishment of a new grant program of $20 million over 10 years to further focus resources on international SPS barriers for all agricultural commodities. To enhance USDA participation in international standard-setting bodies, such as the Codex Alimentarius, the International Plant Protection Convention, and the World Animal Health Organization, the Administration requested the authorization of long-term mandatory funding of $15 million over 10 years. Both the Senate bill and the House bill reauthorize USDA's agricultural export promotion programs through FY2012. The Senate bill increases MAP funding by $100 million over the five fiscal years FY2008-FY2012, while the House bill increases MAP funding by $125 million. Both bills specifically authorize MAP to promote exports of organically produced commodities. The House bill authorizes CCC funding for FMDP through FY2012 with no change in the funding levels authorized in the 2002 farm bill (i.e., $34.5 million). The Senate bill reauthorizes FMDP through FY2012 but increases its funding by $22 million over five fiscal years. H.R. 2419 also increases funding for TASC, which the 2002 farm bill authorizes at $2 million of CCC funds per fiscal year. Total funding for TASC in H.R. 2419 over five years would amount to $38 million. The Senate bill provides a total of $29.2 million for TASC over five years. Both bills authorize discretionary appropriations ("such sums as necessary") to assist limited resource persons and organizations associated with agricultural trade to address unfair trade practice of foreign countries and to reduce trade barriers. Included among trade title proposals from the Administration, this measure would help smaller groups and industries who want to challenge trade practices of other countries but lack the technical and analytical expertise to successfully mount a challenge. The House-passed bill also authorizes discretionary appropriations to enhance U.S. participation in international standard-setting organizations, such as the Codex Alimentarius Commission or the World Organization for Animal Health. The intent of this measure, also proposed by the Administration, is to help bring U.S. interests to bear in standard-setting organizations when sanitary, phytosanitary, or technical trade are on the agenda.
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On December 14, 2007, the Senate passed its version of the 2007 farm bill. The House of Representatives passed its version of the 2007 farm bill (H.R. 2419) on July 27, 2007. Both bills, which would establish U.S. farm policy for 2008 through 2012, contain a trade title (Title III) that authorizes and amends U.S. Department of Agriculture (USDA) agricultural export programs and U.S. international food aid programs. This report assesses 2007 farm bill trade title provisions for U.S. agricultural export programs. (See CRS Report RL33553, Agricultural Export and Food Aid Programs, by [author name scrubbed], for additional detail. For an analysis of food aid issues and the farm bill, see CRS Report RL34145, International Food Aid and the 2007 Farm Bill, by [author name scrubbed].) The bills incorporate a number of the recommendations made by the Administration in its farm bill trade proposals, especially changes to USDA's export credit guarantee programs and export market development programs. Both bills modify the export credit guarantee programs to make them compatible with World Trade Organization (WTO) rules limiting export subsidies. Both bills also provide increased funding for export market promotion and for addressing sanitary and phytosanitary (food safety) barriers to U.S. agricultural exports. The bills also reflect provisions of farm legislation introduced earlier in the 110th Congress, notably legislation introduced by Members representing the interests of fruit, vegetable, and tree nut (specialty crop) producers to increase federal support for their production and marketing activities, including export market promotion. U.S. agricultural exports for FY2008 are forecast by USDA to be a record high $91 billion, while imports will reach $75.5 billion, also a record. If this forecast holds, the U.S. agricultural trade balance in FY2008 would be $15.5 billion. Many variables interact to determine the level of U.S. agricultural exports—income, population growth, and tastes and preferences in foreign markets; U.S. and foreign supply and prices; foreign import barriers and exchange rates; and domestic farm policy and trade agreements. While many of these factors are beyond the scope of congressional action, farm bills have typically included programs that help to finance, subsidize, and promote U.S. commercial agricultural exports, or to address foreign trade barriers.
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Since 2001, hundreds of thousands of elementary, secondary, and postsecondary education students have been adversely affected by natural disasters, such as hurricanes and floods, and by national emergencies, such as the September 11, 2001, terrorist attacks. To assist Congress in responding to catastrophic events, this report provides a general overview of existing statutory and regulatory authorities, flexibilities, and programs that are available to assist students and educational institutions affected by a major disaster or a national emergency. The report also reviews several no-longer-authorized temporary provisions that were enacted by Congress to provide additional assistance to support education-related disaster recovery. Some of the initial education-related problems that may need to be addressed following a disaster relate to utilities outages, displaced students, homeless students, damage to buildings and school property, and school closures. To address such problems, the federal government has responded in various ways to disasters that have affected the provision of education. These responses have included the provision of financial support, waivers of existing statutory and regulatory provisions, and the creation of new programs. The majority of federal assistance for disaster management is made available from the Federal Emergency Management Agency (FEMA), as authorized under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act: P.L. 93-288 ). The public assistance available under the Stafford Act largely provides funds for disaster relief activities such as debris removal, emergency protective measures, and the repair, replacement, or restoration of public facilities damaged during the disaster. On several occasions, Congress has also enacted legislation to create temporary targeted assistance programs to support Department of Education (ED) administered programs at the elementary, secondary, and postsecondary education levels. Such assistance was authorized to meet the needs of students, schools, and states during specific disasters. For example, temporary programs have provided funds to restar t school operations, reopen schools, and re-enroll students. In addition to the assistance authorized by the Stafford Act and temporary targeted assistance programs, a wide range of disaster aid is provided by ED under statutory authority that specifically refers to disaster assistance, as well as under general assistance provisions. At the elementary and secondary education level, schools, local educational agencies (LEAs), and states have needed assistance in complying with various educational accountability requirements included in the Elementary and Secondary Education Act (ESEA) and in meeting fiscal requirements. A number of statutory flexibilities can be triggered to provide adjustment to, and in some instances exemptions from, such requirements during periods of disaster. At the postsecondary education level, institutions of higher education (IHEs) have needed assistance complying with the statutory requirements pertaining to the disbursement and reimbursement of federal student aid (e.g., Pell Grants and Direct Loan program loans), and students have needed assistance in securing, maintaining eligibility for, and repaying federal student aid. Where federal student aid is concerned, relief has been provided related to the interruption or cancelation of periods of study and ensuing challenges associated with reimbursement of funds for the federal government from IHEs and/or students and portability of aid should students need to be relocated. The first part of this report briefly describes recent education-related developments in response to numerous disasters in 2017. It then describes education-related federal assistance provided by FEMA in the aftermath of disasters generally. This is followed by an examination of education-related disaster recovery and issues related to elementary and secondary education, postsecondary education, and various ED-administered programs typically serving adult learners. The report also includes an appendix summarizing education-related disaster appropriations administered by ED from between 2005 and 2010. In August and September of 2017, the United States experienced several major hurricanes and tropical storms in quick succession. In response to Hurricane and Tropical Storm Harvey, President Trump issued a major disaster declaration for Texas and an emergency declaration for Louisiana ; in response to Hurricane Irma, President Trump issued emergency declarations for Florida, the U.S. Virgin Islands, and Puerto Rico; and in response to Hurricane Maria, President Trump issued major disaster declarations for Puerto Rico and the U.S. Virgin Islands. In December 2017, California experienced multiple wildfire incidents. The scope of the adverse effects from these natural disasters is extensive. Included among the currently known and expected adverse effects are physical damage to local elementary, secondary, and postsecondary schools, possible school closures, and temporary or permanent displacement of students. As of the date of this report, legislation has been enacted in response to the 2017 hurricanes to provide the Secretary of Education (the Secretary) with waiver authority for certain statutory provisions not otherwise authorized, which relates to the Higher Education Act of 1965 (HEA; P.L. 89-329) Title IV campus-based student aid programs, and to permanently make private schools eligible for funding under the Project School Emergency Response to Violence Program (Project SERV), as authorized under the ESEA. In addition, ED has released updated guidance for elementary and secondary schools, for IHEs and students related to the federal student aid programs authorized under Title IV of the Higher Education Act, and for other programs administered by ED, including general guidance on grants administration. Finally, ED awarded Project SERV Grants to various state and territory departments of education to assist with hurricane recovery efforts. On February 9, 2018, the Further Additional Supplemental Appropriations for Disaster Relief Act, 2018 (Division B, Subdivision 1 of the Bipartisan Budget Act of 2018; P.L. 115-123 ) was enacted. It includes FY2018 supplemental appropriations for disaster relief for "covered disasters or emergencies" (i.e., Hurricanes Harvey, Irma, Maria, or wildfires in 2017 for which a major disaster or emergency has been declared under Sections 401 or 501 of the Robert T. Stafford Disasters Relief and Emergency Assistance Act), including for education-related programs and activities. The act includes the following education-related disaster relief provisions: $2.5 billion for immediate aid to restart school operations and for temporary emergency impact aid for displaced K-12 students. These programs are identical to disaster relief programs passed in response to the 2005 hurricane season and authorized under P.L. 109-148 . Funds are targeted to schools that have been damaged by a covered disaster or emergency and to states and LEAs that have enrolled students displaced as a result of a covered disaster or emergency. Funds under the temporary emergency impact aid program are distributed to the states and LEAs based on the numbers of displaced students enrolled. Extra funds are provided to schools for displaced students with disabilities and displaced students who are English Learners. Up to $35 million for the Project SERV program, authorized under Section 4631(b) of the ESEA, for education-related services to help students in affected areas recover from the trauma associated with natural disasters. $25 million for assistance to LEAs serving homeless children and youths displaced by a covered disaster or emergency, consistent with the Education for Homeless Children and Youth program authorized under Section 723 of the McKinney-Vento Homeless Assistance Act. $100 million for the Federal Supplemental Educational Opportunity Grant (FSEOG) program, the Federal Work-Study (FWS) program, and the Fund for the Improvement of Postsecondary Education (FIPSE). Funds shall be for IHEs located in areas affected by a covered disaster or emergency and students enrolled in such institutions. Matching requirements under FSEOG and FWS are waived for IHEs receiving such funds. Funds may be used for a variety of expenses including student financial assistance, staff salaries, student supplies and equipment, or any other purpose authorized under the HEA. Up to $75 million for IHEs to help defray the unexpected expenses associated with enrolling students displaced from IHEs at which operations have been disrupted by a covered disaster or emergency. Authorization for the Secretary to waive, modify, or provide extensions for any statutory or regulatory provisions applicable to the HEA Title IV programs or student eligibility or institutional eligibility provisions in the HEA for affected individuals, students, and IHEs in covered disaster or emergency areas, if the Secretary deems such waiver, modification, or extension necessary in connection with a covered disaster or emergency. Authorization for the Secretary to modify required and allowable uses of funds under the various minority-serving grant programs authorized under HEA Title III, Parts A and B, and under the TRIO and GEAR-UP programs. Authorization for the Secretary to forgive any outstanding balance owed to ED under the HBCU Hurricane Supplemental Loan program established under P.L. 109-234 and in response to the 2005 hurricane season. $4 million to ED's Office of the Inspector General for carrying out administrative and oversight activities. This report reflects the most recently available information on laws and guidance related to education-related disaster response and flexibilities. It will be updated should new or additional statutes be enacted or guidance be issued. The principal authority governing federal assistance for emergencies and major disasters in the United States is the Robert T. Stafford Relief and Emergency Assistance Act (Stafford Act; P.L. 93-288 , 42 U.S.C. 5121 et seq.). The Federal Emergency Management Agency of the Department of Homeland Security (DHS) has been given the responsibility of administering almost all of the President's Stafford Act authorities through other law, a series of Executive Orders, and a DHS delegation. If a major disaster or emergency has been declared by the President under the authority of the Stafford Act, federal assistance can be made available to the declared tribal governments, states, local governments, owners of certain private nonprofit facilities, and individuals and families. If located in a declared disaster area, public educational institutions, and certain private nonprofit institutions, may receive disaster assistance grants through FEMA's Public Assistance (PA) Program. PA grants may assist educational institutions with a range of disaster assistance needs, including, but not limited to, the repair and reconstruction of damaged facilities, debris removal, the provision of temporary school facilities, and the replacement of certain necessary equipment and supplies (e.g., books and desks). The specific eligibility of private nonprofit educational facilities is outlined in FEMA policy, but generally includes accredited primary, secondary, and higher education institutions. Eligible institutions may also apply for funding to reduce risks and damages that might occur in future disasters through hazard mitigation grants. The federal government has provided support for elementary and secondary education for many decades. Federal support for public elementary and secondary education accounts for less than 10% of the nation's overall K-12 education revenues. For FY2017, about $38 billion was appropriated for elementary and secondary education programs administered by ED. The majority of these funds are provided under the Elementary and Secondary Education Act, the Individuals with Disabilities Education Act (IDEA), and the Carl D. Perkins Career and Technical Education Improvement Act (Perkins). The ESEA represents the major federal commitment to the nation's elementary and secondary schools and was last comprehensively reauthorized by the ESSA on December 10, 2015. The Title I-A program is the largest grant program authorized under the ESEA and is funded at $15.5 billion for FY2017. Title I-A of the ESEA authorizes aid to LEAs for the education of disadvantaged children. Title I-A grants provide supplementary educational and related services to low-achieving and other students attending prekindergarten through grade 12 schools with relatively high concentrations of students from low-income families. Title I-A has also become a vehicle to which a number of requirements affecting broad aspects of public K-12 education for all students have been attached as conditions for receiving Title I-A grants. Other ESEA programs include Improving Teacher Quality, 21 st Century Community Learning Centers, Rural Education, English Language Acquisition Grants, Charter Schools Grants, and Impact Aid, collectively funded at $8.4 billion in FY2017. In addition to the ESEA, another important source of federal funding for elementary and secondary education is the IDEA. The act provides federal funding for special education and related services for children with disabilities and requires the provision of a free appropriate public education (FAPE) as a condition for the receipt of such funds. The statute also contains detailed due process provisions to ensure the provision of FAPE and fiscal accountability provisions. Total IDEA funding for FY2017 equaled $13.0 billion. The Perkins Act is a federal law supporting the development of career and technical education skills among students in secondary and postsecondary education. The bulk of Perkins funds are distributed via a formula to the states, which then distribute funds to local recipients, such as LEAs and community colleges. Perkins was most recently comprehensively reauthorized in 2006, and appropriations were authorized through FY2012. The authorization of appropriations was automatically extended for an additional fiscal year through FY2013 under Section 422 of the General Education Provisions Act, and Perkins has continued to receive fairly constant appropriations through FY2016. Total Perkins funding for FY2017 was $1.1 billion. This section of the report provides an overview of existing general statutory and regulatory authorities for elementary and secondary education that enable the Secretary of Education (the Secretary) to waive or modify various education requirements. This section also discusses temporary authorities that have been provided to the Secretary by Congress in response to various disasters. Additionally, it examines temporary elementary and secondary education programs that were created by Congress in response to various disasters and administered by ED. The section concludes with a discussion of other actions taken in response to disasters affecting elementary and secondary education. With respect to elementary and secondary education, the education-related disaster recovery efforts examined in this report are primarily related to the 2005 Gulf Coast hurricanes (Katrina and Rita), 2008 Hurricanes Ike and Gustav, and natural disasters that occurred through 2010, including flooding in the Midwest in 2008. ED has not issued waivers or new funding related to disasters that occurred subsequent to this time period. While the ESEA was recently reauthorized by the ESSA, this report discusses relevant ESEA provisions both prior to and following the enactment of the ESSA. Existing statutory and regulatory requirements provide the Secretary with some authority and flexibility to respond to a disaster without the need for additional legislation. This section begins with an examination of waiver authority available to the Secretary under the ESEA. The subsequent text illustrates how waivers were used in response to recent disasters to address funding flexibility issues and accountability requirements under the ESEA. Other forms of flexibility that are available to the Secretary are also discussed. The extent to which the Secretary has flexibility under IDEA and Perkins is also described. Existing statutory and regulatory waiver authorities under ESEA are intended to support state and local educational agencies and schools that receive ESEA funds and are located in areas affected by disasters. Typical waiver requests that have been granted by ED in the past have focused on relief from accountability requirements, such as counting displaced students as a separate subgroup when making annual yearly progress determinations, and on relief from certain fiscal requirements, such as extending the period of availability of various ESEA funds that would have expired by a certain date. Under the ESEA, as amended by the ESSA, secretarial waiver provisions are included in Section 8401. Under Section 8401, the Secretary has broad authority to issue waivers of a number of statutory or regulatory requirements of the ESEA for a state education agency (SEA); local education agency, through an SEA; an Indian tribe; or a school, through an LEA that receives funds under an ESEA program and requests a waiver. The Secretary is prohibited from waiving any statutory or regulatory requirement related to the following requirements: allocation or distribution of funds to states or LEAs (or other grant recipients); maintenance of effort (MOE) requirements for LEAs or SEAs to maintain their level of spending for specified educational services; comparability of services; the use of federal aid only to supplement, and not supplant, state and local funds for specified purposes; equitable participation of private school students and teachers; parental participation and involvement; applicable civil rights requirements; the requirement for a charter school under the Public Charter Schools program (Title IV-C); prohibitions against consideration of ESEA funds in state aid to LEAs; prohibitions against use of funds for religious worship or instruction; certain prohibitions against use of funds for sex education; and certain ESEA Title I-A school selection requirements. The Secretary is prohibited from disapproving a waiver request based on conditions outside the scope of such request. Waivers may be approved by the Secretary for a period not to exceed four years, but may be extended if the state demonstrates that the waiver was effective in enabling the state to carry out the activities for which the waiver was requested, the waiver contributed to improved student academic achievement, and extension of the waiver is in the public interest. This portion of the report discusses the use of the ESEA Section 9401 waiver authority, which was the waiver authority in place prior to the enactment of the ESSA. Although no waivers have yet been granted since the enactment of the ESSA, information on waivers granted under the previous Section 9401 may be useful in determining the potential availability of waivers, as the previous Section 9401 waivers were maintained in current Section 8401. The ESSA maintained the waiver authority previously provided under Section 9401 of the ESEA to the Secretary to approve or deny waivers requested by SEAs, LEAs, Indian tribes, or schools (through an LEA). These statutory requirements did not specify that these requests be made in response to a natural or man-made disaster, financial issues, or other circumstances. While many of the waiver requests that have been approved by the Secretary since enactment of the No Child Left Behind Act of 2001 (the comprehensive reauthorization of the ESEA immediately prior to the ESSA) have focused on ESEA Title I-A educational accountability requirements, funding issues, general administrative requirements, and issues related to the American Recovery and Reinvestment Act (ARRA; P.L. 111-5 ), waivers have also been granted in response to natural disasters. As this waiver authority was maintained under the ESEA as amended by the ESSA, SEAs, LEAs, Indian tribes, or schools interested in obtaining a waiver in response to a natural disaster or other circumstances, such as an incident of school violence, could also submit a waiver request for consideration by the Secretary. As detailed in Table 1 , from 2005 through 2010, the Secretary used the authority available under previous ESEA Section 9401 to grant 33 waivers in response to natural disasters. Of these waivers, 18 were granted in either 2005 or 2006, 4 were granted in 2007, 4 were granted in 2008, 2 were granted in 2009, and 5 were granted in 2010. Of the waivers granted, just over half of the waivers (17) addressed funding flexibility issues, while the others (16) addressed educational accountability requirements under the ESEA. About 40% of the waivers (13 waivers) were granted to Louisiana, which was disproportionately affected by disasters from 2005 to 2010 compared to other states. Beyond the authority currently available to the Secretary under Section 8401 of the ESEA, other flexibilities that may be exercised by the Secretary, SEAs, or LEAs also exist. Some of these flexibilities are contained in the ESEA, while other flexibility authority is provided through other statutes. None of the flexibility provisions discussed below are specific only to disasters. Rather, these flexibilities may be provided in response to a disaster or for other reasons, such as a "precipitous decline in the financial resources" of an LEA. There are several additional provisions included in the ESEA that may be helpful in providing assistance in response to a disaster, including flexibility related to MOE requirements, charter schools, and funding flexibility. Under the ESEA, the Secretary is specifically prohibited from waiving MOE requirements using authority available under Section 8401. However, Section 8521(c) of the ESEA permits the Secretary to waive MOE requirements for LEAs in the case of "exceptional or uncontrollable circumstances, such as a natural disaster" or due to a "precipitous decline in the financial resources" of an LEA. CRS has been unable to identify examples where this flexibility was used by LEAs. Under the ESEA, the Charter Schools Program (CSP; ESEA Title IV-C) provides grants to SEAs or, if a state's SEA chooses not to participate, charter school developers, to support the development and initial implementation of public charter schools. CSP also includes general provisions for allocations to charter schools under ESEA and other federal formula grant programs. Under Section 4303(d)(5) of the ESEA, the Secretary has the authority to waive statutory and regulatory requirements if the Secretary determines that granting such a waiver will promote the purpose of the program. Prior to the enactment of the ESSA, the Secretary used this authority to provide funding specifically to support existing charter schools and to create new charter schools in areas affected by disasters. Additional flexibility under the ESEA allows funds received by LEAs under either the Small, Rural School Achievement Program or the Rural and Low-Income School Program to also be used for activities authorized under several other ESEA programs. Finally, Title V-A provides authority that allows most LEAs and SEAs to transfer up to 100% of their formula grants among various ESEA programs. The Education Flexibility Partnership Act of 1999 (ED-Flex; P.L. 106-25 ) transfers from ED to SEAs the authority to grant waivers similar to those authorized under ESEA Section 8401. The SEAs that receive this authority are similarly restricted in terms of waivers they are not permitted to authorize (e.g., waiving maintenance of effort requirements). Thus, an SEA could grant permitted waivers in response to a disaster or for other reasons without having to seek additional authority from the Secretary. Prior to the enactment of the ESSA, 10 states were authorized to participate in ED-Flex. Under the provisions of the ESSA, these 10 states retain their authority to participate in ED-Flex for up to five years pending approval by the Secretary. In addition, other states may apply to receive ED-Flex authority. Under the ESSA, states authorized to participate in ED-Flex may waive statutory or regulatory provisions under the following ESEA programs: Title I-A (except provisions in Section 1111), Migrant Education (Title I-C), Prevention and Intervention Programs for Children and Youth Who Are Neglected, Delinquent, or At-Risk (Title I-D), Preparing, Training, and Recruiting High-Quality Teachers, Principals, and Other School Leaders (Title II-A), and Student Support and Academic Enrichment Grants (block grants, Title IV-A). In addition, SEAs may waive statutory or regulatory provisions under the Perkins Act. Under IDEA, the Secretary does not have authority comparable to what is available under ESEA Section 8401. However, the Secretary does have authority to waive MOE requirements for states (but not LEAs) under certain circumstances and, unlike provisions under the ESEA, IDEA provisions allow the Secretary to waive supplement, not supplant requirements for states (but not LEAs) under certain circumstances. In general, a state may not reduce the amount of its financial support for special education and related services for children with disabilities below the amount of that support for the preceding fiscal year. In any fiscal year in which a state does not meet this MOE requirement, the Secretary is required to reduce the state's subsequent year grant by the same amount by which the state failed to meet the requirement. The Secretary may grant a waiver for one fiscal year at a time in the case of "exceptional or uncontrollable circumstances" such as a natural disaster or a "precipitous and unforeseen decline in the financial resources of the state." For FY2006, the Secretary used this authority under IDEA Section 612(a)(18)(c) to waive Louisiana's state level MOE requirements. In addition, waivers can be granted if a state can provide "clear and convincing evidence" that FAPE is available for all children with disabilities. If a state does not meet its MOE requirement for any year, including any year for which the state was granted a waiver, the state financial support required in future years is not reduced. That is, the state must provide the amount that would have been required in the absence of failing to meet MOE in the previous year. Both states and LEAs must use IDEA funds to supplement state, local, and other federal funds and not to supplant them. As with the state MOE requirement, the Secretary has authority to grant a waiver of the state-level supplement, not supplant requirement if the state provides "clear and convincing evidence" that all children with disabilities in the state have FAPE available. Under the Perkins accountability system, a state is required to design and implement a program improvement plan if it does not reach certain targets on its core indicators of performance. If the state fails to attain those improvement plan goals, the Secretary may then withhold a portion of the state's Perkins allotment. The Secretary may waive these sanctions due to "exceptional or uncontrollable circumstances, such as a natural disaster." Similarly, at the local level, a state can waive sanctions for local recipients of Perkins funds due to exceptional or uncontrollable circumstances. In addition, the Secretary has some flexibility with respect to the MOE provision in Perkins. The Secretary may waive up to 5% of the MOE requirement for states for one year due to exceptional or uncontrollable circumstances. The level of funding allowed under such a waiver may not be used as a basis for calculating MOE requirements for subsequent years. That is, the state must provide the amount that would have been required in the absence of failing to meet MOE in the previous year. In response to various natural disasters, Congress has enacted legislation to create temporary programs and give the Secretary temporary authority to issue various waivers and flexibilities at the elementary and secondary education levels to meet the needs of students, schools, LEAs, and states. A brief summary of various programs created in response to disasters is included in the Appendix . For example, temporary programs have provided funds to restart school operations, reopen schools, and re-enroll students. They have also made funds available to recruit, retain, and compensate school staff who have committed to work for a certain number of years in areas affected by disasters. Funds have also been provided to replace instructional materials and equipment; support charter school expansion; modernize, renovate, or repair school buildings; and support extended learning time activities. In response to large numbers of students being displaced by a disaster, a temporary program was created to provide funding to assist both public and nonpublic schools in enrolling displaced students. The decision about whether a student would attend a public or nonpublic school was made by the displaced student's parents . Most of these temporary programs were authorized in response to Gulf Coast hurricanes between 2005 and 2010. The authorizations of all of these programs have expired. More recently, Congress passed legislation authorizing temporary education-related programs in response to the 2017 natural disasters, including Hurricanes Harvey, Irma, and Maria, and the California wildfires of December 2017. In the 115 th Congress, the Further Additional Supplemental Appropriations for Disaster Relief Act, 2018 (Division B, Subdivision 1 of the Bipartisan Budget Act of 2018, P.L. 115-123 ) was enacted. As it relates to elementary and secondary education, the act includes FY2018 supplemental appropriations for disaster relief for "covered disasters or emergencies" (i.e., Hurricanes Harvey, Irma, Maria, or California wildfires in 2017 for which a major disaster or emergency has been declared under Sections 401 or 501 of the Robert T. Stafford Disasters Relief and Emergency Assistance Act). Specifically, the supplemental appropriations for elementary and secondary education include the following: $2.5 billion for immediate aid to restart school operations and for temporary emergency impact aid for displaced K-12 students. These programs are identical to disaster relief programs passed in response to the 2005 hurricane season and authorized under P.L. 109-148 . Funds are targeted to schools that have been damaged by a covered disaster or emergency and to states and LEAs that have enrolled students displaced as a result of a covered disaster or emergency. Funds under the temporary emergency impact aid program are distributed to the states and LEAs based on the numbers of displaced students enrolled. Extra funds are provided to schools for displaced students with disabilities and displaced students who are English Learners. Up to $35 million for the Project SERV Program, authorized under Section 4631(b) of the ESEA, for education-related services to help students in affected areas recover from the trauma associated with natural disasters. $25 million for assistance to LEAs serving homeless children and youths displaced by a covered disaster or emergency, consistent with the Education for Homeless Children and Youth program authorized under Section 723 of the McKinney-Vento Homeless Assistance Act. The federal government supports postsecondary education, primarily through programs authorized by the Higher Education Act of 1965, as amended (HEA; P.L. 89-329). The HEA authorizes a broad array of federal student aid programs that assist students and their families with paying for or financing the costs of obtaining a postsecondary education. In FY2016, nearly $136 billion in grant, loan, and work-study aid was made available to 13 million students enrolled in approximately 6,000 institutions of higher education. The HEA also authorizes a series of programs that provide support to IHEs and additional federal student aid. About $948 million was appropriated for these postsecondary programs in FY2016. The Department of Veterans Affairs (VA) administers entitlement programs providing vocational and educational assistance. The veterans educational assistance programs (GI Bills ® ) provide eligible servicemembers and veterans and their dependents with financial assistance while enrolled in approved educational and training programs. The Vocational Rehabilitation and Employment (VR&E) program provides education, job training, and related services to veterans with service-connected disabilities. The VA estimates that it will obligate approximately $15 billion in FY2017 for veterans educational assistance and VR&E. This section provides an overview of the existing statutory and regulatory authorities that have been and may be useful in supporting education-disaster recovery. The first section examines the existing general statutory and regulatory authorities that enable the Secretary of Education and IHEs to waive or modify various HEA requirements. This is followed by the description of an HEA program that authorizes education disaster and emergency relief loans. The next part of this section examines temporary higher education provisions and programs that were enacted by Congress in response to various disasters and administered by ED. Finally, a discussion of existing general statutory and regulatory authorities that reduce the negative financial impact of disasters on GI Bill participants follows. Existing statutory and regulatory provisions grant the Secretary of Education and IHEs a degree of authority and flexibility to respond to a disaster without the need for additional legislation. This section examines waiver authority and other flexibilities available to the Secretary and IHEs under the HEA. Programs authorized under Title IV of the HEA are the primary source of federal student aid to support postsecondary education. The largest Title IV student aid programs are the Pell Grant program (Title IV-A) and the Direct Loan (DL) program (Title IV-D). Existing statutory and regulatory authorities are intended to support Title IV aid recipients and their families who at the time of the disaster were residing in, employed in, or attending an IHE located in an area designated as a federally declared disaster area as defined in the Stafford Act. Flexibility is also available to IHEs, lenders, servicers, and guaranty agencies that are located in these areas. In addition, ED has indicated that it will provide assistance, on a case-by-case basis, in addressing concerns related to specific regulatory requirements. Types of support that may be available to help IHEs in the aftermath of a disaster include the following: IHEs may temporarily close and reopen without automatically losing eligibility to participate in the Title IV student aid programs. On a case-by-case basis, IHEs may be permitted to shorten the length of an academic year without losing eligibility to participate in the Title IV student aid programs. IHEs may be granted flexibility in providing the required data to ED for its Annual Campus Security Report or its Equity in Athletics Disclosure Report by the established deadlines. On a case-by-case basis, IHEs may be provided flexibility in complying with some Title IV institutional financial management requirements, such as cash management. On a case-by-case basis, IHEs may be provided flexibility in meeting the filing deadline for the Fiscal Operations Report and Application to Participate (FISAP) for the campus-based programs. IHEs may be excepted from requirements related to the records retention in instances where records are lost or destroyed and cannot be reconstructed. IHEs may be excepted from requirements for verification of federal student aid (FSA) applicants whose records were lost or destroyed because of a disaster, provided that the IHE has attempted to preserve and reconstruct any applicable records and documents that verification could not be completed due to a disaster. IHEs may be granted a waiver of the requirement to obtain signed documentation from the parents of dependent undergraduate students of the number of family household members and the number of family household members enrolled in postsecondary institutions in instances where neither of the parents can provide signed documentation due to the disaster. IHEs that are unable to meet deadlines for reporting federal student aid disbursement records or student enrollment status must promptly contact and inform their School Participation Team or the National Student Loan Data System Customer Service Center, respectively, about the situation and in certain circumstances may adjust or modify their reporting schedule. Upon request, an IHE may receive an extension of the published deadline for reporting final Federal Pell Grant payments. IHEs may be granted a waiver from having their campus-based programs allocations reduced for the second succeeding year due to the under-utilization of funds in the most recent award year, if the under-utilization is solely due to a disaster. IHEs may be granted a waiver of either or both the Federal Work-Study program (FWS) requirements that IHEs use at least 7% of their FWS allocation to compensate students employed in community service and that they must have at least one tutoring or family literacy project. Types of support that may be available to help Title IV student aid recipients in the aftermath of a disaster include the following: Students may be permitted to continue their program of education at another IHE while receiving Title IV assistance in accordance with agreements between institutions to permit the continuation of study. Any federal or state disaster aid received by a student or the student's family will be excluded from the student's Expected Family Contribution (EFC) and from estimated financial assistance from other sources for purposes of packaging federal student aid. An IHE's financial aid administrator (FAA) may use professional judgment to make adjustments on a case-by-case basis, which must be documented, to the cost of attendance (COA) or to the values of the items used in calculating the EFC to reflect a student's special circumstances in such a way as to make the student eligible for more Title IV assistance. Students may maintain their eligibility to receive Title IV federal student aid, despite not making satisfactory academic progress, if the IHE documents that the failure to maintain satisfactory academic progress was due to a disaster. Students may be granted a leave of absence during a clock hour or nonterm program, and the requirement that a leave of absence must be requested in writing may be waived. The requirement that a student must return a Title IV grant overpayment if the student withdraws from the IHE because of a disaster may be waived under specified conditions. Students may continue to receive FWS payments, up to the length of the award period, during periods that they are unable to fulfill their FWS employment obligations as a result of a disaster. Borrowers of Direct Loan program loans, Federal Family Education Loan (FFEL) program loans, and Perkins Loans who were in an "in-school" status on the date their attendance was interrupted due to a disaster may remain in that status through the end of the enrollment period in which the disaster occurred. Borrowers of DL program loans, FFEL program loans, and Perkins Loans who are in repayment status at the time a disaster occurs and who are unable to make loan payments due to the disaster may be granted forbearance. Collection activities on defaulted DL program loans, FFEL program loans, and Perkins Loans may be suspended for three months for borrowers who have been affected by a disaster. Borrowers of defaulted DL program loans, FFEL program loans, and Perkins Loans who have been affected by a disaster and who are attempting to rehabilitate their loans, consolidate them out of default, or re-establish eligibility for Title IV federal student aid and who fail to make one or more payments while affected by the disaster shall not be considered to have missed any of the required consecutive monthly payments. In addition to the above-listed waiver authority and regulatory flexibility for Title IV student aid programs, additional authority is provided through the Higher Education Relief Opportunities for Students Act (HEROES Act). The HEROES Act can only be implemented, however, in connection with a war or other military action or a national emergency declared by the President of the United States. The HEROES Act provides the Secretary with authority to waive or modify statutory and regulatory requirements that apply to the HEA Title IV student aid programs in an effort to help affected individuals. There are three categories of affected individuals: 1. Individuals who are serving on active duty or performing qualifying National Guard duty during a war or other military operation or national emergency; 2. Individuals who reside or are employed in an area that is declared a disaster area by any federal, state, or local official in connection with a national emergency; and 3. Individuals who suffered direct economic hardship as a direct result of a war or other military operation or national emergency. Examples of support that may be available under the HEROES Act to IHEs in the aftermath of a war or other military action or national emergency declared by the President of the United States include the following: With respect to all categories of affected individuals (and their spouses and dependent children, if applicable), IHEs are excepted from the requirement that financial aid administrators' (FAAs') exercise of professional judgment to make adjustments to the cost of attendance (COA) or to the values of items used in calculating their expected family contribution (EFC) be done on a case-by-case basis. With respect to all affected individuals, IHEs are excepted from the requirements to notify affected individuals of a Title IV grant overpayment and the actions that must be taken to resolve the overpayment, to refer a grant overpayment to the Department of Education (ED) under certain conditions, and to deny eligibility for federal student aid to students who do not take action to resolve an overpayment. With respect to all affected individuals, IHEs may accept alternative documentation to verify the income and taxes paid by those who are FSA applicants and who are granted an income tax return filing extension by the Internal Revenue Service (IRS). With respect to students who withdraw because they are affected individuals in either the 1 st or 2 nd categories, IHEs that have attempted to contact an affected student (or the parent of the student) regarding the payment of any Title IV credit balance within 14 days of the Title IV credit balance occurring, are considered to have met the 14-day requirement that applies to the payment of Title IV credit balances. With respect to the 1 st and 2 nd categories of affected individuals, IHEs may disburse Title IV funds to a bank account designated to a student or a parent; use Title IV funds to pay charges other than tuition and fees and, as applicable, room and board; or hold Title IV funds on behalf of students on the basis of oral consent, as opposed to with written consent, which would otherwise be required. With respect to the 1 st and 2 nd categories of affected individuals, IHEs are excluded from the requirement to attempt to collect or recover amounts owed from defaulted Perkins Loans for the period during which the borrower is an affected individual, and during a three-month transition period that follows. (Similar exclusions are granted to guaranty agencies with respect to amounts owed on defaulted FFEL program loans, and the Secretary will act similarly with respect to loans held by ED.) Examples of support that may be available under the HEROES Act to Title IV aid recipients who are unable to meet the specified Title IV statutory or regulatory requirements because of their status as affected individuals include the following: Typically, a student's expected family contribution (EFC) is based on financial information from the second preceding tax year. With respect to all affected individuals, an IHE's FAA may exercise professional judgment to consider more recent measures of income. Specifically, the FAA may base an affected individual's EFC on adjusted gross income plus untaxed income and benefits received in the first calendar year of the award year or based on another annual income that more accurately reflects a family's current financial circumstances. As with all cases of professional judgment, the FAA must document the reasons and supporting facts for any adjustment. With respect to all affected individuals, the requirement that any unearned grant funds must be returned or repaid may be waived. With respect to the 1 st and 2 nd categories of affected individuals, students who are eligible for a post-withdrawal loan disbursement must be provided at least 45 days, rather than 14 days, to respond and accept the disbursement. With respect to the 1 st and 2 nd categories of affected individuals, the requirement that a leave of absence must be requested in writing may be waived for students who must interrupt their enrollment. With respect to students who withdraw because they are affected individuals in either the 1 st or 2 nd categories, if an IHE has attempted to contact a student regarding the option to have any Title IV credit balance used to reduce the student's Title IV loan debt, the student must be provided up to 45 days to respond to the institution's request. Students who are in the 1 st or 2 nd categories of affected individuals must be permitted 60 days, rather than 14 days, to request the cancellation of all or a portion of a loan or TEACH Grant. Students who are in the 1 st or 2 nd categories of affected individuals may continue to receive Title IV funds despite not making satisfactory progress in coursework. For borrowers of DL program loans, FFEL program loans, and Perkins Loans who are in the 1 st or 2 nd categories of affected individuals, the initial grace period excludes any period, not to exceed three years, during which a borrower is an affected individual. Borrowers of DL program loans, FFEL program loans, and Perkins Loans who were in an "in-school" status but who left school because they became a 1 st or 2 nd category affected individual may retain their in-school status for up to three years. During this period, the Secretary will pay any interest that accrues on a Subsidized Stafford Loan. Borrowers of DL program loans, FFEL program loans, and Perkins Loans who were in an "in-school" deferment or a graduate fellowship deferment but who left school because they became a 1 st or 2 nd category affected individual may retain their deferment for a period of up to three years during which they are affected individuals. During this period, the Secretary is to pay any interest that accrues on a Subsidized Stafford Loan. For borrowers of Perkins Loans who are in the 1 st or 2 nd categories of affected individuals, any forbearance granted on the basis of the borrower's status as an affected student is excluded from the usual three-year limit on forbearance. Also, for these categories of affected individuals, borrowers of Perkins Loans may be granted forbearance based on an oral request and without written documentation for a one-year period and an additional three-month transition period. For borrowers of FFEL program loans who are in the 1 st or 2 nd categories of affected individuals, borrowers may be granted forbearance based on an oral request and without written documentation for a one-year period and an additional three-month transition period. For borrowers of FFEL program loans, DL program loans, and Perkins Loans that may qualify for cancellation on the basis of continuous or uninterrupted qualifying service, such service will not be considered interrupted by any period during which the borrower is an affected individual in the 1 st or 2 nd categories or during a three-month transition period. With respect to the 1 st and 2 nd categories of affected individuals, for borrowers of defaulted FFEL or DL program loans seeking to rehabilitate their loans by making 9 on-time payments in 10 consecutive months and borrowers of defaulted Perkins Loans seeking to rehabilitate their loans by making 9 consecutive on-time payments, any payments missed during the period when the borrowers are affected individuals or during the three-month transition period that follows shall not be considered an interruption of the series of payments required for loan rehabilitation. With respect to the 1 st and 2 nd categories of affected individuals, for borrowers of defaulted FFEL program loans, DL program loans, or Perkins Loans seeking to reestablish eligibility for Title IV federal student aid by making six consecutive on-time payments, any payments missed during the period when the borrowers are affected individuals or during the three–month transition period that follows shall not be considered an interruption of the series of payments required for purposes of reestablishing Title IV eligibility. With respect to the 1 st and 2 nd categories of affected individuals, for borrowers of defaulted FFEL or DL program loans seeking to consolidate loans out of default, any payments missed during the period when the borrowers are affected individuals or during the three–month transition period that follows shall not be considered an interruption of the series of payments required for purposes of reestablishing Title IV aid eligibility. With respect to the 1 st and 2 nd categories of affected individuals, for borrowers who are repaying their FFEL or DL program loans according to the Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), Pay As You Earn (PAYE) or Revised Pay As You Earn (REPAYE) plan and who because of their status as affected individuals are unable to provide information normally required annually to document their income and family size may maintain their current payment amount for a period of up to three years, including a three-month transition period immediately following. This flexibility is made in lieu of having their payment amount adjusted to be based on a standard 10-year repayment plan or an alternative repayment plan, as applicable. With respect to students who are dependents of affected individuals in the 1 st category, the requirement to submit a statement signed by a parent verifying the number of family members in the household and the number enrolled in postsecondary institutions is waived if no responsible parent is available to provide a signature. With respect to students who are dependents of affected individuals in the 1 st category, the requirement for at least one parental signature on the Free Application for Federal Student Aid (FAFSA), the Student Aid Report (SAR), and the Institutional Student Information Record (ISIR) is waived if no responsible parent is available to provide a signature. A student's FAA or high school counselor may sign on behalf of the parent, so long as the applicant provides adequate documentation regarding the parent's inability to provide a signature due to his or her status as an affected individual. The College Access Challenge Grant Program (CACG; HEA Title VII, Part E) fostered partnerships between federal, state, and local governments and philanthropic organizations through matching formula grants that were intended to increase the number of low-income students who are prepared to enter and succeed in postsecondary education. To maintain eligibility for the CACG, a state was required to meet maintenance of effort requirements. According to the MOE requirements, a state was required to annually provide for public IHEs in the state, at least the average amount provided for noncapital and nondirect research and development expenses or costs in the five preceding academic years and for private IHEs in the state, at least the average amount provided for postsecondary student financial aid to such IHEs in the five preceding academic years. The Secretary was authorized to waive the MOE requirements for a state in the event of "exceptional or uncontrollable circumstances, such as a natural disaster or a precipitous and unforeseen decline in the financial resources of a state or state educational agency." The authority to award new CACGs expired at the end of FY2014. Title III, Parts A, B, and F and Title V, Part A of the HEA authorize several programs that provide institutional aid to IHEs that serve a high proportion of low-income students and that have low educational and general expenditures per students in comparison to similar institutions. Recipients of awards from the programs, except the Native American-Serving Nontribal Institutions programs, may use a portion of their awards to establish or increase an endowment fund. In addition, Title III, Part C of the HEA authorizes the Endowment Challenge Grants program, which allows recipients to use their awards to establish or increase an endowment fund. While the endowment fund corpus for each of the programs must be maintained for 20 years, 50% of the accumulated endowment fund income may be used for eligible institutional costs. As a consequence of a financial emergency, a life-threatening situation occasioned by a natural disaster or arson, or unusual occurrence or exigent circumstance, the Secretary may permit an IHE to spend more than 50% of the endowment fund income. Section 824 of the HEA authorizes the Secretary of Education, in consultation with the Secretary of Homeland Security, to establish an Education Disaster and Emergency Relief Loan Program for IHEs impacted by a major disaster or emergency declared by the President. Funds may be used for construction, replacement, renovation, and operations costs resulting from the disaster or emergency. The program has never been funded. In response to several natural disasters over the years, previous Congresses enacted numerous temporary programs and provisions (e.g., waiver authorities for specific programs) to support education. A brief summary of the various programs and provisions created in response to previous disasters (e.g., Hurricanes Katrina and Rita) is included in the Appendix . For example, additional funds were appropriated to IHEs to support recovery efforts and to provide grants to students. In addition, Congress authorized the Secretary to modify or waive certain program requirements to ensure that IHEs affected by a natural disaster did not lose grant funding as a result of the disaster, and the Secretary was given special authority to ensure historically black colleges and universities were able to gain access to capital financing to support their recovery. Much of the additional funding was provided up through FY2010 and many of the temporary provisions (expired by FY2014). Most recently, legislation was enacted that authorizes temporary education-related supplemental funds and flexibilities in response to several 2017 natural disasters, including Hurricanes Harvey, Irma, and Maria and the 2017 California wildfires. In the 115 th Congress, in response to multiple 2017 natural disasters, the Hurricanes Harvey, Irma, and Maria Education Relief Act of 2017 was enacted. As it relates to postsecondary education, the act makes several modifications to the Federal Work Study (FWS) and Federal Supplemental Educational and Opportunity Grant (FSEOG) programs: With respect to funds made available for award years 2016-2017 and 2017-2018, the act requires the Secretary to waive nonfederal share requirements of FWS and FSEOG programs for IHEs located in affected areas and authorizes the Secretary to waive such requirements for IHEs not located in an affected area that have enrolled or accepted for enrollment any affected students, after considering such IHE's student population and existing resources. The act requires the Secretary to reallocate unexpended federal FWS or FSEOG funds that were returned to the Secretary by an IHE for award year 2016-2017 to eligible IHEs (with priority given to IHEs located in affected areas) and to waive the FWS and FSEOG allocation reduction for award year 2018-2019 for eligible IHEs. The act authorizes the Secretary to waive or modify any other statutory or regulatory provision relating to the reallocation of excess FWS or FSEOG funds to ensure that assistance is received by eligible IHEs. The act makes available for obligation by the Secretary until September 20, 3018, FWS and FSEOG funds for which the period of availability otherwise expired on September 30, 2017. The act authorizes the Secretary to recall any FWS or FSEOG funds allocated to an IHE in award year 2016-2017 that are not returned to ED as excess allocations but that otherwise would have lapsed on September 30, 2017, and to reallocate those funds to eligible IHEs. All of these provisions expire on September 30, 2018. Also in the 115 th Congress, in response to Hurricanes Harvey, Irma, and Maria and wildfire incidents in California in 2017, the Further Additional Supplemental Appropriations for Disaster Relief Act, 2018 (Division B, Subdivision 1 of the Bipartisan Budget Act of 2018, P.L. 115-123 ) was enacted. As it relates to postsecondary education, the act includes FY2018 supplemental appropriations for disaster relief for "covered disasters or emergencies" (i.e., Hurricanes Harvey, Irma, Maria, or wildfires in 2017 for which a major disaster or emergency has been declared under section 401 or 501 of the Robert T. Stafford Disasters Relief and Emergency Assistance Act). Specifically, the supplemental appropriations for postsecondary education include the following: $100 million for the FSEOG program, the FWS program, and the Fund for the Improvement of Postsecondary Education. Funds shall be for IHEs located in areas affected by a covered disaster or emergency and students enrolled in such institutions. Matching requirements under FSEOG and FWS are waived for IHEs receiving such funds. Funds may be used for a variety of expenses including student financial assistance, staff salaries, student supplies and equipment, or any other purpose authorized under the HEA. Up to $75 million for IHEs to help defray the unexpected expenses associated with enrolling students displaced from IHEs at which operations have been disrupted by a covered disaster or emergency. In addition, the act authorizes several flexibilities in the administration of several HEA programs, including the following: Authorization for the Secretary to waive, modify, or provide extensions for any statutory or regulatory provisions applicable to the HEA Title IV programs or student eligibility or institutional eligibility provisions in the HEA for affected individuals, students, and IHEs in covered disaster or emergency areas, if the Secretary deems such waiver, modification, or extension necessary in connection with a covered disaster or emergency. Authorization for the Secretary to modify required and allowable uses of funds under the various minority-serving grant programs authorized under HEA Title III, Parts A and B, and under the TRIO and GEAR-UP programs. Authorization for the Secretary to forgive any outstanding balance owed to ED under the HBCU Hurricane Supplemental Loan program established under P.L. 109-234 and in response to the 2005 hurricane season. In general, the GI Bills and the Vocational Rehabilitation and Employment program provide individuals with a certain entitlement to educational benefits. For example, under the Post-9/11 GI Bill, individuals are entitled to 36 months of benefits. Statutory provisions allow the VA to continue paying benefits during interval periods when a school is temporarily closed due to an emergency situation, as long as the aggregate periods do not exceed four weeks during a 12-month period. In the event of mitigating circumstances (circumstances beyond the individual's control that prevent continuous pursuit of a program of education), the VA may pay benefits to an individual for a course from which the individual withdraws. Under normal circumstances, interval payments and payments for withdrawn courses reduce an individual's entitlement. However, the individual's entitlement will not be reduced if an individual requests interruption of benefits for any break when a school was closed during a certified period of enrollment and payments were continued due to an emergency situation. The Survivors' and Dependents' Educational Assistance Program (DEA; Title 38 U.S.C., Chapter 35) pays educational benefits to children after they achieve a high school diploma or its equivalent, or after they reach 18 years of age, but before they reach 26 years of age. In certain situations, such as an enrollment suspension due to conditions determined by the VA to have been beyond the individual's control, benefits may be extended beyond an eligible person's 26 th birthday, but generally not past the 31 st birthday. The Department of Education administers various other programs related to education that are not necessarily classified as serving elementary and secondary education or postsecondary education purposes. Two such programs are state grants authorized under the Adult Education and Family Literacy Act (AEFLA), which support education for adults at the secondary level and below, as well as English language training; and Vocational Rehabilitation State Grants authorized under the Rehabilitation Act of 1973, which support the provision of vocational rehabilitation (VR) services to individuals with disabilities. This section provides an overview of the authorized statutory and regulatory authorities that may be useful in supporting education-disaster recovery within these programs. Generally, current law permits disaster-affected grantees under these programs to receive a waiver for each program's maintenance of effort requirements and certain timely reporting requirements but does not permit waivers for required state matching funds. The Adult Education and Family Literacy Act (AEFLA) provides grants to states to support education for out-of-school adults at the secondary level and below, as well as English language training. AEFLA requires states to match a portion of the federal grant and has a maintenance of effort requirement (MOE) that reduces a state's federal grant if the state reduces its nonfederal support. Statute authorizes the Secretary to waive the MOE requirement if "a waiver would be equitable due to exceptional or uncontrollable circumstances, such as a natural disaster or an unforeseen and precipitous decline in the financial resources." Statute specifies that if the Secretary grants a waiver for a given fiscal year, the level of required effort of meet the MOE requirement shall not be reduced in subsequent years because of the waiver. AEFLA does not grant ED the authority to waive states' nonfederal match. In addition, AEFLA state grantees are required to submit annual performance reports as a condition of receiving funding. AEFLA performance reports are included with reports for other federally supported workforce grant programs. Regulations specify that a state will not be subject to financial sanctions if the state fails to submit a complete and timely report due to exceptional circumstances outside the state's control, including a disaster. Under the authorization of the Rehabilitation Act of 1973, as amended (the Rehabilitation Act), ED provides grants to state agencies to provide vocational rehabilitation (VR) services to individuals with disabilities. States may use grant funds to assess clients and help eligible clients develop and carry out an individualized plan for employment. The Rehabilitation Act requires states to match a portion of the federal grant and has a MOE requirement that reduces a state's federal grant if the state reduces its nonfederal contribution. Statute authorizes the Secretary to waive the MOE requirement if a waiver "is necessary to permit the State to respond to exceptional or uncontrollable circumstance, such as a major natural disaster or serious economic downtown." The Rehabilitation Act does not grant ED the authority to waive states' nonfederal match. In addition, VR state grantees are required to submit annual performance reports as a condition of receiving funding. VR performance reports are included with reports for other federally supported workforce grant programs. Regulations specify that a state will not be subject to financial sanctions if the state fails to submit a complete and timely report due to exceptional circumstances outside the state's control, including a disaster. Between 2005 and 2010, Congress appropriated nearly $2 billion for ED to provide support to local educational agencies (LEAs), schools, and institutions of higher education (IHEs) that were affected by Hurricanes Katrina, Rita, or Gustav and other natural disasters. Funding provided for elementary and secondary education and for higher education is discussed below. Table A-1 details how much of this funding was allocated specifically to Alabama, Florida, Louisiana, Mississippi, Texas, and all other states combined, by program. In addition, temporary provisions and flexibilities provided for elementary and secondary education, higher education, and the Vocational Rehabilitation State Grant program are described below. Elementary and Secondary Education Following the Gulf Coast hurricanes, funding to support elementary and secondary schools affected by Hurricane Katrina or Hurricane Rita was provided through three public laws: P.L. 109-148 ($1.4 billion), P.L. 109-234 ($235 million), and P.L. 110-28 ($30 million). P.L. 109-148 created two new programs: (1) Immediate Aid to Restart School Operations ($750 million) and (2) Temporary Emergency Impact Aid for Displaced Students ($645 million), specifically designed to address needs resulting from the hurricanes and to provide support to LEAs through an existing federal education program administered by ED. It also added $5 million to the McKinney-Vento Homeless Assistance Act to serve homeless children and youth who had been displaced by the Gulf Coast hurricanes.P.L. 109-234 provided additional funding of $235 million for the Temporary Emergency Impact Aid for Displaced Students enacted under P.L. 109-148 . P.L. 110-28 appropriated $30 million for elementary and secondary schools affected by the hurricanes through the Hurricane Educator Assistance program to assist in recruiting, retaining, and compensating staff in those schools. Congress then appropriated an additional $15 million through P.L. 110-329 to provide support to LEAs whose enrollment of homeless students increased as a result of hurricanes, floods, or other natural disaster during 2008. Most recently, Congress appropriated $12 million through P.L. 111-117 for the Gulf Coast Recovery Initiative to improve education in areas affected by Hurricanes Katrina, Rita, or Gustav. A brief description of each of these programs and the amount of funding each received is presented below. Table A-1 details the funding amounts various states received under each of the programs. Immediate Aid to Restart School Operations The Immediate Aid to Restart School Operations provided support for LEAs and nonpublic schools in Louisiana, Mississippi, Alabama, and Texas to restart school operations, reopen schools, and re-enroll students. P.L. 109-148 provided $750 million for this program. This program is no longer authorized. Temporary Emergency Impact Aid for Displaced Students The Temporary Emergency Impact Aid for Displaced Students program provided federal funding to assist schools in enrolling students who had been displaced by the Gulf Coast hurricanes. Funds were made available to LEAs and schools based on the number of displaced students that enrolled, irrespective of whether the school in which parents chose to enroll their child was a public or nonpublic school. P.L. 109-148 appropriated $645 million for this program. Subsequently, P.L. 109-234 appropriated an additional $235 million for this program, bringing the total program appropriation to $880 million. Portions of the funds appropriated were provided to 49 states and the District of Columbia based on the number of displaced students each enrolled. Louisiana, Texas, and Mississippi received the largest proportion of funds. This program is no longer authorized. McKinney-Vento Homeless Assistance Act The McKinney-Vento Homeless Assistance Act ( P.L. 100-77 ; 42 U.S.C. 11433 et seq.) provides funding to states to ensure that homeless children and youth are provided equal access to a free, appropriate public education in the same manner as provided other children and youth through the Education for Homeless Children and Youths program. P.L. 109-148 appropriated $5 million for this program for LEAs serving homeless children and youth who had been displaced by Hurricanes Katrina or Rita. Eight states received funding under this program, with the largest grants provided to Texas and Louisiana. While the McKinney-Vento Homeless Assistance Act continues to provide funding related to the education of homeless students, the provisions enacted specifically in response to the Gulf Coast hurricanes are no longer authorized. Hurricane Educator Assistance Program The Hurricane Educator Assistance Program made federal funding available to Louisiana, Mississippi, and Alabama to use for recruiting, retaining, and compensating school staff who committed to work for at least three years in public elementary and secondary schools affected by Hurricanes Katrina or Rita. States were required to apply to receive funds, and the funds were allocated based on the number of public elementary and secondary schools that were closed for 19 days or more from August 29, 2005, through December 31, 2005. P.L. 110-28 provided $30 million for these purposes. Funds were provided to Louisiana and Mississippi only. This program is no longer authorized. Homeless Education Disaster Assistance P.L. 110-329 provided $15 million to LEAs whose enrollment of homeless students increased as a result of hurricanes, floods, or other natural disasters that occurred during 2008 and for which the President declared a major disaster under Title IV of the Stafford Act. ED was required to distribute the funds through the McKinney-Vento Homeless Assistance Act based on demonstrated need. These funds provided assistance to LEAs in Gulf Coast states affected by Hurricanes Gustav and Ike, as well as LEAs affected by natural disasters in other parts of the nation, such as flooding in the Midwest. Of the $15 million provided, $13.5 million was provided to Florida, Louisiana, and Texas. This program is no longer authorized. Gulf Coast Recovery Initiative P.L. 111-117 provided $12 million for competitive awards to LEAs located in counties in Louisiana, Mississippi, and Texas that were designated by FEMA as counties eligible for individual assistance as a result of damage caused by Hurricanes Katrina, Rita, or Gustav. The funds had to be used to improve education in areas affected by these hurricanes and had to be used for activities such as replacing instructional materials and equipment; paying teacher incentives; modernizing, renovating, or repairing school buildings; supporting charter school expansion; and supporting extended learning time activities. The majority of the funds were provided to LEAs in Louisiana. This program is no longer authorized. Temporary Flexibilities under the ESEA P.L. 109-148 provided the Secretary with the authority to grant LEAs certain temporary flexibilities and waivers from fiscal requirements under the ESEA. These included the temporary authority to waive or modify any requirements related to maintenance of effort (MOE) ; the use of federal funds to supplement, not supplant, nonfederal funds; and any nonfederal share or capital contribution required to match federal funds provided under programs administered by the Secretary. The waivers could be provided at the Secretary's discretion to ease the fiscal burdens of entities in an affected state in which a major disaster has been declared in accordance with Section 401 of the Stafford Act. It is important to note that the waivers of MOE did not reduce the level of effort required for the subsequent year. It should also be noted that this additional authority to waive fiscal accountability requirements did not permit the Secretary to waive or modify any provision under IDEA. In response to multiple disasters, Congress has required the Secretary to hold affected LEAs harmless at 100% of their prior-year grant amount under Title I-A of the ESEA. It appears that these provisions may have been enacted as a means of preventing affected LEAs from experiencing a decrease in funding due to the displacement of students. Temporary Flexibilities under the IDEA P.L. 109-148 also provided the Secretary with the temporary authority to extend certain administrative deadlines under the IDEA, such as the deadline for submission of an annual report on the progress of the state and of children with disabilities in the state for the 2005-2006 academic year. In addition, the Secretary was authorized to extend the deadline for the initial evaluation of children to determine their eligibility for services under IDEA. In providing the Secretary with the authority to extend these deadlines, Congress also included statutory language that clarified that this new authority should not be interpreted as granting the Secretary waiver authority over key IDEA provisions, such as the right to a free appropriate public education or procedural safeguards granted under the act. Higher Education Appropriations to support IHEs following the Gulf Coast hurricanes of 2005 (i.e., Hurricanes Katrina and Rita) were provided in 2005 through P.L. 109-148 ($200 million), in 2006 through P.L. 109-234 ($50 million), and in 2007 through P.L. 110-28 ($30 million). P.L. 110-329 subsequently provided another $15 million for IHEs in areas affected by hurricanes, floods, or other natural disasters in 2008. Table A-1 details the amount of funding allocated to states under these provisions. Hurricane Education Recovery Of the $200 million provided under P.L. 109-148 for higher education, $95 million was specifically appropriated for the Louisiana Board of Regents, and $95 million was specifically appropriated for the Mississippi Institute of Higher Learning for hurricane recovery. Subsequently, P.L. 109-234 and P.L. 110-28 provided additional funds for hurricane recovery under the Fund for the Improvement of Postsecondary Education (FIPSE), authorized by Title VII of the Higher Education Act (HEA), to assist IHEs adversely affected by the 2005 Gulf Coast hurricanes. Under both laws, funds were provided to help defray the expenses incurred by IHEs that were forced to close, relocate, or reduce their activities due to hurricane damage. Under P.L. 110-28 , IHEs also were permitted to use funds to make grants to students enrolled at such institutions on or after July 1, 2006. A total of $80 million was provided for IHEs affected by Hurricane Katrina or Rita under FIPSE for hurricane recovery. The majority of funds appropriated for hurricane education recovery were provided to Mississippi and Louisiana. These activities are no longer authorized. Funds to Assist IHEs Enrolling Displaced Students Under P.L. 109-148 , $10 million was appropriated to assist IHEs with unanticipated costs associated with the enrollment of students displaced as a result of Hurricane Katrina or Rita. Overall, 99 IHEs in 24 states and the District of Columbia received funds related to the enrollment of displaced higher education students. Louisiana and Texas received the largest state grants. This program is no longer authorized. Higher Education Disaster Relief P.L. 110-329 provided an additional $15 million for IHEs that were located in an area affected by hurricanes, floods, and other natural disasters that occurred during 2008 and for which the President declared a major disaster under Title IV of the Stafford Act. Funds provided through the Higher Education Disaster Relief program could be used to defray the expenses incurred by IHEs in affected areas that were forced to close or relocate or whose operations were adversely affected by the natural disaster and to provide grants to students who attended such IHEs for academic years beginning on or after July 1, 2008. The majority of these funds were provided to Louisiana and Texas for hurricane-related education disaster assistance. This program is no longer authorized. Modified Uses of Funds under Various Grant Programs Under P.L. 109-148 , upon request by an affected institution or other grantee located in an area affected by a 2005 Gulf hurricane disaster (i.e., Hurricane Katrina or Rita), the Secretary was given the authority to modify the required and allowable uses of funds under the TRIO programs (HEA Title IV, Part A, Subpart 2, Chapter 1), Gaining Early Awareness and Readiness for Undergraduate Programs (GEAR UP; HEA Title IV, Part A, Subpart 2, Chapter 2), programs authorized under Strengthening Institutions (HEA Title III, Part A) or Strengthening Historically Black Colleges and Universities (HEA Title III, Part B), and any other competitive grant program. The Secretary was not authorized to permit any new construction, renovation, or improvement of classrooms, libraries, laboratories, or other instructional facilities that was not previously authorized under the institution's grant award under part A or B of Title III. Modified Requirements under the Title III-A and Title III-B Programs Congress authorized the Secretary to waive certain requirements under the Title III, Part A and Title III, Part B programs related to institutional eligibility, data submissions, and funding allocations. The waivers were intended to ensure that IHEs affected by either Hurricane Katrina or Rita did not lose funding as a result of the disasters. The waivers were required for FY2009-FY2011 and permitted for FY2012 and FY2013. Modification of Teacher Quality Enhancement Grants for States and Partnerships At the request of the grantee, the Secretary may modify the requirements for Teacher Quality Enhancement Grants for States and Partnerships authorized under HEA Title II, Part A. Modifications could be made to aid states and LEAs in recruiting and retaining highly qualified teachers in an LEA in an area affected by a Hurricane Katrina or Rita, and to aid IHEs, located in such an area, in recruiting and retaining faculty needed to prepare teachers and provide professional development. Additional Capital Financing for Historically Black Colleges and Universities Congress helped historically Black colleges and universities (HBCUs) affected by the Gulf Coast hurricanes gain access to low-cost capital financing to assist their recovery efforts through the Historically Black College and University (HBCU) Capital Financing program (Title III-D of the HEA). P.L. 109-234 authorized the Secretary to waive or modify statutory or regulatory provisions to ensure that the calculation of financing for an HBCU reflected changes in the financial condition of the institution as a result of the 2005 Gulf Coast hurricanes and to ensure that those affected institutions that were not receiving assistance under the program before the Gulf hurricane disasters were eligible to apply. The law also relaxed several program financing requirements. The Secretary's authority to waive or modify statutory or regulatory requirements of this program is no longer authorized. In 2018, the Further Additional Supplemental Appropriations for Disaster Relief Act, 2018 (Division B, Subdivision 1 of the Bipartisan Budget Act of 2018, P.L. 115-123 ) authorized the Secretary to forgive any outstanding loan balance owed to ED by institutions that secured funding under this program in the wake of the Gulf Cost Hurricanes. Waiver of Vocational Rehabilitation State Grant Matches The Assistance to Individuals with Disabilities Affected by Hurricane Katrina or Rita Act of 2005 ( P.L. 109-82 ) provided the Secretary with the authority to waive the nonfederal match requirements for disaster-affected states. The law also gave disaster-affected states preference in claiming VR State Grant funds that were made available for reallocation if a state did not meet its full nonfederal match. The law defined an affected state as "a state that contains an area, or that received a significant number of individuals who resided in an area, in which the President has declared that a major disaster exists."
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The 21st century has seen the operation of elementary, secondary, and postsecondary educational institutions and the education of the students they enroll disrupted by natural disasters, such as hurricanes and floods, and by national emergencies, such as the terrorist attacks of September 11, 2001. This report is intended to inform Congress of existing statutory and regulatory provisions that may aid in responding to future disasters and national emergencies that may affect the provision of or access to education and highlight the actions of previous Congresses to provide additional recovery assistance. This report reflects the most recently available guidance, as of the date of publication, related to education-related disaster response and flexibilities. It will be updated should new or additional statutes be enacted or guidance be issued. The majority of federal aid for disaster management is made available from the Federal Emergency Management Agency (FEMA) under the authority of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act; P.L. 93-288). Under the Stafford Act, public school districts, charter schools, private nonprofit educational institutions, public institutions of higher education (IHEs), and federally recognized Indian tribal governments are eligible to receive assistance for activities such as debris removal, infrastructure and equipment repair and replacement, hazard mitigation, and temporary facilities. In addition to the assistance available through the Stafford Act, assistance is available through numerous provisions in education laws. At the elementary and secondary level, there are several existing provisions that may be helpful in providing assistance in response to a disaster. The Elementary and Secondary Education Act (ESEA) grants the Secretary of Education (the Secretary) authority to issue waivers of any statutory or regulatory requirement of the ESEA for a state educational agency (SEA), local educational agency (LEA), Indian tribe, or school that receives funds under an ESEA program and requests a waiver. In response to past disasters, waivers have been granted to address funding flexibility issues and accountability requirements. The Individuals with Disabilities Education Act (IDEA) grants the Secretary authority to waive state maintenance of effort (MOE) requirements and requirements to supplement, not supplant, federal funds under certain circumstances. The Carl D. Perkins Career and Technical Education Act grants the Secretary authority to waive certain accountability metrics and provides some flexibility with regard to MOE requirements. The Secretary is not, however, able to waive all statutory and regulatory requirements with respect to the acts. Under the ESEA, for example, the Secretary may not waive civil rights requirements or prohibitions against the use of funds for religious worship or instruction. Under IDEA, for example, the Secretary may not grant waivers from the right to a free appropriate public education. At the postsecondary level, various provisions exist to ensure continuity of operations and continuity of federal funding following a disaster. Under the Higher Education Act (HEA), the Secretary of Education has authority to waive several of the requirements for aid recipients, IHEs, and financial institutions when a disaster has been declared. In particular, waivers have been provided from various requirements related to the disbursement, repayment, and administration of federal student aid. Under Title 38 of the U.S. Code, the Department of Veterans Affairs (VA) may extend payment of veterans educational assistance benefits to cover periods when enrollment is interrupted. In addition, various provisions exist to provide flexibilities in other Department of Education-administered programs. The Adult Education and Family Literacy Act (AEFLA) and accompanying regulations grant the Secretary the authority to waive state MOE and reporting requirements for AEFLA state grants due to uncontrollable circumstances such as natural disasters. The Rehabilitation Act of 1973, as amended, and accompanying regulations grant the Secretary the authority to waive state MOE and reporting requirements for state vocational rehabilitation grants due to uncontrollable circumstances, such as natural disasters. In response to the multiple hurricanes and tropical storms in 2017, Congress enacted the Hurricanes Harvey, Irma, and Maria Education Relief Act of 2017, P.L. 115-64, which amended the ESEA to make private schools eligible for funds under the Project School Emergency Response to Violence Program, which provides funds to help schools recover from violent or traumatic events in which the learning environment has been disrupted. The act also provided short-term authority for the Secretary to waive or modify statutory or regulatory requirements to ensure funds were targeted to affected populations and institutions at the elementary, secondary, and postsecondary levels. On February 9, 2018, the Further Additional Supplemental Appropriations for Disaster Relief Act, 2018 (Division B, Subdivision 1 of the Bipartisan Budget Act of 2018, P.L. 115-123) was enacted. It includes FY2018 supplemental appropriations for disaster relief for, among other things, education-related programs and activities for "covered disasters or emergencies," which include the aforementioned hurricanes and tropical storms and also the California wildfires of 2017.
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Recent high-profile military-related cases involving sexual assaults by U.S. servicemembers have resulted in increased public and congressional interest in military discipline and the military justice system. Questions have been raised regarding how allegations of sexual assault are addressed by the chain of command, the authority and process to convene a court-martial, and the ability of the convening authority to provide clemency to a servicemember convicted of an offense. Additionally, some military-related cases, including those of Major Nidal Hasan, the alleged shooter at Fort Hood, and Private first class Bradley Manning, the alleged source of leaked classified material through the organization WikiLeaks, have raised questions regarding the mental capacity of the accused and how the military justice system addresses this concern. The U.S. Constitution imposes on the government a system of restraints to provide that no unfair law is enforced and that no law is enforced unfairly. What is fundamentally fair in a given situation depends in part on the objectives of a given system of law weighed alongside the possible infringement of individual liberties that the system might impose. In the criminal law system, some basic objectives are to discover the truth, punish the guilty proportionately with their crimes, acquit the innocent without unnecessary delay or expense, and prevent and deter further crime, thereby providing for the public order. Military justice shares these objectives in part, but also serves to enhance discipline throughout the Armed Forces, serving the overall objective of providing an effective national defense. The Fifth Amendment to the Constitution provides that "no person shall be ... deprived of life, liberty, or property, without due process of law." Due process includes the opportunity to be heard whenever the government places any of these fundamental liberties at stake. The Constitution contains other explicit rights applicable to various stages of a criminal prosecution. Criminal proceedings provide both the opportunity to contest guilt and to challenge the government's conduct that may have violated the rights of the accused. The system of procedural rules used to conduct a criminal hearing, therefore, serves as a safeguard against violations of constitutional rights that take place outside the courtroom. The Constitution, in order to provide for the common defense, gives Congress the power to raise, support, and regulate the Armed Forces, but makes the President Commander-in-Chief of the Armed Forces. Article III, which governs the federal judiciary, does not give it any explicit role in the military, and the Supreme Court has taken the view that Congress's power "To make Rules for the Government and Regulation of the land and naval Forces" is entirely separate from Article III. Therefore, courts-martial are not considered to be Article III courts and are not subject to all of the rules that apply in federal courts. Members of the Armed Forces are subjected to rules, orders, proceedings, and consequences different from the rights and obligations of their civilian counterparts. As such, it might be said that discipline is as important as liberty interests in the military justice system. The Constitution specifically exempts military members accused of a crime from the Fifth Amendment right to a grand jury indictment, from which the Supreme Court has inferred there is no right to a civil jury in courts-martial. However, in part because of the different standards provided in courts-martial, their jurisdiction is limited to those persons and offenses the military has a legitimate interest in regulating. Courts-martial jurisdiction extends mainly to servicemembers on active duty, prisoners of war, and persons accompanying the Armed Forces in time of declared war, as well as certain violators of the law of war. Under Article I, Section 8 of the U.S. Constitution, Congress has the power to raise and support armies; provide and maintain a navy; and provide for organizing and disciplining them. Under this authority, Congress has enacted the Uniform Code of Military Justice (UCMJ), which is the code of military criminal laws applicable to all U.S. military members worldwide. The President implemented the UCMJ through the Manual for Courts-Martial (MCM), which was initially prescribed by Executive Order 12473 (April 13, 1984). The MCM contains the Rules for Courts-Martial (RCM), the Military Rules of Evidence (MRE), and the UCMJ. The MCM covers almost all aspects of military law. Military courts are not considered Article III courts but instead are established pursuant to Article I of the Constitution, and as a result are of limited jurisdiction. The UCMJ gives courts-martial jurisdiction over servicemembers as well as several other categories of individuals, including retired members of a regular component of the Armed Forces entitled to pay; retired members of a reserve component who are hospitalized in a military hospital; persons in custody of the military serving a sentence imposed by a court-martial; members of the National Oceanic and Atmospheric Administration and Public Health Service and other organizations, when assigned to serve with the military; enemy prisoners of war in custody of the military; and persons with or accompanying the military in the field during "times of war," limited to declared wars. Jurisdiction of a court-martial does not depend on where the offense was committed; it depends solely on the status of the accused. Courts-martial try "military offenses," which are listed in the punitive articles of the UCMJ and are codified in 10 U.S.C. 877 et seq. Some "military offenses" have a civilian analog, but some are exclusive to the military. The President is authorized to prescribe the punishments which a court-martial may impose within the limits established by Congress. In addition, a servicemember may be tried at a court-martial for offenses not specifically covered through the use of the General Article—UCMJ Article 134, which states that all "crimes and offenses not capital, of which persons subject to this chapter may be guilty, shall be taken cognizance of by a general, special, or summary court martial, according to the nature and degree of the offense." The Armed Forces have used Article 134 to assimilate state and federal offenses for which there is no analogous crime in the UCMJ in order to impose court-martial jurisdiction. The potential punishments for violations generally match those applicable to the corresponding civilian offense. When a servicemember has reportedly committed an offense, the accused's immediate commander will conduct an inquiry. This inquiry may range from an examination of the charges and an investigative report or summary of expected evidence to a more extensive investigation, depending on the offense(s) alleged and the complexity of the case. The investigation may be conducted by members of the command or, in more complex cases, military and civilian law enforcement officials. Once evidence has been gathered and the inquiry is complete, the commander can choose to dispose of the charges by (1) taking no action, (2) initiating administrative action, (3) imposing non-judicial punishment, (4) preferring charges, or (5) forwarding to a higher authority for preferral of charges. The first formal step in a court-martial, preferral of charges, consists of drafting a charge sheet containing the charges and specifications against the accused. The charge sheet must be signed by the accuser under oath before a commissioned officer authorized to administer oaths. Once charges have been preferred they may be referred to one of three types of courts-martial: summary, special, or general. The seriousness of the offenses alleged generally determines the type of court-martial. The court-martial must be convened by an officer with sufficient legal authority, that is, the "convening authority," who will generally be the commander of the unit to which the accused is assigned. Many recent military justice cases have raised the question of the mental capacity of the accused. An individual may not be tried by court-martial if he is suffering from a mental disease or defect such that he is unable to understand the nature of the proceedings or is unable to conduct or cooperate intelligently in the defense. In the event the mental capacity or mental responsibility, or both, of the accused is questioned, an examination may be ordered by the convening authority and/or the military judge. The examination, often referred to as an RCM 706 board, must answer the following four questions: (1) at the time of the alleged criminal conduct, did the accused have a severe mental disease or defect; (2) what is the clinical psychiatric diagnosis; (3) was the accused, at the time of the alleged criminal conduct and as a result of such severe mental disease or defect, unable to appreciate the nature or wrongfulness of his conduct; and (4) is the accused presently suffering from a mental disease or defect to the point that he is unable to understand the nature of the proceedings or to conduct or cooperate intelligently in the defense? The report of the RCM 706 board may lead to the case being suspended, charges being dismissed by the convening authority, administrative separation of the accused from military service, or the charges being tried by court-martial. Although an accused may be found competent to be tried by court-martial, that determination does not prohibit the accused from claiming the defense of lack of mental responsibility. In order to prevail on a defense of lack of mental responsibility, the accused must prove by clear and convincing evidence that at the time of the commission of the acts constituting the offense, as a result of a severe mental disease or defect, he was unable to appreciate the nature and quality or wrongfulness of his acts. Regardless of an initial competency determination, additional examinations may be ordered at any stage of the proceedings if the accused's mental capacity is questioned. The federal judiciary is established by Article III of the Constitution and consists of the Supreme Court and "inferior tribunals" established by Congress. It is a separate and co-equal branch of the federal government, independent of the executive and legislative branches, designed to be insulated from the public passions. Its function is not to make law but to interpret law and decide disputes arising under it. Federal criminal law and procedures are enacted by Congress and housed primarily in Title 18 of the U.S. Code . The Supreme Court promulgates procedural rules for criminal trials at the federal district courts, subject to Congress's approval. These rules, namely the Federal Rules of Criminal Procedure (Fed. R. Crim. P.) and the Federal Rules of Evidence (Fed. R. Evid.), incorporate procedural rights that the Constitution and various statutes demand. Unlike with the federal courts, the Supreme Court does not promulgate procedural rules for military courts-martial. As discussed above, Congress regulates the Armed Forces largely through Title 10 of the U.S. Code . The military courts-martial system is specifically addressed in the Uniform Code of Military Justice (UCMJ), Chapter 47 of Title 10. Article 36 of the UCMJ authorizes the President to prescribe rules for "pretrial, trial, and post-trial procedures, including modes of proof, for cases arising under this chapter triable in courts-martial." Such rules are to "apply the principles of law and the rules of evidence generally recognized in the trial of criminal cases in the United States district courts" insofar as the President "considers practicable" but that "may not be contrary to or inconsistent" with the UCMJ. Pursuant to that delegation, the President created the Rules for Courts-Martial (RCM) and the Military Rules of Evidence (MRE). Congress, in creating the military justice system, established three types of courts-martial: (1) summary court-martial, (2) special court-martial, and (3) general court-martial. While the promulgated RCM and the MRE are applicable to all courts-martial, the jurisdiction and authorized punishments vary among the different courts-martial types. The function of the summary court-martial is to "promptly adjudicate minor offenses under a simple procedure" and "thoroughly and impartially inquire into both sides of the matter" ensuring that the "interests of both the Government and the accused are safeguarded and that justice is done." However, special and general courts-martial function to adjudicate more serious offenses with more severe punishments and thus the procedures are more complex. Although a discussion of the RCM and MRE is beyond the scope of this report, the procedures employed in courts-martial are intended to afford servicemembers basic constitutional rights. Appended as Table 1 is an excerpt from CRS Report RL31262, Selected Procedural Safeguards in Federal, Military, and International Courts , by [author name scrubbed], which compares selected constitutionally based trial procedures in federal courts and general courts-martial. The summary court-martial can adjudicate minor offenses allegedly committed by enlisted servicemembers. It can adjudge maximum punishments of 30 days' confinement; hard labor without confinement for 45 days; restriction to specified limits for 45 days; forfeiture of two-thirds' pay per month for one month; and reduction to the lowest pay grade. In the case of enlisted members above pay grade E-4, the summary court-martial may not adjudge confinement or hard labor without confinement and can only reduce them to the next lower pay grade. Summary courts-martial are composed of one commissioned officer who need not be a lawyer. The accused must consent to the proceedings and normally is not entitled to a lawyer. If an accused refuses to consent to a trial by summary court-martial, a trial may be ordered by special or general court-martial as may be appropriate, at the discretion of the convening authority. The special court-martial can try any servicemember for any noncapital offense or, under presidential regulation, capital offenses. Special courts-martial generally try offenses that are considered misdemeanors. A special court-martial can be composed of a military judge alone, not less than three members, or a military judge and not less than three members. Contrary to civilian criminal trials, the agreement of only two-thirds of the members of a court-martial is needed to find the accused guilty. Otherwise, the accused is acquitted. There are no "hung juries" in courts-martial. Regardless of the offenses tried, the maximum punishment allowed at a special court-martial is confinement for one year; hard labor without confinement for up to three months; forfeiture of two-thirds' pay per month for up to one year; reduction in pay grade; and a bad-conduct discharge. The accused is entitled to an appointed military attorney, a military counsel of his or her selection, or he or she can hire a civilian counsel at no expense to the government. A general court-martial is the highest trial level in military law and is usually used for the most serious offenses. It is composed of a military judge sitting alone, or not less than five members and a military judge. It can adjudge, within the limits prescribed for each offense, a wide range of punishments to include confinement; reprimand; forfeitures of up to all pay and allowances; reduction to the lowest enlisted pay grade; punitive discharge (bad conduct discharge, dishonorable discharge, or dismissal); restriction; fines; and, for certain offenses, death. The accused is entitled to an appointed military attorney or a military counsel of his or her selection, or the accused can hire civilian counsel at no expense to the government. Prior to convening a general court-martial, a pretrial investigation must be conducted. This investigation, known as an Article 32 hearing, is meant to ensure that there is a basis for prosecution. An investigating officer, who must be a commissioned officer, presides, and the accused has the same entitlements to counsel as in special courts-martial. However, unlike in a civilian grand jury investigation, where the accused has no access to the proceedings, the accused is afforded the opportunity to examine the evidence presented against him, cross-examine witnesses, and present his own arguments. If the investigation uncovers evidence that the accused has committed an offense not charged, the investigating officer can recommend that new charges be added. Likewise, if the investigating officer believes that evidence is insufficient to support a charge, he can recommend that it be dismissed. Once the Article 32 investigation is complete, the investigating officer makes recommendations to the convening authority (CA) via the CA's legal advisor. The legal advisor, in turn, provides the CA with a formal written recommendation, known as the Article 34, UCMJ advice, as to the disposition of the charges. The CA then determines whether to convene a court-martial or dismiss the charges. Convictions at a general or special court-martial that include a punitive (bad conduct or dishonorable) discharge are subject to an automatic post-trial review by the CA. The process starts with a review of the trial record by the staff judge advocate (SJA), who makes a recommendation to the CA as to what action to take. This review is recognized as the accused's best hope for relief, as the CA has broad powers to act on the case. Upon review of the record of trial and the SJA's recommendation, the CA may, among other remedies, suspend all or part of the sentence, disapprove a finding or conviction, or lower the sentence. The CA may not increase the sentence. Once the CA takes action on the case, the conviction is ripe for an appeal. However, a recent Air Force case has attracted considerable congressional focus on the CA's ability to grant clemency. In the specific case, the CA dismissed the conviction of an Air Force officer who had been tried, convicted, and sentenced to prison at a court-martial for the sexual assault of a civilian. The authority of the CA to modify the findings and sentence of the court-martial is a matter of command prerogative involving the sole discretion of the convening authority. Additionally, action by the CA to disapprove, commute, or suspend a sentence, or to set aside a finding of guilty, is not appealable by the United States. As a matter of command prerogative, the decision by the CA is final upon issuance. All court-martial convictions not reviewable by the service appellate courts are reviewed by a judge advocate to determine if the findings and sentence, as approved by the CA, are correct in law and fact. If those criteria are met, the conviction is final. If not, the judge advocate forwards the case to the officer exercising general court-martial convening authority at the time the court-martial was convened for corrective action. If the CA declines to take corrective action, the case is referred to the Judge Advocate General for review. Convictions by a special or general court-martial are subject to an automatic appeal to a service Court of Criminal Appeals if the sentence includes confinement for one year or more, a bad-conduct or dishonorable discharge, death, or a dismissal in the case of a commissioned officer, cadet, or midshipman. Appeal is mandatory and cannot be waived when the sentence includes death. If the conviction is affirmed by the service court, the appellant may request review by the Court of Appeals for the Armed Forces (CAAF) and ultimately the U.S. Supreme Court. Review by these courts is discretionary. Supreme Court review by writ of certiorari is limited to cases where the CAAF has conducted a review, whether mandatory or discretionary, or has granted a petition for extraordinary relief. The Court does not have jurisdiction to review a denial of discretionary review by the CAAF, nor does it have jurisdiction to consider denials of petitions for extraordinary relief. Servicemembers whose petitions for review or for extraordinary relief are denied by the CAAF may seek additional review only through collateral means, for example, petitioning for habeas corpus to an Article III court, which could provide an alternate avenue for Supreme Court review. The following table cites relevant federal rules and/or court decisions, as well as provisions of the UCMJ and applicable rules, but makes no effort to provide an exhaustive list of all procedural authorities.
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Recent high-profile military-related cases involving sexual assaults by U.S. servicemembers have resulted in increased public and congressional interest in military discipline and the military justice system. Questions have been raised regarding how allegations of sexual assault are addressed by the chain of command, the authority and process to convene a court-martial, and the ability of the convening authority to provide clemency to a servicemember convicted of an offense. Additionally, some military-related cases, including those of Major Nidal Hasan, the alleged shooter at Fort Hood, and Private first class Bradley Manning, the alleged source of leaked classified material through the organization WikiLeaks, have raised questions regarding the mental capacity of the accused and how the military justice system addresses this concern. In the criminal law system, some basic objectives are to discover the truth, acquit the innocent without unnecessary delay or expense, punish the guilty proportionately with their crimes, and prevent and deter further crime, thereby providing for the public order. Military justice shares these objectives in part, but also serves to enhance discipline throughout the Armed Forces, serving the overall objective of providing an effective national defense. Under Article I, Section 8 of the U.S. Constitution, Congress has the power to raise and support armies; provide and maintain a navy; and provide for organizing and disciplining them. Under this authority, Congress has enacted the Uniform Code of Military Justice (UCMJ), which is the code of military criminal laws applicable to all U.S. military members worldwide. The President implemented the UCMJ through the Manual for Courts-Martial (MCM). The Manual for Courts-Martial contains the Rules for Courts-Martial (RCM), the Military Rules of Evidence (MRE), and the UCMJ. Members of the Armed Forces are subjected to rules, orders, proceedings, and consequences different from the rights and obligations of their civilian counterparts, and the UCMJ establishes this unique legal framework. The UCMJ authorizes three types of courts-martial: (1) summary court-martial; (2) special court-martial; and (3) general court-martial. Depending on the severity of the alleged offense, the accused's commanding officer enjoys great discretion with respect to the type of court-martial to convene. Generally, each of the courts-martial provides fundamental constitutional and procedural rights to the accused, including, but not limited to, the right to a personal representative or counsel, the opportunity to confront evidence and witnesses, and the right to have a decision reviewed by a lawyer or a court of appeals. The table that concludes this report compares selected procedural safeguards employed in criminal trials in federal criminal court with parallel protective measures in military general courts-martial.
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Congress has authorized student loan repayments for highly qualified General Schedule (GS) and non-GS (including Foreign Service) employees in the executive branch. Repayments also are authorized for employees in the House of Representatives, the Senate, the Congressional Budget Office (CBO), the Government Accountability Office (GAO), the Government Printing Office (GPO), the Library of Congress, and the U.S. Capitol Police. In the executive branch, and in GAO, GPO, and the Library of Congress, the repayments may be up to $10,000 annually and up to $60,000 in the aggregate. In the legislative branch, the annual and aggregate limitations vary. The House and Senate each authorize repayments up to $500 a month, and $40,000 in the aggregate. Repayments to the U.S. Capitol Police may be up to $10,000 annually, and $40,000 in aggregate. CBO's repayments may be up to $6,000 annually, and $40,000 in aggregate. A service agreement of at least three years is required in the executive branch, while in the legislative branch, the service agreement varies from one to three years. Enactment of the executive branch statute followed a recommendation of the National Commission on the Public Service (commonly referred to as the Volcker Commission, after its chairman, Paul Volcker) that a federal service loan forgiveness program be established for federal service. In April 1989, after an 18-month study, the commission issued its report on rebuilding the federal civil service. Formed in response to "concern[s] that the federal workforce may be ill-prepared to serve the nation in the 21 st century," the commission dedicated itself to "placing high on the national agenda the need to strengthen the effectiveness of the career services in government." A commission task force on recruitment and retention found that inadequate compensation and the unattractiveness of government employment to recent college graduates were among the reasons for the federal government's serious problems in recruiting and retaining a quality workforce. At the time that student loan repayments were authorized by Congress, the issues of the attractiveness of government service to and the large amount of student loan indebtedness of new graduates were of particular interest. More recently, the possibility of a significant number of retirements from the federal government in the next several years has joined these issues as a reason underlying student loan repayment programs in the federal government. Authorization of repayments in the legislative branch resulted from similar concerns about these recruitment and retention issues. The legislative history, statutory authority, status of executive and legislative branch implementation, issues for consideration, and oversight of student loan repayments are examined in the next sections of the report. On May 18, 1989, one month after the publication of the Volcker Commission's report, Senator Ted Stevens introduced, for himself and Senator David Pryor, S. 1071 , a bill to authorize the repayment of student loans for certain federal employees. In his statement accompanying the introduction, Senator Stevens noted the commission's recommendation and stated that the bill was "designed to improve the Federal Government's ability to compete for top college graduates," many of whom have heavy debt and "simply cannot afford the option of Federal service." Saying that agencies would have discretion to use the authority as they saw fit "to recruit highly qualified people that are important to its mission," Senator Stevens emphasized that agencies "would be required to absorb the expense of loan repayment out of [their] existing payroll budget," and went on to say that the provision envisioned "no new outlays whatsoever." According to Senator Stevens, this would ensure "that this authority is used sparingly and only when necessary" and require agency managers "to make some tough decisions" in "reallocating funds to use this recruiting incentive." The bill's provisions requiring at least three years of service, an acceptable level of performance, and cessation of the loan repayments if the employee separated (either voluntarily or for reasons of poor performance) from federal service were viewed by Senator Stevens as "ensur[ing] the Government a return on its human resource investment." Senator Pryor reiterated the comments of Senator Stevens in saying that "[a]gencies will have wide latitude to work out how much of a loan will be repaid by the agency and the length of time the employee will have to commit to staying with the agency." He anticipated "that agencies will exercise great discretion in using this program" as they "will be required to absorb the costs." After referral to the Senate Committee on Governmental Affairs, S. 1071 saw no further action. In the House of Representatives, Representatives Benjamin Gilman and William Ford introduced H.R. 2544 on June 6, 1989, which included, as section 3, provisions on student loan repayment similar to those in S. 1071 . Representative Gilman, in a statement accompanying the introduction, noted that the Volcker Commission had recommended repayment of student loans and said the bill would make "the Federal Government an employer of first choice for many of our Nation's finest students." He stated, "Repayment shall be from funds already appropriated at the time of appointment." He also thanked Senators Stevens and Pryor for "formulating and drafting major provisions of the bill" on the repayments. The Public Service Education Assistance Act of 1990 ( H.R. 2544 ) was referred to the Civil Service Subcommittee of the House Committee on Post Office and Civil Service. The subcommittee conducted a hearing on the bill on July 27, 1989, and took testimony from the director of the Office of Personnel Management, the executive director of the National Commission on the Public Service, and the special counsel of the Consumer Bankers Association. In remarks during the hearing, Representative Ford described H.R. 2544 as a "sort of a GI bill for civil servants." OPM Director Constance Newman stated that the agency had "not given enough consideration to how much this approach would cost or to whether the benefits would justify the cost." She also expressed several concerns about the student loan repayment provisions in H.R. 2544 . Those concerns related to: not wanting to induce people to work for the government just long enough to qualify for loan repayment and then move elsewhere; consideration of the equity of a recruitment incentive that would have no value for those who have already paid their own way through college; the essential need to limit the coverage to occupations where there is difficulty in recruiting or retaining employees with critical skills (identified as scientists and engineers); the need to examine carefully the administrative feasibility of agencies making loan repayments; the lack of a provision on a central regulatory authority to ensure uniformity among the agencies; the inappropriateness of not having an employee repay any loan payments made by the agency if he or she fails to complete the service requirement; and the lack of a limit on how large a repayment commitment could be made. The latter three concerns were addressed by provisions that were included in the bill when it was reported to the House. Asked about the appropriateness of a three-year service requirement, Mrs. Newman stated that "three is probably a fairly standard time," but: The concern is that we have some assurance that the kinds of people, if you go with this type of approach, actually have an intent to participate in public service, and that they aren't just using this as a vehicle to repay their loans. And whether or not a three year limitation provides enough assurance that you get at least some benefit from having participated in this, I don't know. L. Bruce Laingen, executive director of the National Commission on the Public Service, viewed the legislation as a step in "enriching the talent pool" of government and as "a practical way to get young people started on their careers." According to Laingen, "entry level payment in Government is increasingly noncompetitive with the private sector" and "combined with slow procedures by Government in hiring on the one hand and students loans to repay on the other, often makes Government even for those who actually seek Government service an unattractive career choice." Another witness, Consumer Bankers Association special counsel John Dean, noted the significant student loan indebtedness of students with advanced degrees: An individual facing this repayment burden may and frequently does feel obliged to seek employment with an employer able to provide the highest level of compensation possible and, in most cases, that is not the Federal Government. In order to encourage extended government service, Dean suggested that larger repayments be made for longer years of service. His concerns about the legislation related to the following: the need for close examination of existing program regulations to assure that borrower records are appropriately documented, especially for cases where limitations on the maximum repayment amount provided under the program result in a residual amount still owed by the individual student loan borrower; making sure that when a federal check comes in for a student loan it is applied to the correct loan; ensuring that, if the check is for an amount that is less than the amount due on the loan, a note in the computer file will indicate that a second check will be coming, so that an insufficient notice payment will not follow receipt of the first check from the federal government; identifying who will be held accountable for delinquency on the loans if there is a paperwork error and the federal government payment arrives late; and the possibility of precipitating employee delinquency or default on a loan if he or she no longer qualifies for loan repayment because of performance reasons or separation from government service. On February 7, 1990, the House Committee on Post Office and Civil Service reported the bill to the House, but no further action occurred. As reported, H.R. 2544 differed from the Senate bill in several respects. For example, it did not cover student loans made, insured, or guaranteed by state governments. The bill also provided that "[i]n selecting employees to receive [student loan repayment] benefits ... an agency shall, consistent with the merit system principles set forth in paragraphs (1) and (2) of section 2301(b), take into consideration the need to maintain a balanced workforce in which women and members of racial and ethnic minority groups are appropriately represented in Government service." Additionally, H.R. 2544 authorized OPM to "prescribe regulations containing such standards and requirements as [it] considers necessary to provide for reasonable uniformity among programs." Discussing the need for the legislation, the committee cited the findings of the Volcker Commission, as well as reports published by the Merit Systems Protection Board in May 1988 and the Office of Personnel Management in June 1988, on the federal government's difficulties in recruiting and retaining highly qualified professional, technical, or administrative personnel. According to these reports, pay rates significantly less than those offered by the private sector, a negative image of public service, and lack of information about careers in government were among the reasons inhibiting the federal government from attracting and keeping skilled individuals. The committee report stated that the "new authority is an attempt to bolster efforts to recruit top-flight candidates for employment with the federal government" and noted that "the repayment program would be used as a recruiting tool to attract individuals with critical skills necessary for the agency." It acknowledged criticisms that these repayment provisions could "result in disparate treatment of equally qualified candidates solely on the basis of their form of indebtedness." The report expressed the "committee's opinion that remedies for an otherwise gravely lacking Federal compensation system must be sought wherever the Federal Government can exert unique pressure." With regard to limitations on the size of the repayments, the committee stated its intent to "strike a balance" between the "extremely high loan indebtedness" of many college graduates and "the limited resources available to Federal agencies for new initiatives in programs and employee benefits." Further, the committee noted that the loan repayment was "to apply to indebtedness outstanding at the time an employee enter[ed] into an agreement." The Congressional Budget Office (CBO) estimated that the cost of the student loan repayment program in 1991 would be between $2 and $3 million, with the potential to increase to $10 to $15 million by 1995. CBO also estimated that administrative costs would total less than one million dollars. The cost estimate assumed that "most agencies would agree to reimburse ... loan payments for at least five years." The Department of Education (DoE) and the Department of Justice (DoJ) submitted views to the House Committee on Post Office and Civil Service opposing H.R. 2544 's provisions to establish a student loan repayment program. DoE believed that the program "would be extremely costly, with overly generous agency repayment amounts permitted, and is unlikely to correlate to the recruitment needs of the Federal service or alter any significant number of students' decisions to enter the Federal service." Additional concerns expressed by DoE were that the program would set a dangerous precedent by allowing for the first time cancellation of Guaranteed Student Loans (GSLs) in exchange for performance of a certain activity. Introducing cancellation for one activity would almost certainly lead to pressure for cancellation for many other "meritorious" activities. Very probably be poorly correlated to recruitment needs [and be] unlikely to affect many decisions on whether to enter the Federal service. Prior efforts to attract recruits to certain professions such as teaching (through loan forgiveness and similar programs) have not had a significant impact on students' decisions to enter the field. Provide a potential windfall for some employees, particularly in light of the high agency repayment amounts permitted. Aggravate current retention problems if employees need only complete three years of federal service to take advantage of the repayment program .... Some ... may well work only long enough to earn the cancellation before moving elsewhere. Other programs, such as the Perkins Loan Program in the Higher Education Act of 1965 (20 U.S.C. §1001 et seq. ) require five years of service in certain teaching positions before the entire loan is canceled. [By authorizing payments up to $6,000 per year, provide] a very generous yearly "bonus" ... far in excess of the amounts generally available to a small number of employees in the form of cash awards or merit pay bonuses for outstanding service. Thus, employees who either have no student loans or who have already repaid their loans would, in essence, be compensated at a lower rate than other employees simply because they do not have a particular form of debt. This type of inequity could have a demoralizing effect on the federal employees not participating in the repayment program ... and create retention problems.... The Federal government should not be in a position of "rewarding" students who finance their education through Federal student loans, and penalizing students who chose work or savings to finance their postsecondary education. [Create a situation in which] it could be very difficult to regulate effectively the very broad, subjective authority of an agency head to waive a right of recovery against an employee if it would be against equity and good conscience, or against the public interest. DoJ also declined to support student loan repayment. The agency's concerns were that the program would not "provide a reliable incentive for recruitment and retention because its usefulness depends upon the nature of an individual's indebtedness and thus varies from candidate to candidate." Additionally, Justice believed that the program would require the Department to treat otherwise similarly situated candidates different solely because of their indebtedness or the form of their indebtedness.... Students who worked to pay their tuition would not qualify for benefits nor would those whose parents saved or borrowed to pay for the student's education. This disparate treatment of otherwise equally qualified candidates outweighs the minimal benefits to be gained by the student loan repayments. During House consideration of the National Defense Authorization Act for FY1991 ( H.R. 4739 ) on September 11, 1990, Representative Gilman offered the text of H.R. 2544 as an amendment to the bill. He stated that the provisions were "intended to be applied systemwide to all Federal agencies." He also noted that, as no new funds were being authorized, agencies would have to fund the program from salary and expense accounts and "use these tools in a cost efficient manner." According to Representative Gilman, the Department of Defense "d[id] not object" to the amendment and "considers it an important tool in enhancing their ability to recruit and keep essential qualified personnel." National Commission on the Public Service executive director L. Bruce Laingen stated in a letter to Representative Gilman, which was inserted into the Congressional Record , that the provisions were "an important step forward in the larger challenge of ensuring that the services of government in the years ahead are performed by personnel of the highest competence." The House agreed to the amendment by voice vote on September 11, 1990. The President signed H.R. 4739 on November 5, 1990, and it became P.L. 101-510 . Section 1206(b) of the law provides the repayment authority. On June 22, 2000, OPM proposed regulations to implement the initial student loan repayment program established by P.L. 101-510 . OPM did not explain the 10-year delay in issuing the regulations, but a Government Executive article on the regulations suggested that efforts to reduce the federal workforce in the early and mid-1990s created little demand in the agencies for the repayment authority. Lack of funding for the program also may have contributed to the delay. OPM's final regulations became effective on April 12, 2001. Ten years after the original student loan repayment authority had been enacted in P.L. 101-510 , Senator Richard Durbin offered an amendment to the Floyd D. Spence National Defense Authorization Act for FY2001 ( S. 2549 ) to make changes to the law. The amendment, No. 3480, provided for broader implementation of student loan repayment programs. It extended eligibility for student loan repayments to non-GS (including Foreign Service) federal employees and to employees in other than professional, technical, or administrative positions, and expanded the types of student loans under the Higher Education Act and the Public Health Service Act eligible for repayment. The Senate agreed to the amendment by voice vote on June 20, 2000. In lieu of S. 2549 , the Senate passed H.R. 4205 , with an amendment. On October 30, 2000, H.R. 4205 became P.L. 106-398 . Section 1122 provides the expanded repayment authority. Regulations to implement the broadened student loan repayment program established by the law were proposed by OPM on March 16, 2001, and finalized on July 31, 2001. Those regulations became effective on August 30, 2001. During its first session, the 107 th Congress passed two separate pieces of legislation to extend the student loan repayment program to specific legislative branch entities. The FY2002 Legislative Branch Appropriations Act, P.L. 107-68 , enacted on November 12, 2001, authorized Senate employing offices to establish a program for Senate employees and authorized appropriations to fund the program. The law also authorized CBO to institute a program for student loan forgiveness. The FY2002 Department of Defense Appropriations Act, P.L. 107-117 , enacted on January 10, 2002, granted authority to the U.S. Capitol Police to offer a student loan repayment program for recruitment and retention purposes. The House of Representatives attempted to establish a repayment program for House employees, but that effort failed. On July 30, 2001, Representative Barbara Lee submitted an amendment to the FY2002 Legislative Branch Appropriations Bill, H.R. 2647 to the House Committee on Rules. The amendment was similar to H.R. 2555 , a bill Representative Lee had introduced previously to amend P.L. 101-510 by including legislative branch employees in the federal agency student loan repayment program. The rule ( H.Res. 213 ) for H.R. 2647 did not make the amendment in order for consideration on the House floor. On July 31, 2001, however, during floor consideration of H.R. 2647 , Representative James Moran stated that "a uniform policy should be developed across the board," and noted that the bill "calls for study of the issue by the Committee on House Administration." He further stated that because the Senate-passed version of the bill would authorize the student loan repayment benefit to all Senate employees, it was "essential that the Committee on House Administration develop guidelines rapidly." Nevertheless, the FY2002 Legislative Branch Appropriations bill did not provide for a loan repayment program for House employees. Early in the 108 th Congress, the Senate and House passed an omnibus appropriations bill, the Consolidated Appropriations Resolution, 2003, that provided authority and appropriations at Section 105 to the House of Representatives for a student loan repayment program. The bill was enacted as P.L. 108-7 on February 20, 2003. At Section 1007, P.L. 108-7 also granted authority to the U.S. Capitol Police to establish a student loan repayment program as part of an educational and tuition reimbursement assistance program for employee career development. Legislation ( S. 926 ) to increase the annual and aggregate limitations on student loan repayments was enacted as P.L. 108-123 on November 11, 2003. The law amended 5 U.S.C. §5379(b)(2) and increased the amount of a student loan repayment from $6,000 to $10,000 per year and from $40,000 to $60,000 in total for employees in the executive branch, GAO, GPO, and the Library of Congress. CBO estimated that implementing the legislation "would cost less than $500,000 a year, subject to the availability of appropriated funds." According to the Senate Governmental Affairs Committee report that accompanied the bill, the amendments reflected "an increase in annual college tuition costs since the enactment of the original statute in 1991." It further stated that without them the tuition increases "would lessen the competitive value of this recruitment and retention tool." On October 28, 2003, the House of Representatives suspended the rules and passed S. 926 by voice vote. During House consideration of the bill, Representative Jo Ann Davis stated that the Senate bill, which was identical to the House version, was taken up because it had already passed the Senate and would speed up approval of the measure. Explaining the need for the legislation, she stated that "it is the prospect of these daunting student loans, $50,000, $75,000, or even more than $100,000, that can prevent public service-minded people from coming to work for the government." She added that "[s]tudent loan repayment is at the top of the list for newly graduated students looking for jobs." Representative Danny Davis noted that the student loan repayment program "is generally underutilized due to lack of agency funding caused by limited budgets" and that "without funding and without aggressive use of this and similar programs to promote Federal civil service, the Federal Government will be left behind in the competition for top talents." Under S. 926 , agencies would continue to fund student loan repayments from their own budgets. Section 1123 of P.L. 108-136 , the National Defense Authorization Act for FY2004 ( H.R. 1588 ), enacted on November 24, 2003, amended 5 U.S.C. §5379(b)(2)(A) to increase the amount of a student loan repayment from $6,000 to $10,000 per year. The provision became effective on January 1, 2004. OPM's regulations to implement the higher annual and aggregate amounts for repayments authorized in P.L. 108-123 and P.L. 108-136 were published on April 20, 2004. Student loan repayment programs at selected legislative branch agencies were established by different pieces of legislation in the 107 th and the 108 th Congresses; as a result, the implementation of these programs is at various stages in these agencies. Legislators believed that some uniform guidelines would assist the agencies as each agency began writing regulations and service agreements. Accordingly, the conferees to the FY2002 Legislative Branch appropriations bill ( H.R. 2647 , H.Rept. 107-259 ) directed the Legislative Branch Financial Managers Council (LBFMC) to "develop, in consultation with all Legislative Branch entities, the controls and criteria that will govern [student loan repayment] program implementation." Specifically, the LBFMC was "directed to perform a comparative analysis between entity implementing regulations and governing controls and criteria and report the results of that analysis to the House and Senate" appropriations subcommittees on the legislative branch by March 1, 2002. The LBFMC consulted with each legislative branch entity beginning in December 2001, completed a comparative analysis of entity implementing regulations, and developed governing controls and criteria recommendations for the student loan repayment programs in the legislative branch. On February 27, 2002, the LBFMC reported the results of the analysis and recommendations to the House and Senate appropriations subcommittees on the legislative branch. In general, the legislative branch agencies have followed the LBFMC recommended guidelines. Authority for the student loan repayment program is codified at 5 U.S.C. §5379. The statute covers executive agencies, independent establishments, government corporations under 31 U.S.C. Chapter 91, as well as GAO, GPO, and the Library of Congress. Federal employees covered by the law are as follows: permanent employees; temporary employees who are serving on appointments which can be converted to term or permanent appointments; term employees with at least three years left on their appointments; and employees serving on excepted appointments which can be converted to term, career, or career conditional appointments (including, but not limited to, Career Intern or Presidential Management Intern appointments). Schedule C appointees—employees in confidential, policy-determining, policy-making, or policy advocating positions—are not eligible for the repayments. As amended by P.L. 108-123 and P.L. 108-136 , an employee may currently receive a repayment of up to $10,000 annually and $60,000 in the aggregate from an agency. Regulations to implement the current repayment amount were published in the Federal Register by OPM on April 20, 2004. Agencies may use the student loan repayment benefit in conjunction with other recruitment and retention incentives available under Title 5 of the United States Code . Student loan repayments are not subject to the Title 5 provision that limits the aggregate amount of pay an employee can receive to Executive Level I, or $183,500 (as of January 2006), but it is unlikely that this would ever be an issue of concern. An employee seeking student loan repayment must sign a written agreement to work for the agency repaying the loan for at least three years. The implementing regulations specify that the following language should be stated in the service agreement: "A service agreement made under this part in no way constitutes a right, promise, or entitlement for continued employment or noncompetitive conversion to the competitive service." Other employment conditions the agency considers to be appropriate may be specified in the agreement. These might include the employee's position and the duties he or she is expected to perform, work schedule, or level of performance. An employee who separates voluntarily from the agency, does not maintain an acceptable level of performance, or violates any of the conditions of the service agreement becomes ineligible to continue receiving student loan repayment benefits. An employee who fails to complete the required period of service must reimburse the agency for the total amount of any repayment benefits received. This would occur if the employee were separated involuntarily for misconduct or performance, or left the agency voluntarily. The agency must collect through appropriate debt collection procedures any amount the employee fails to reimburse. Reimbursement is not required of an employee who is involuntarily separated for reasons other than misconduct or performance or who leaves the agency voluntarily to enter into the service of another agency. The service agreement, however, may specify reimbursement in this latter instance. An agency head may waive, in whole or in part, a right of recovery of an employee's debt if "recovery would be against equity and good conscience or against the public interest." OPM regulations require the head of an agency to establish a student loan repayment plan before repaying any student loans. The plan must include the following seven elements: (1) The designation of officials with authority to review and approve offering student loan repayment benefits; (2) The situations when the loan repayment authority may be used; (3) Criteria that must be met or considered in authorizing loan repayments, including criteria for determining the size and timing of a payment [or payments]; (4) Procedures for making loan repayments; (5) A system for selecting employees to receive repayment benefits that ensures fair and equitable treatment; (6) Requirements for service agreements (including a basis for determining the length of service to be required if greater than the statutory minimum), and provisions for recovering any amount outstanding from an employee who fails to complete the period of employment established under a service agreement and for conditions when the agency decides to waive the employee's obligation to reimburse the agency for payments; and (7) Documentation and record keeping requirements sufficient to allow reconstruction of the action taken in each case. The OPM regulations also establish criteria for loan repayments. The repayments "must be based on a written determination that, in the absence of offering loan repayment benefits, the agency would encounter difficulty either in filling the position with a highly qualified candidate, or retaining a highly qualified employee in that position." The written determination for recruitment purposes must be made before the employee actually enters on duty in the position for which he or she was recruited. For retention purposes, the written determination must state "that the high or unique qualifications of the employee or special need of the agency for the employee's services makes it essential to retain the employee, and that, in the absence of offering student loan repayment benefits, the employee would be likely to leave for employment outside the Federal service." The determination "must be based on a written description of the extent to which the employee's departure would affect the agency's ability to carry out an activity or perform a function that is deemed essential to the agency's mission." In selecting employees to receive the loan repayment, "agencies must adhere to merit system principles and take into consideration the need to maintain a balanced workforce in which women and members of racial and ethnic minority groups are appropriately represented in Government service." Eligible for repayment are student loans made, insured, or guaranteed under parts B, D, or E of title IV of the Higher Education Act of 1965; and health education assistance loans made or insured under part A of title VII or part E of title VIII of the Public Health Service Act. According to OPM, loans that qualify for repayment include the following: Federal Family Education Loans (FFEL) Subsidized Federal Stafford Loans Unsubsidized Federal Stafford Loans Federal PLUS Loans Federal Consolidation Loans William D. Ford Direct Loan Program (Direct Loans) Direct Subsidized Stafford Loans Direct Unsubsidized Stafford Loans Direct PLUS Loans Direct Subsidized Consolidation Loans Direct Unsubsidized Consolidation Loans Federal Perkins Loan Program National Defense Student Loans (made before July 1, 1972) National Direct Student Loans (made between July 1, 1972 and July 1, 1987) Perkins Loans (made after July 1, 1987) Loans made or insured under the Public Health Service Act Loans for Disadvantaged Students (LDS) Primary Care Loans (PCL) Nursing Student Loans (NSL) Health Professions Student Loans (HPSL) Health Education Assistance Loans (HEAL) The student loan repayment must be included in an employee's income for both income and employment tax purposes. OPM has posted on its website a document prepared by the Internal Revenue Service that addresses questions and answers on the tax liability of student loan repayments made by federal entities. The document includes a discussion on agency reporting and withholding requirements for tax purposes, and an explanation of how agencies should calculate and withhold employment taxes. The following is an example of an employee's tax liability if a federal agency were to provide a student loan repayment in the amount of $10,000. For tax year 2007, a single employee with taxable income between $31,850 and $77,100 is subject to a federal income tax rate of 25%. In addition to the income tax, employment taxes (at a 7.65% rate for Social Security and Medicare) would be collected on the repayment amount. Thus, a total of 32.65% in federal taxes would have to be paid by an employee receiving repayment benefits under the program. On a $10,000 repayment this amounts to $3,265. In addition, the $10,000 would be subject to any applicable state and local income taxes. A bill to exclude student loan repayments from gross income for the purposes of federal income tax is pending in the Senate. Senator George Voinovich, for himself and Senators Daniel Akaka and Susan Collins, introduced S. 1047 , Generating Opportunity by Forgiving Educational Debt for Service Act of 2007, on March 29, 2007. The bill was referred to the Committee on Finance. In his statement upon introducing the legislation, Senator Voinovich stated that it would "help Federal agencies and the Armed Forces recruit talented individuals" and "the potential impact ... far outweighs its minimal cost." S. 1047 would amend 26 U.S.C. §108(f) to exclude student loan repayments from gross income for the purposes of federal income tax. The bill also would amend 26 U.S.C. §3121(a) to exclude student loan repayments from the definition of wages under the Internal Revenue Code and 42 U.S.C. §409(a) to exclude repayments from the definition of wages under Social Security. The amendments would apply to payments made in taxable years beginning on or after the act's enactment in taxable years ending after such date. OPM is required by law to report to Congress annually on the implementation of student loan repayment programs in the agencies, including the number and job classifications of federal employees receiving repayments, and the cost of the repayments. The current statutory requirement is for the report to include information on those agencies having student loan repayment programs. Legislation ( H.R. 1765 , Section 3, 109 th Congress) would have amended current law to require that the OPM report also include information on those agencies that have not implemented repayment programs. Senator Akaka, for himself and Senator Durbin, introduced S. 2450 , the Homeland Security Education Act, on March 16, 2006. The bill was referred to the Senate Committee on Health, Education, Labor, and Pensions, but saw no further action. Section 11 of the legislation would have amended Title 5, United States Code , by adding a new Section 5379a authorizing the Director of OPM to establish and administer a pilot program under which the student loans of federal employees possessing science, technology, engineering, mathematics, and foreign language skills would have been repaid. The legislation provided that not less than three but not more than five agencies could have set aside funds for a student loan repayment program under 5 U.S.C. §5379 to repay any student loan previously taken out by employees possessing such skills deemed critical to the agencies under their human capital strategic plans. The repayments would have been direct payments made on behalf of an employee. Agencies participating in the program would have been required to set aside enough funds to repay the student loans of at least one-half of the number of employees with the identified critical skills who are needed. Student loans eligible for repayment would have been the same as those covered by current law—loans made, insured, or guaranteed under parts B, D, or E of Title IV of the Higher Education Act of 1965; and health education assistance loans made or insured under Part A of Title VII or Part E of Title VIII of the Public Health Service Act. The program would have remained in effect for five years, beginning on the enactment date of the proposed Section 5379a. Employees recruited under the program who were in compliance with its requirements would have continued to receive benefits until the end of their service commitments. Not later than 60 days after enactment of the proposed Section 5379a and after consultations with the heads of agencies, the OPM Director would have proposed regulations for the pilot program. The final regulations would have been promulgated by the OPM Director not later than 180 days after the date on which the comment period for the proposed regulations would have ended. The OPM Director would have reported to the appropriate committees of Congress on the program's implementation not later than 180 days after enactment of the proposed Section 5379a. OPM's annual report on the student loan repayment program under 5 U.S.C. §5379 would have included information on the status of the Section 5379a program, including a determination of its impact in recruiting and retaining employees possessing the identified critical skills and an assessment of whether it should be expanded to other agencies or to individuals possessing other critical skills. Agency heads would have provided any necessary information to OPM. Such sums as may be necessary to carry out the proposed Section 5379a would have been authorized to be appropriated to enable the federal government to recruit and retain employees with the identified critical skills. OPM published proposed regulations to revise the rules governing student loan repayments in the Federal Register on January 9, 2007. Among the changes under consideration are the following: agencies would need to document just the actions taken in approving a student loan repayment; student loan repayments could not be used "to recruit an individual from outside the agency who is currently employed in the Federal service"; a job candidate who will be receiving a student loan repayment could sign the service agreement before he or she begins serving in the position; agency plans for student loan repayments could specify "that only student loans made within a certain time-frame are eligible for repayment"; the full gross amount of the repayment (before taxes) would "count toward the benefit cap"; the service agreement could address the possibility that it could be modified to provide additional repayments because of contingencies or other conditions that would be stated in the agreement; by mutual agreement between the agency and the employee, a service agreement could be modified to provide additional repayments for additional service, thereby removing the need for a new service agreement; periods during which an employee is "not in a pay status would not count toward completion of the required service period"; service agreements would include a provision stating whether an employee would need to repay a student loan repayment if he or she transferred to a different agency during the service period; service agreements would have to expressly state that a violation of a condition would result in the employee's loss of eligibility for a repayment; when a service agreement is modified to provide additional repayments for additional service, reimbursement, if the employee failed to complete the additional service period, would cover just the repayments received during that additional period; agencies would have to retain records of student loan repayments for at least three years after the employee's required service period ends; and agencies would be required to report to OPM by March 31of each year on student loan repayments made during the previous calendar (rather than fiscal) year. Executive branch agencies have considerable flexibility to implement student loan repayment programs. Two sample student loan repayment plans have been published by OPM as guidance to the agencies. OPM also includes a summary of agency best practices and lessons learned on its Internet website. Among the best practices listed are developing an online application system, using standard application and justification forms, verifying loan information, confirming that lenders are properly crediting payments, and developing internal controls. In May 2006, OPM submitted its report to Congress on the FY2005 student loan repayments. The OPM document is based on reports from the individual agencies on their repayment programs. (Given that the individual agency reports are not publicly available, CRS is unable to independently evaluate agency results.) According to OPM, 28 executive branch agencies made repayments to 4,171 employees at a total cost of $26,663,897 in FY2005. This compares with 26 executive branch agencies making repayments to 2,680 employees at a total cost of $15,028,432 in FY2004. From FY2004 to FY2005, the number of recipients increased by 55.6% and the cost of repayments increased by 77.4% in the executive branch. With the addition of the Departments of Commerce and Homeland Security in FY2005, all 15 cabinet agencies have now implemented repayment programs. The cabinet agencies made 3,504 repayments in FY2005 and the non-cabinet agencies made 667 repayments. The average payment was $6,009 (cabinet agencies) and $8,405 (non-cabinet agencies). As shown in Figures 1 and 2 , the number of employees receiving student loan repayments and the cost of the repayments in the executive branch have grown significantly. For FY2001, OPM reported that one student loan repayment had been made; the Department of Health and Human Services made a repayment of $6,000 for one employee. In FY2002, 15 executive branch agencies made repayments to 521 employees at a total cost of $2,561,328 and by FY2003, 22 executive branch agencies made repayments to 1,802 employees at a total cost of $7,984,207. Table A-1 in the Appendix provides data on repayments in executive and legislative branch agencies. Table A-2 lists the number of recipients and the cost of repayments for each of the executive branch agencies for FY2002, FY2003, FY2004, and FY2005. The top four agencies in terms of the number of employees receiving repayments in FY2005 were the Department of Justice (1,092 employees, up from 331 in FY2004 and 160 in FY2003); the Department of Defense (1,077 employees, up from 702 in FY2004 and 469 in FY2003); the Department of State (809 employees, up from 734 in FY2004 and 660 in FY2003); and the Securities and Exchange Commission (414 employees, up from 384 in FY2004 and 257 in FY2003). Of the four agencies, the Department of Justice, at 230%, had the greatest increase in the number of recipients from FY2004 to FY2005, followed by the Departments of Defense (53.4%) and State (10.2%) and the Securities and Exchange Commission (7.8%). Other executive branch agencies with more than 50 employees receiving repayments in FY2005 were the Department of Housing and Urban Development (180 employees, up from 81 in FY2004), the Federal Energy Regulatory Commission (87 employees, up from 78 in FY2004), the Department of Veterans Affairs (82 employees, up from 53 in FY2004), and the Department of Health and Human Services (51 employees, down from 55 in FY2004). Among these agencies, the Departments of Housing and Urban Development, at 122.2%, and Veterans Affairs, at 54.7%, had the greatest increase in the number of recipients from FY2004 to FY2005. Eight agencies were repaying student loans for under 10 employees each. The Departments of Justice, Defense, and State, and the Securities and Exchange Commission also are the top four agencies in terms of the cost of repayments. For FY2005, these costs (rounded) were $10.064 million (Justice), $4.818 million (Defense), $3.860 million (State), and $3.690 million (Securities and Exchange Commission). From FY2004 to FY2005, the cost of repayments increased 424.3% at Justice, 56.5% at Defense, 6.9% at State, and 12% at the Securities and Exchange Commission. According to OPM, some 21% of recipients work as attorneys or criminal investigators. The OPM report also provides information on the occupations of the recipients at the agencies with the largest participation in the student loan repayment program as follows. At the Department of Justice, the majority of repayments were provided to special agents (424), intelligence analysts (182), trial attorneys (84), investigative specialists (83), and support service clerks/technicians (55). The special agents, intelligence analysts, and investigative specialists are among the 988 FBI employees receiving repayments. FBI recipients represent 90.5% of the department's total of 1,092 recipients. At the Department of Defense, employees in some 105 different occupations received repayments, but most of them were provided to mechanical engineers (135), contract specialists (70), nuclear engineers (69), information technology specialists (65), and electrical and electronics engineers (53 each). At the Department of State, 599 recipients were members of the Foreign Service (up from 547 in FY2004 and 472 in FY2003) and 210 recipients were General Schedule (GS) civil service employees (up from 187 in FY2004 and 188 in FY2003). Employees in some 44 different occupations received repayments, but the greatest number of recipients were in the Foreign Service positions of Political Affairs Officer (121), Economics Officer (104), Public Diplomacy Officer (97), Administrative Management (79), and Consular Officer (64). As for the GS positions, most of the recipients were in general management or passport/visa examiners (38 each) and foreign affairs officers (34). At the Securities and Exchange Commission, repayments were used primarily to recruit and retain attorney-advisers (242), staff accountants (78), and securities compliance examiners (48). Approximately 77% of the repayments made by the SEC were at the annual maximum amount of $10,000. Of those executive branch agencies which have not made student loan repayments, five reported that they have established a repayment plan and seven said they are in the process of developing such a plan. Agencies not offering repayments reported that among their reasons for not doing so are that higher-graded specialist positions are typically filled with individuals whose student loan debts have been paid off, recruitment or retention is not problematic, and hiring targets can be met. As in its earlier reports, OPM asked agencies about the effect of student loan repayments on recruitment and retention. "Very positive comments" were provided by the agencies according to OPM and the responses of 12 agencies were summarized in its FY2005 report. Several of the responses were general statements, not supported by any evidence, that repayments: create "good employee morale," are "a useful tool in targeting difficult-to-fill occupations," "provide stability in the workforce," and "reinforced employees' belief they made the correct career choice." Other responses addressed the specific use of repayment programs, including these: The Department of the Interior reported its program has been particularly important to its bureaus for attracting competent employees in the fields of engineering, environmental science, telecommunications, and financial analysis ... helpful in attracting highly-skilled employees to assist in the recovery and clean-up of damage caused by the devastating hurricanes ... during FY2005. The Department of Labor reported its ... program enabled its Office of Inspector General to retain valuable employees in jobs with high turnover rates. The National Aeronautics and Space Administration (NASA) uses its ... program as a tool for recruiting highly skilled graduates from undergraduate and graduate school programs ... [and] targets benefits to individuals participating in ... the Presidential Management Fellows Program, the Federal Career Intern Program, and the National Security Education Program. When asked by OPM in 2004 "if using student loan repayment had improved recruitment and retention efforts," 21 of the 27 agencies responding to the question reported "a positive impact" while four agencies "gave neutral responses, mostly stating it was too early to determine the effectiveness of the program." DOD provided an example to OPM of results in these areas. During the previous two years, one DOD component had recruited 335 college graduates in various career fields, thereby enabling the component to meet its recruitment goals in the scientist, engineer, and information technology fields. As for retention, a DOD component reported only five separations out of 173 program participants. Five agencies reported to OPM that they were using student loan repayments to recruit Presidential Management Fellows (PMFs) or federal interns. For example, At the Department of Education, student loan repayment contributed to the successful recruitment of eight highly skilled PMFs during FY2004 ... the Department of Energy reported that it was able to hire four high caliber Technical Interns that it probably would not have been able to hire in the absence of student loan repayment. After recruiting these individuals using the program, the Department ... has had success in retaining these employees by converting them to permanent positions. OPM's FY2003 report noted: "The vast majority of the responding agencies stated that the use of the program had assisted them in recruiting and retaining highly qualified personnel." Comments from agencies using the program for recruitment included statements that the repayments "allowed them to remain competitive with the private sector in recruiting top notch employees," heightened interest during recruiting at college campuses, and aided workforce diversity. Agencies using the program for retention said that the repayments reduced attrition among recent new hires, permitted the filling of a position requiring a particular competency, and positively affected the morale of employees, among other results. The majority of agencies told OPM in FY2004 that they had not established specific metrics to measure the effectiveness of student loan repayments as a recruitment and retention tool. Five agencies, however, reported that they had established metrics, three agencies were working to do so, and two agencies were using metrics already available. Another agency, HUD, was identifying baseline metrics for its repayment program on employee satisfaction, participant versus non-participant retention rates, and service agreement statistics. OPM's FY2005 report notes "the considerable administrative burden" reported by agencies who are implementing and administering repayment programs. "[W]orking with student loan lenders to verify an employee's loan information and ensuring loan payments are credited properly" is the most common difficulty. According to the agencies, such administrative tasks "can place heavy demands on staff resources." Among administrative practices reported to OPM, the Department of Defense delegates approval of repayments "to the lowest practical management level," and the State Department provided 89% of recipients with a lump sum repayment of $4,600 in FY2005. Some agencies administer funding of the repayment programs centrally, while other agencies delegate authority to component agencies or organizations, and still others apply a case-by-case approach. OPM's FY2004 report provided examples of each approach as follows. HUD centrally allocates funds for repayments and offers them to all qualifying employees. The State Department's repayment program is both centrally funded and administered. Repayment decisions are almost entirely based on the recruitment needs for specific posts or positions. An individual's eligibility for a repayment is determined by using six recruitment and retention difficulty factors for Civil Service employees and 11 factors for Foreign Service employees. The repayment amounts provided depend on annual funding and the number of employees eligible. As for delegated authority, the Federal Energy Regulatory Commission allocates salary funds to each of its program offices based on their full-time employment totals; each office then determines, by managing-to-budget, the amount of repayments. At the Department of the Treasury, several program offices have reserved special funds for incentives, such as student loan repayments, for critical positions requiring unique skills. DOD applies established criteria to justify and budget for repayments that meet specific recruitment and retention needs. On a case-by-case basis, a committee of three senior managers at the Export-Import Bank reviews each request for student loan repayment against factors such as difficulty recruiting or retaining highly or uniquely qualified individuals, availability of funds, the employee's performance, and the availability of other tools for recruitment or retention. OPM stated that the "vast majority" of agencies reported in FY2003 that budgeting decisions for student loan repayments were delegated to their component organizations. Some agencies said that they "manage-to-budget" according to available funding. Another agency reported that limited funds dictate that repayments be justified against other types of incentives. OPM stated that it would continue to assist agencies in establishing budget plans for loan repayments. Several agencies not currently using student loan repayments noted that "lack of funding for the program or general budgetary constraints" was the reason. According to OPM, the three primary barriers to using student loan repayments continue to be difficulty in funding the program, the tax liability of the repayment, and the requirement of a three-year service agreement in return for a repayment. "Fiscal constraints" were reported by 18 of 22 agencies who responded to OPM's question on impediments to the use of student loan repayments in FY2005. Eight of the 18 said that lack of funding precluded making any repayments. The FY2002 OPM report on the repayment program stated that several agencies recommended that tax liability on repayments be eliminated and that the three-year service requirement be reduced. In its FY2005 report, OPM notes the views of one agency that the "service obligation is overly burdensome to employees, considering no pro rata credit is given (i.e., the penalty for failing to complete the service agreement is full reimbursement to the paying agency)." Legislation would be required to make the changes on tax liability and service required. H.R. 1765 and S. 1255 , the Generating Opportunity by Forgiving Educational Debt for Service Act of 2006, which would address the tax liability issue, are pending in the 109 th Congress. (See the discussion under " Tax Implications ," above.) The agencies reported using various means to publicize their repayment programs in FY2003. When the benefit is used for recruitment purposes, "career fairs, website announcements, college placement office notices, college recruiting trips, pamphlets and brochures, and job announcements" are used to announce the availability of the benefit. "New employee orientation, agency intranet, employee newsletters, employee guides, supervisor guides, briefings to managers, supervisory training courses, email announcements, and telegrams to offices abroad" are among the methods used to publicize the availability of repayments for retention purposes. The FY2004 report notes that OPM hosted a focus group on student loan repayments in September 2004, and the FY2005 report states that two interagency forums were conducted in August and December 2005. Agencies exchanged information about the implementation of their repayment programs at both events. An interagency working group and an e-mail list server were established in 2005 to foster such information sharing; the working group has met several times, most recently on May 23, 2006. OPM anticipates that the increased use of student loan repayments will continue in FY2006. In a July 22, 2005, report on the student loan repayment program, GAO suggested that OPM and the Chief Human Capital Officers Council could improve the efficiency, administration, and evaluation of the program by working with the agencies, [to] determine where program streamlining and consolidation of agencies' administrative tasks are most feasible and appropriate, and design ways to implement these program improvements, especially those that could be implemented governmentwide and the most cost-effective ways to implement them. Examples of program improvements ... include creating a central database of student loan lender information and establishing a shared service center arrangement for student loan repayments. Continu[ing] and expand[ing] on its efforts to provide agencies assistance and to help facilitate coordination and sharing of leading practices ... . Help[ing] agencies determine ways in which they can monitor long-term program effects on their recruitment and retention needs, such as determining data to collect and use as indicators of effects. This ... could provide a consistent set of governmentwide indicators that would allow OPM to assess, and report to Congress on, the program's overall results achieved. OPM concurred with GAO's recommendations and addressed the third suggestion, related to data requirements and indicators, as part of its comments on a draft of the report. The Enterprise Human Resources Integration (EHRI) data warehouse, with more than 400 human resources, training, and payroll data elements, will provide OPM with "a greatly improved ability to track and measure the success" of the student loan repayment program by facilitating the establishment of data requirements and the creation of a baseline, according to the agency. The HR Line of Business initiative, under which multiple agencies are served by a few providers, may allow for consolidation and automation of the repayment program in a cost-effective way. Managers responsible for administering student loan repayment programs in the executive branch discussed the GAO recommendations at two forums hosted by OPM on August 3, 2005, and December 14, 2005. An issue reportedly examined at the earlier forum focused on the responsibility of employees to have their student loan papers in order. Following the August meeting, OPM encouraged departments and agencies to "develop a budget plan for using recruitment and retention incentives, including student loan repayments." In a November 22, 2005, letter to the Chief Human Capital Officers, OPM Director Linda Springer requested that departments and agencies submit FY2005 data to OPM for the annual report on student loan repayments and identify ways OPM could assist them with their programs. She also encouraged them to share information on "best practices, lessons learned, program effectiveness, metrics used to measure program success, establishing a business case, problem areas, or other relevant details." There is considerable interest in student loan repayment in the legislative branch, but no single policy for, or approach to, repayments currently applies evenly across the entire legislative branch. The 1990 student loan repayment statute ( P.L. 101-510 ) provided authority to GAO, GPO, and the Library of Congress to establish student loan repayment programs. The FY2002 Legislative Branch Appropriations Act ( P.L. 107-68 , H.R. 2647 ) provided the Senate and CBO with authority to establish student loan repayment programs. The FY2002 Department of Defense Appropriations Act ( P.L. 107-117 , H.R. 3338 ) extended similar authority to the U.S. Capitol Police. As noted earlier, the House tried unsuccessfully in the 107 th Congress to establishment a repayment program for its employees. A House bill ( H.R. 2555 ), referred to two House committees, proposed that a student loan repayment program be authorized for the entire legislative branch. No further action was taken on this bill. Early in the 108 th Congress, however, Congress passed legislation authorizing a program for House employees under P.L. 108-7 , the Consolidated Appropriations Resolution, 2003. Conferees to the FY2002 Legislative Branch Appropriations bill directed the Legislative Branch Financial Managers Council (LBFMC) to "develop, in consultation with all Legislative Branch entities the controls and criteria that will govern [student loan repayment] program implementation." The LBFMC was directed to perform a comparative analysis between entity implementing regulations and governing controls and criteria. The LBFMC consulted with each legislative branch entity, completed a comparative analysis, and developed governing controls and criteria recommendations for the repayment programs in the legislative branch. The LBFMC reported the results of the analysis and recommendations to the House and Senate appropriations subcommittees on the legislative branch on February 27, 2002. These recommendations included guidelines for the purpose of the repayments; designation of authorizing officials; service agreement criteria and duration; amount and size of repayments; eligibility for repayments; eligible loans; repayment exceptions and waivers; records and reports; and review of the program. The recommendations would provide for consistent application of the program, yet at the same time permit some flexibility. For instance, the duration of the service agreement would necessarily be different for the House and the Senate due to the congressional election cycles. In general, the legislative branch agencies have modeled their programs on the recommended guidelines. Seeking to be competitive with other employers, Congress and several legislative branch entities have established or continue to consider the loan repayment programs as a possible tool to recruit highly qualified and talented individuals, as part of benefits packages. Service agreements in the legislative branch agencies vary from one to three years. For the House and Senate, the requirement for a shorter service agreement than the executive branch (one-year agreement) is attributed to the impact that election cycles and possible changes in Congress' majority/minority composition may have on the individual Members' offices, committees, and administrative support offices. Table A-1 includes data on repayment programs in the legislative branch for FY2004. Some Members in both the Senate and the House, concerned about high turnover and "brain drain" in their personal and committee offices, have expressed varying degrees of interest in and support for student loan repayment programs. Congressional staff, on average, tend to be younger than other federal employees, and many are recent college graduates carrying significant student loan debt. According to the 2001 Senate Staff Employment Study , conducted by the Congressional Management Foundation (CMF), in the offices that responded, about 86% of Senate staff held at least a bachelor's degree and about 20% had advanced degrees. The 2004 House Staff Employment Study found that, in the offices that responded, 70% of House staff held a minimum of a bachelor's degree and 17% held advanced degrees. Proponents of the repayment program want the same tools as other federal employers to attract and retain high caliber individuals. Others do not see the necessity for a student loan forgiveness program as a recruitment incentive, however, because they find no lack of highly qualified applicants for congressional jobs. Working for a congressional office or committee is viewed as highly desirable, and these staff positions have a certain cachet that, arguably, makes them at least as desirable as other federal jobs. Congress watchers observe that congressional staff tenure is relatively short because congressional salaries cannot compete with those in the private sector, the hours are long, and the workload is heavy. Even under such conditions, thousands of highly qualified individuals flock to Capitol Hill for the opportunity to work for a Member of Congress or congressional committee, to have input into public policy, and to play a role in shaping the nation's laws. Some observers maintain that a high percentage of staff never intend to stay long, and view the Hill experience as a launching pad from which to reach other career goals. On the other hand, in the view of many, while recruitment of congressional staff is not a problem, retention is. According to the CMF 2001 Senate study, 50% of Senate staff had less than one year of experience in their current positions, including 52% of communication directors, 44% of legislative assistants, 73% of legislative correspondents, 50% of legislative directors, and 34% of chiefs of staff. Results of the CMF 2004 House study indicated that over 60% of House staff have two or fewer years experience in their current positions, including 39% of chiefs of staff, 64% of legislative directors, and 66% of press secretaries. Turnover is higher for entry-level positions. High staff turnover not only affects an individual Member's office or a committee on which the Member serves, but also is a qualitative and quantitative loss to Congress as an institution. The potential disruption to the smooth operations of a congressional office or committee, and the time needed to recruit, interview, hire, and train new staff is a cost that has not been precisely calculated. This concern has led the Senate and the House to establish student loan repayment programs, which are detailed below. Senate employing offices have the authority to establish a student loan repayment program under the FY2002 Legislative Branch Appropriations Act ( P.L. 107-68 ) for recruitment and retention purposes. The act authorizes the head of a Senate employing office, at his or her discretion, to establish a program under which the office may agree to repay student loan debt by direct payments on behalf of the Senate employee. Under P.L. 107-68 , the authorized appropriation for the program for the personal office of a Senator is to equal 2% of the total sum appropriated for administrative and clerical salaries. The amount for all other employing offices (committee, leadership, and administrative) is 2% of the total sums appropriated for the fiscal year for the salaries of those offices. For Senate committees, the funds are to be apportioned between the majority and minority staff. The Secretary of the Senate established a central account specifically for the program from which repayments are made available, and within that account there are sub-accounts for each employing office from which the student loan repayments are to be made. The authorization applies to FY2002 and each fiscal year thereafter, and is subject to annual appropriations. The Senate began implementation of student loan repayments in mid-March 2002. A minimum one-year service agreement is required, with the possibility of additional one-year agreements. The monthly maximum is $500 ($6,000 per year) over a 12-month period with a total limit of $40,000. There are no plans at this time to increase the monthly or aggregate amounts permitted for repayments to the levels authorized for executive branch employees ($10,000 per year, $60,000 aggregate). The program has components similar to those provided for the executive branch, including the requirement that an employee must repay the benefit if the employee does not fulfill the terms of the service agreement. The benefit is not an entitlement or a guarantee of continued employment. The repayment may be made on current and outstanding specified loans only, and the amounts are in addition to basic pay and subject to taxes. The types of eligible loans are the same as those approved for the executive branch. The Secretary of the Senate has provided offices with guidance on the steps to implement the student loan program, and has prepared a standard service agreement for the use of employing offices. Written service agreements must be signed and submitted to the Senate Disbursing Office, which will make the repayments directly to the lender. At the April 13, 2005, Senate Appropriations Subcommittee on Legislative Branch hearing on the FY2006 appropriations bill, the Secretary of the Senate reported that a survey on the student loan program was conducted about a year ago. Sixty offices out of 140 Senate offices (personal, committee, leadership, and administrative) responded to the survey, and the responses indicated strong support for the program. Although there is no statistical evidence that the benefit has been an effective recruitment and retention tool, the secretary stated that there is anecdotal evidence that Senate offices view it as an effective tool. Each of the Senate offices participating in the program varies in the benefit amounts, up to the program maximum of $500 a month, and each sets its own program within the parameters of the law. Currently, some 126 offices are providing the student loan repayment to nearly 900 Senate employees at a cost of about $3 million (an average of approximately $3,333 a year per employee). The administration of the program is quite complex; and the secretary indicated that at times as there could be as many as 100 lenders to pay, with many lending institutions being sold and re-managed, and stated that efforts were underway to streamline the process in paying lenders. At the hearing, Senator Durbin expressed the hope that information be gathered and safeguards be put in place to prevent abuses and waste and to enhance the initial goals of the program (recruitment and retention). The Secretary of the Senate stated that she looked forward to working on this with the Senator. Under the Consolidated Appropriations Resolution, 2003 ( P.L. 108-7 ), the House was granted authority to establish a student loan repayment program for its employees. The Committee on House Administration directed the Chief Administrative Officer (CAO) to design and administer a program modeled after the Senate's and, in general, executive branch repayment programs. Like the Senate program, the House program requires a one-year service agreement, with the possibility of additional one-year agreements. The maximum monthly payment is $500 ($6,000 annual) with a total limit of $40,000 per employee. There are no plans at this time to increase the annual and aggregate amounts permitted for repayments to the levels authorized for executive branch employees. A central account, administered by the CAO, funds the House repayment program; thus, costs do not come from the Member's Representational Allowance (MRA), or committee or office budgets. The personal office of a Member, Delegate, or Resident Commissioner is to be allocated an amount equal to 2% of the average MRA for all Member offices for the year. For other House employing offices, an amount equal to 2% of the salaries and expenses for the year is to be made available. The House Offices of Finance and Human Resources have established a reporting mechanism by which Member personal offices, House officers, and other House offices are informed of monthly student loan repayments made to the participating offices. The CAO has prepared a standard written agreement for the offices to use. If a House employee violates or leaves the office before fulfilling the terms of the service agreement, the employee must pay back the benefit. The benefit is not an entitlement or a guarantee of continued employment. The decision for granting the benefit is at the sole discretion of each employing office, subject to law and regulations. Repayments may be granted only to full-time employees. Interns, volunteers, unpaid staff, and Members are not eligible for the program. The repayment may be made to current and outstanding specified loans only, it must be paid directly to the lender, and payments are counted as taxable income. At the beginning of March 2003, the Committee on House Administration held briefings on the repayment program for leadership, committee, and personal offices. Details about the repayment benefit are available on the committee's website, at http://www.house.gov/cha/studentloan.htm . Student loan repayments began in the House in May 2003. The House Committees on Appropriations and House Administration receive annual reports on student loan repayments made on behalf of House employees. In FY2004, a total of 2,102 House employees in 465 Member offices, leadership offices, committees, and administrative support offices received the repayment benefit. The repayments ranged from $300 to $500 a month per employee, and the House spent a total of $7,075,000 (an average of $3,366 a year per employee) for the program during the fiscal year. In FY2005, the total monthly limit of repayment benefits for each individual Member's office is $2,147. The repayment program is generally viewed as useful for both recruitment and retention. According to the CMF 2004 House Staff Employment Study , a majority (63%) believed that the repayment program helped the offices with recruitment and retention. About 11% of the offices said they did not believe it assisted with these goals and nearly 26% were "not sure" of the impact. Congress has indicated concern about impending retirements within the federal workforce and in the legislative branch. As with executive branch agencies, several legislative branch entities have implemented programs or are currently considering or formulating possible student loan repayment programs for their respective employees. Legislative branch entities are planning for substantial retirements in their respective agencies over the next several years. For example, by the end of FY2006, 30% of all employees at CBO will be eligible for retirement, including 22% of analysts and 46% of managers. The Library of Congress estimates that 32% of its employees, including 27% of information technology specialists, will be eligible for retirement by that date. Thirty-eight percent of Congressional Research Service (CRS) employees will be eligible to retire by the end of FY2006, including 40% of the research and analytical staff and 79% of senior management. At GAO, more than 28% of the analysts and 61% of senior executives will be eligible for retirement by the end of FY2009. These agencies have devised strategic plans to replace seasoned employees who retire with highly qualified and skilled personnel. Some agencies view student loan repayment programs as an attractive additional component to the benefits package available to potential candidates who might have heavy student debt. The authority of the legislative entities to establish student loan repayment programs and the status of the programs are discussed below. The FY2002 Department of Defense Appropriations Act ( P.L. 107-117 , H.R. 3338 ) authorized the U.S. Capitol Police to establish a student loan repayment program similar to those established under P.L. 101-510 . Subsequently, the Consolidated Appropriations Resolution, 2003 ( P.L. 108-7 , H.R. 5121 ), authorized an educational assistance program for Capitol Police employees. Under this law, the Chief of the Capitol Police may recruit and retain qualified personnel using incentives such as student loan repayment, educational and tuition assistance, training, and career development programs. Currently, repayments of up to $10,000 annually and up to $40,000 in the aggregate per employee are permissible. These amounts include monies granted to an employee for student loan repayment, and tuition reimbursement and assistance expected to be implemented soon. Service agreements are for two years. In December 2003, the Capitol Police issued regulations for the repayment program and began making loan repayments in May 2004 in support of efforts to recruit and retain highly qualified employees, mainly law enforcement professionals and some human resources and information technology specialists. For FY2004, 107 Capitol Police employees were given the repayment benefit at a total cost of $944,000 (an average of $8,822 per employee). In FY2005, the Capitol Police estimates that $1.1 million will be spent on repayments, and the FY2006 budget request for the repayment is $1,383,000. No studies or surveys on the program's effectiveness in recruitment or retention are currently available, partly because it is still new. The Capitol Police have stated however, that there is anecdotal evidence the program is attracting law enforcement candidates and reducing attrition. In the aftermath of the September 11, 2001, terrorist attacks and concerns about bio-terrorism, the Capitol Police lost many officers who took employment in other federal agencies or in the private sector. The agency has found the program to be useful in the intense competition for law enforcement professionals. The Capitol Police also noted that many more of their sworn officers who have been recruited hold degrees. Authority for CBO to establish a student loan repayment program was provided for under the FY2002 Legislative Branch Appropriations Act ( P.L. 107-68 , H.R. 2647 ). Currently, approved employees are eligible for repayments of up to $6,000 (annual) and up to $40,000 (aggregate). In February 2003, CBO established guidelines for the program and began to offer the benefit as a recruiting tool for analysts specializing in the areas of health, finance, and tax. For FY2003, CBO received $30,000 to fund the program. For FY2004, CBO requested $25,000, received a budget of $15,000, and spent $14,683 for three employees (an average of $4,894 a year per employee). For FY2005, CBO requested and received $25,000. To date, CBO has spent $6,000 and provided benefits to one employee. CBO again requested $25,000 for FY2006. Authority for a student loan repayment program is provided for GAO under P.L. 101-510 . GAO issued the final order to implement the program on June 7, 2002. Each fiscal year, GAO allocates funds to be used for the program based on GAO's Human Capital Office estimates of program participation in a given fiscal year. GAO reported the following information to OPM on student loan repayments at the agency: in FY2002, 169 recipients at a cost of $602,662; in FY2003, 231 recipients at a cost of $945,206; in FY2004, 237 recipients at a cost of $1,142,295; and in FY2005, 218 recipients at a cost of $1,170,876. For FY2006, GAO made repayments to 286 recipients at a cost of $1,396,538. According to the agency, "a demographic breakdown of the FY2006 recipients shows that 59 percent were in headquarters and 41 percent [were] in the field; 26 percent were minorities ... 43 percent have been with GAO more than three years [and] 57 percent, less than three years." The repayments ranged from less than $4,500 (received by 17 employees with lower student loan balances), to $4,500 (received by 228 employees) to $8,000 (received by 40 employees in hard-to-fill positions). In the spring of 2004, GAO conducted an evaluation of the FY2003 repayment program in a web survey. The question concerning the efficacy of the program read as follows: "The purpose of the student loan repayment program is to repay all or part of a student loan to facilitate the recruitment or retention of highly qualified employees. Overall, how much influence does the student loan repayment program have on your decision to stay at GAO?" A total of 286 respondents answered as follows: Great Influence—18.9% Some Influence—17.1% Moderate Influence—25.9% Little or no influence—30.1% Authority to establish a student loan repayment program is granted to GPO under P.L. 101-510 . GPO implemented a repayment program in April 2002, and since that time, 52 employees have received repayments. The program is funded from GPO's revolving fund. In FY2004, GPO provided 28 employees with the benefit at a cost of $253,638 (an average of $9,059 a year per employee). The estimate for FY2005 is to provide 25 employees with the repayment benefit at a cost of about $175,000. Authority for the Library of Congress to establish a student loan repayment program is provided for under P.L. 101-510 . The Library issued final regulations on the student loan repayment program on October 7, 2002, and revised those regulations on May 5, 2004. CRS requested, but did not receive, funding for a repayment program in FY2003 and FY2004. In FY2005, Congress did not approve a proposal for CRS to establish a pilot repayment program. Library offices (not including CRS) are absorbing costs for the repayment program within their base budgets because the Library did not receive funding for the program in both FY2004 and FY2005. The Library did not request funds for FY2006. In FY2003, the Library provided the repayment benefit to two employees and in FY2004, to eight employees at a total cost of $46,000 (an average of $5,750 a year per employee). In FY2005, the Library anticipates providing benefits to seven employees at a total cost of approximately $41,000. The Architect of the Capitol and the Office of Compliance each have examined the repayment program as a possible recruitment and retention tool. Although each agency requested authority to establish a student loan repayment program in the past, Congress did not grant the requests. The Administrative Office of the U.S. Courts administers personnel policies for the judicial branch. According to the Office, consistent with Judicial Conference of the United States policy, statutory language was included in courts improvement legislation in the 108 th Congress ( H.R. 1302 and S. 2396 ) that would have authorized judicial law clerks working full-time to defer payment of principal and interest on federally insured student loans for up to three years (typically the term law clerks serve). A similar legislative proposal was submitted to the 109 th Congress in March 2005, but has not been introduced. The authority is sought to enable federal judges to be more competitive with law firms in hiring new attorneys as clerks. Unlike executive branch agencies, the Judiciary has not sought statutory authorization to use its appropriated funds to repay student loans as a recruitment or retention incentive for prospective or current employees. Agencies may consider several issues as they implement student loan repayment programs or determine whether the establishment of such programs is desirable or feasible. Among these issues are how the program will be funded, the length of the service agreement between the agency and the employee, the criteria for eligibility, and the kinds of program data to be collected. Each is discussed below. While P.L. 101-510 , as amended, provides authority to executive and certain legislative branch support agencies to establish student loan repayment programs, the law does not provide funding to implement those programs. The legislative history of the 1990 law is clear that the authority is to be used "sparingly" and that no additional appropriations were anticipated. Despite this intention, a specific appropriation for repayments is sometimes requested and received by agencies. The Department of State, for example, requested an appropriation of $7 million for FY2002 and received an appropriation of $2 million for such repayments. The FY2002 Legislative Branch Appropriations Act ( P.L. 107-68 ) authorized appropriations for a student loan repayment program for Senate employing offices in FY2002 and each succeeding year. Not all agencies receive specific funds for the program, however. Absent this, agencies must prioritize among all available recruitment and retention incentives, including student loan repayments, and then allocate funds accordingly from existing pay and benefits programs. A consideration might be how to use the funding available for incentives in a manner that would benefit the greatest number of employees. The U.S. Commission on National Security/21 st Century, known as the Hart-Rudman Commission, recommended that additional funds "to maximize agencies' options in recruiting and retaining high-quality personnel" be provided. Identifying student loan repayments as one of many incentive programs designed to recruit and retain employees, the commission stated that the lack of agency use of the programs resulted from a "lack of funds." The commission noted that, "Because all incentive programs are drawn from the same pool of money as that for salaries, administrators must trade off incentives for some employees against the ability to hire additional personnel." The commission also recommended loan forgiveness for those individuals in science, mathematics, and engineering entering civilian government or military service. Currently, a service agreement of at least three years is required in the executive branch. In the legislative branch, the service agreement varies from one to three years. Among the considerations that might enter into an agency's discussion of the appropriate length of a service agreement are these: Whether the repayments are used to recruit or retain employees, the time and resources that would be expended to hire and train employees to replace those who are leaving, the time that it takes for newly hired employees to develop expertise in their positions, and whether a service agreement longer than the minimum would diminish the interest of employees in working in agencies with extended requirements. Additionally, a Member of Congress's tenure in office may affect the decision on the length of the service period required in House and Senate offices. When publishing the proposed regulations, OPM identified five factors to be considered in determining whether the loan repayments should be authorized and the amount of such payments: the success of recent efforts to recruit high quality candidates, labor market factors affecting recruitment, special qualifications or education needed, the cost of training current versus new employees, and the practicality of using other recruitment and retention incentives. OPM's final regulations noted that because "Several agencies complained that the 'factors to be considered' portion of the [Criteria for Payment] section were overly restrictive and burdensome," these were deleted from the final rules. Requirements for written determinations of the need for the repayments based on recruitment and retention (see the " Criteria for Repayments " section above) were retained in the final regulations. In final regulations implementing the amendments to the law, OPM noted a suggestion that the term "highly qualified personnel" be defined in the regulations. OPM stated that it did not adopt this suggestion because "A standard definition of 'highly qualified personnel' may limit agencies in their use of this authority, as there are many ways in which [individuals] may be deemed highly qualified in relation to the duties they perform or the skills they possess." As for making the determination that an employee would likely leave government service without the repayment benefit, OPM stated that the regulations give agencies "wide latitude" and do not require "proof from a private sector employer" to use repayment as a retention incentive. The flexibility inherent in the OPM criteria for student loan repayments may be considered by agencies in deciding whether repayments or other recruitment and retention incentives would best meet their needs. The desire to fairly administer a repayment program and not adversely affect employee morale may prompt consideration of these issues: whether just new recruits or both new recruits and current employees would be eligible for student loan repayments, the capability of new recruits to repay their student loans depending on the pay grade at which they are hired, and the fact that some current employees may have already recently paid off their student loans. P.L. 106-398 requires covered agencies to report annually to OPM on the number and job classifications of employees receiving student loan repayments and the cost of providing the repayments. The regulations implementing the law state that "cost" is defined as the total amount of student loan repayments, and not the costs of administering the program. Under the regulations, records on student loan repayments must be maintained by the agencies for three years, or until after OPM formally evaluates the program, whichever comes first. OPM must report annually to Congress on agencies' use of student loan repayments. Given the expansion of student loan repayment programs, especially in the last year, a more comprehensive indicator of expenses would be provided if OPM's annual report included information on the costs of administering the programs. In Congress, the Senate Disbursing Office, under the Office of the Secretary of the Senate, reports annually to the Committee on Appropriations and to the Committee on Rules and Administration on the loan repayments made to Senate employees. The Office of the Chief Administrative Officer reports annually to the Committee on Appropriations and the Committee on House Administration on repayments made to House employees. The legislative branch does not require a report of its agencies that is publicly available or comparable to OPM's report. One way to assess the effectiveness of the repayments as a recruitment and retention tool could be a survey of the employing offices providing repayment benefits that would detail similar elements as presented in the OPM report. Agencies might examine whether student loan repayment records should be maintained beyond the period prescribed by regulation. A longer period of record keeping might be useful if an employee leaves to work at another federal agency and, in turn, also receives loan repayment from that agency. The collected data could be useful in evaluating the cost, desirability, feasibility, and effectiveness of the programs. Pilot programs, instituted to test the effectiveness of repayments in meeting workforce management goals, could serve as models for other agencies as yet undecided about establishing repayment programs. In order to enhance the oversight of student loan repayment programs, OPM may want to expand the information provided in its annual report to Congress. Additional data that could be reported might include the following: the costs of administering such programs; the number of individuals who leave government service after receiving repayments and completing the minimum required service period, the number of individuals who have been granted waivers from repaying the benefit if they do not fulfill the service agreement (an agency head may waive the repayment for reasons of equity or public interest), and the attrition rates of employees both receiving and not receiving repayments. Other information that could be included in the OPM report might be the composition as to sex and race of recipients, to determine whether the program is being administered in an equitable manner, and details on the written determination document that recipients sign to attest that they would leave federal service in the absence of the student loan repayment. Congress, OPM, and the agencies themselves also may wish to examine whether the intent of Congress that repayments be used sparingly and with great discretion is being fulfilled, particularly since the number of repayments has increased so significantly between FY2004 and FY2005. Individual executive agency reports on student loan repayments are not available publicly. Perhaps agencies would consider posting these reports on their Internet websites. Oversight of the repayment programs may be strengthened by evaluations conducted by agency Inspectors General or the National Academy of Public Administration. Currently, several agencies have anecdotal evidence on the effectiveness of their student loan repayment programs. Some agencies are into their fourth year of using the incentive while others have one to three years of experience with the program. In order to further assess the impact of repayments, agencies may institute systematic entrance and exit interviews that query their employees on the importance of receiving student loan repayments compared to other available recruitment and retention incentives. In addition, the recruitment and retention results for new hires who received and did not receive the repayments could be compared to determine the effectiveness of the repayments. Information on the specific recruitment and retention challenges that agencies are trying to mitigate through the use of repayments also would illuminate whether they are primarily competing with other agencies or with the private sector for staff. Three executive branch agencies—the Departments of Justice and Defense and the Securities and Exchange Commission—have been in the forefront of student loan repayment programs since FY2003. The Department of State has been so since FY2002. Together, these four agencies account for 81.3% (3,392) of recipients of repayments and 84.1% ($22,432,654) of the total cost of repayments in the executive branch in FY2005. OPM's annual report could provide Congress with a more complete measure of the efficiency and effectiveness of repayment programs if it included detailed information on the administrative practices and costs and the outcomes of the programs at these four agencies.
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Under a law enacted in 1990 (P.L. 101-510) and amended in 2000 (P.L. 106-398) and 2003 (P.L. 108-123 and P.L. 108-136), federal agencies may repay portions of the student loans of highly qualified General Schedule (GS) and non-GS (including Foreign Service) employees they seek to recruit and retain. Eligible employees must sign at least a three-year service agreement to remain with their agencies. In return, these employees may receive loan repayments of up to $10,000 per year and up to $60,000 in total from an agency. Various student loans specified in law and authorized by the Higher Education Act of 1965 and the Public Health Service Act may be repaid. Concerns about the attractiveness of government service to, and the large amount of student loan indebtedness of, new graduates along with the possibility of a significant number of retirements from the federal government in the next several years underlie student loan repayment programs. The Office of Personnel Management (OPM) published final regulations to implement the original law on January 11, 2001, and final regulations to implement the amendments to the law on July 31, 2001, and April 20, 2004. Executive branch agencies are considering and implementing student loan repayment programs. OPM reported to Congress in May 2006 that 28 executive branch agencies made repayments to 4,171 employees at a cost of some $26.664 million in FY2005. The number of recipients increased by 55.6% and the cost of repayments increased by 77.4% from FY2004 to FY2005. In the legislative branch, the Government Accountability Office (GAO, formerly the General Accounting Office), the Government Printing Office (GPO), and the Library of Congress also have authority under the laws stated above to establish student loan repayment programs. Enacted in the 107th Congress, P.L. 107-68 authorized the Senate and the Congressional Budget Office (CBO) to institute programs, and P.L. 107-117 authorized the U.S. Capitol Police to establish one. Under the Consolidated Appropriations Resolution, 2003 (P.L. 108-7), enacted in the 108th Congress, the House of Representatives has authority to establish a program for its employees, and additional authority was granted to the U.S. Capitol Police to establish a program and to provide tuition reimbursement for employees' ongoing career development education. To date, the Senate, the House, the U.S. Capitol Police, CBO, GAO, GPO, and the Library (not including the Congressional Research Service) have implemented repayment programs. In both the executive and legislative branches, questions of how to fund the programs, what the required period of service should be, the criteria for repayment eligibility, and the kinds of program data to be collected will likely continue to be considered as repayment programs are implemented. OPM published proposed changes to the regulations governing repayments in the Federal Register on January 9, 2007. S. 1047, to exempt repayments from income tax, is pending in the Senate. The legislative history, statutory authority, status of executive and legislative branch implementation, issues for consideration, and oversight of student loan repayment programs are discussed in this report, which will be updated as events warrant.
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The Family and Medical Leave Act of 1993 (FMLA; P.L. 103-3 , as amended) entitles eligible employees to unpaid, job-protected leave for certain family and medical needs, with continuation of group health plan benefits. Through the act, Congress sought to strike a balance between workplace responsibilities and workers' growing need to take leave for significant family and medical events. The act as passed in 1993 focused on providing an entitlement to leave for the arrival of a newborn or newly-placed child, serious health conditions in the family, and the employee's own serious health condition that interferes with his or her ability to perform essential job functions. In passing the act, Congress cited an increase in dual-earner and single-parent households that reduced the share of families with a caregiver at home. This, alongside an aging population, increased workers' needs for workplace flexibility to attend to significant family and medical events. In 2008 and 2009, Congress responded to a heightened need for leave among military families (connected to large-scale deployments) by adding new categories of leave that allow eligible employees to address certain military exigencies stemming from the deployment of a close family member to a foreign country, and to care for a servicemember with a serious injury or illness who is a close family member. Congress recognized the potential for the FMLA leave entitlement to complicate scheduling for employers and otherwise disrupt business activity. It addressed business interests by placing clear parameters around the types of leave covered by the act, linking employer coverage and employee eligibility to the size of the employer's workforce, conditioning employee eligibility on job tenure and hours-worked requirements, and giving employers the right to advance notice of need for leave and to request medical documentation in certain circumstances. FMLA applies to covered employers and eligible employees in the private and public sectors. Title I of the act applies to eligible employees working in the private sector, state and local governments, and a small set of federal employees, and is administered by the Department of Labor (DOL). Congressional Offices, the Government Accountability Office, and the Library of Congress are also covered by Title I, but its provisions are administered by the U.S. Congress Office of Compliance, the Comptroller General of the United States, and the Librarian of Congress, respectively. Most federal civil service employees are covered by Title II of the act, which is administered by the Office of Personnel Management. Title II's statutory language is—with a few exceptions—closely similar in substance to Title I's, but there are some differences. This report describes the major provision of Title I of the FMLA as administered by the Secretary of Labor. It covers the FMLA leave entitlement and its characteristics, employer coverage, employee eligibility criteria, employer and employee responsibilities, and enforcement. An appendix provides the legislative history of the act. FMLA entitles eligible employees to 12 workweeks of leave in a 12-month period for certain family and medical needs and up to 26 workweeks in a single 12-month period for the care of a covered servicemember with a serious injury of illness. The act requires that covered employers grant up to 12 workweeks (total) in a 12-month period to eligible employees for one or more of the following reasons: the birth and care of the employee's newborn child, provided that leave is taken within 12 months of the child's birth; the placement of an adopted or fostered child with the employee, provided that leave is taken within 12 months of the child's placement; to care for a spouse, child, or parent with a serious health condition; the employee's own serious health condition that renders the employee unable to perform at least one essential functions of his or her job; and qualified military exigencies related to the covered active duty status of the employee's spouse, son, daughter, or parent who is a covered military member. In addition, the act provides up to 26 workweeks of leave in a single 12-month period to eligible employees for the care of a covered military servicemember (including certain veterans) with a serious injury or illness that was sustained or aggravated in the line of duty while on active duty, if the eligible employee is the covered servicemember's spouse, child, parent, or next of kin. The 26 workweek entitlement applies on a per-servicemember, per-serious-injury or -illness basis. This type of FMLA leave is often referred to as military caregiver leave . The combination of military caregiver leave and other FMLA-qualified leave cannot exceed 26 weeks in a 12-month period that starts on the first day that military caregiver leave is used. FMLA leave used for the arrival and care of a new child, serious health conditions, and qualified military exigencies is always capped in total at 12 workweeks in the 12-month period. Special rules regarding the calculation of the FMLA leave entitlement (and other provisions) apply to airline flight crew employees. These employees are entitled to 72 days of leave during a 12-month period for the arrival and care of a new child, serious health conditions, and qualified military exigencies, and 156 days of leave in a single 12-month period for military-caregiver leave. See Appendix A for more information. Spouses employed by the same employer may be limited to a combined 12 weeks of FMLA leave in a 12-month period for the arrival and care of a new child, or the care of a parent with a serious health condition. Spouses working for the same employer may also be limited to a combined 26 weeks of FMLA leave in a single 12-month period to care for a seriously injured or ill covered servicemember (i.e., military caregiver leave). The terms serious health condition , qualifying military exigency , serious illness or injury , and care have specific meaning under the FMLA and its accompanying regulations. Under the FMLA, a serious health condition is one that requires inpatient care or continuing treatment by a health care provider. Inpatient care and continuing treatment are further defined by DOL regulations, resulting in six scenarios that qualify as a serious health condition for the purpose of taking FMLA leave. 1. Inpatient care. FMLA leave may be taken for inpatient care that includes an overnight stay in a medical facility (e.g., hospital, hospice, or residential medical care facility). FMLA protects the time spent in inpatient care, and any associated period of incapacitation and treatment. 2. Incapacity and treatment. FMLA leave may be used for a period of incapacity that lasts more than three consecutive calendar days and requires either two or more in-person visits with a health care provider, or a single in-person visit that results in a course of continuing treatment under a health care provider's supervision. In the context of the FMLA, incapacity refers to "an inability to work, attend school or perform other regular daily activities due to the serious health condition, treatment therefore, or recovery therefrom." 3. Pregnancy or prenatal care. FMLA leave may be used for any period of incapacity due to pregnancy or for prenatal care. There is no requirement tying use of FMLA leave for pregnancy or prenatal care to a specific duration of incapacity or treatment by a health care provider. It may be used as needed, for example, by expectant mothers (or to care for an expectant mother) experiencing severe morning sickness. 4. Chronic conditions . FMLA leave may be taken for treatment of or incapacity due to a chronic serious health condition. A chronic serious health condition is one that requires periodic visits—at least twice a year—for medical treatment, continues over an extended period of time, and may cause episodic or continuing periods of incapacity (e.g., asthma, diabetes, epilepsy). 5. Long-term or permanent conditions. FMLA may be used for a long-term or permanent period of incapacity due to a condition for which treatment may not be effective, as long as the employee or family member is under the continuing supervision of (although not necessarily receiving treatment from) a health care provider. 6. Certain conditions requiring multiple treatments . FMLA leave may be used for any absence to receive and recover from multiple medical treatments for restorative surgery after an injury or accident, or for a condition that would likely result in a period of incapacity lasting three or more consecutive calendar days if not treated. Examples of such conditions include cancer (e.g., chemotherapy), severe arthritis (e.g., physical therapy), or kidney disease (e.g., dialysis). As demonstrated by the above list, FMLA leave cannot be used ordinarily for a minor ailment or for routine doctor's appointments. To give an example, the common cold generally does not meet the criteria of a serious health condition. In most cases it does not require an overnight stay in a medical facility and is unlikely to meet the regulatory definition of continuing treatment (e.g., three or more days of incapacitation and intervention by a health care provider). However, leave necessitated by a common cold is not excluded per se from protection under the act. If, for example, a common cold did lead to overnight hospitalization (e.g., due to complications or other factors), then it would be considered a serious health condition under FMLA and the absence—including periods of incapacitation, hospitalization, and subsequent treatment and recovery periods—would be protected. The act allows eligible employees to use FMLA leave to attend to qualified military exigencies stemming from the covered active duty status (or call to active duty) of a spouse, child, or parent who is a member of the Armed Forces (regular or reserve component). Under the act, c overed active duty for a regular Armed Forces member means duty " during the deployment of the member with the Armed Forces to a foreign country . " For Reserve components, it refers to duty during the "deployment of the member with the Armed Forces to a foreign country under a Federal call or order to active duty in support of a contingency operation." DOL regulations define the set of military exigencies that qualify for leave under the FMLA as follows. Short-notice deployment activities. Up to seven days of leave may be taken to address issues stemming from short-notice (i.e., seven days or less notice) of a call or order to active duty in support of a contingency operation. Military events and related activities . If related to the military member's active duty status, leave may be used to attend official military ceremonies, programs, or events; certain family support or assistance programs; and informational briefings. Childcare and school activities . If necessitated by the military member's active duty status, leave may be taken to arrange childcare or, in limited circumstances, provide childcare for the child of a military member; and to attend school or daycare meetings for, or to enroll in school or childcare the child of a military member. Financial and legal arrangements . Leave may be taken to make financial or legal arrangements related to the military member's absence while on active duty (e.g., preparing powers of attorney, transferring bank account signature authority), and to act as the military member's representative before a government agency for certain matters related to military service benefits while the military member is on active duty and for 90 days following the termination of his or her active duty status. Counseling . FMLA leave may be used to attend counseling—provided by someone other than a health care provider—for the employee, for the military member, or the military member's child, when the need for counseling arises from the active duty or call to active duty status of a covered military member. Rest and r ecuperation . Leave may be taken for up to five days (for each instance of rest and recuperation) to spend time with a deployed military member on short-term, temporary, rest and recuperation leave. Post-deployment activities . Leave may be used to attend certain ceremonies, events, and programs sponsored by the military for a period of 90 days following the termination of the covered military member's active duty status, and to address issues that arise from the death of a covered military member while on active duty status. Parental c are . Leave may be used to care for a parent of a military member, under certain circumstances, if that parent is incapable of self-care. Additional activities . An employer and an eligible employee may agree that FMLA leave may be used to address other needs arising from a covered military member's active duty or call to active duty status. FMLA leave is available to an eligible employee who is the spouse, child, parent, or next of kin of a covered servicemember with a serious injury or illness . A covered servicemember can be a current member of the Armed Forces, including the National Guard or Reserves, or a recent veteran. A current servicemember is covered if he or she has a serious injury or illness for which he or she is undergoing medical treatment, recuperation, or therapy, is otherwise in outpatient status, or is otherwise on the temporary disability retired list. A veteran is a covered servicemember if he or she is undergoing medical treatment, recuperation, or therapy, for a serious injury or illness and was released from the Armed Forces under conditions other than dishonorable no more than five years prior to the first instance an eligible employee uses FMLA leave to provide care to the veteran. When applied to a current member of the Armed Forces, serious injury or illness refers to an injury or illness that was incurred in the line of duty while on active duty in the Armed Forces—or a pre-existing injury or illness that was aggravated in the line of duty while on active duty in the Armed Forces—that renders the military member unfit to perform the duties of his or her office, grade, rank or rating. For a covered veteran of the Armed Forces, a serious illness or injury is one that was incurred in the line of duty while on active duty in the Armed Forces—or a pre-existing injury or illness that was aggravated in the line of duty while on active duty in the Armed Forces—and: is a continuation of an injury or illness that rendered the military member unfit to perform the duties of his or her office, grade, rank or rating when he or she was a current member of the Armed Forces; the veteran has received U.S. Department of Veterans Affairs Service-Related Disability Rating of 50% or greater; impairs a covered veteran's ability to attain "substantially gainful" employment, or would do so absent treatment; or is a physical or psychological injury for which the covered veteran has been enrolled in the Department of Veterans Affairs Program of Comprehensive Assistance for Family Caregivers. The concept of care under FMLA includes both physical care and psychological care. FMLA leave may be taken to assist an eligible family member or covered servicemember with medical, nutritional, and health and safety needs; provide transportation to medical appointments; make arrangements for changes in care; or offer comfort and reassurance to a family member receiving inpatient or home care. FMLA leave has four fundamental characteristics. It is an entitlement, guarantees only unpaid leave, is job-protected, and requires continuation of group health benefits. FMLA leave is an entitlement , which means it must be granted to eligible employees with a FMLA-qualifying need for leave. In some cases, an employer may delay approval of FMLA leave when advance notice requirements are not met or an employee does not follow the employer's standard policy for leave notification (see " Employees' Notice and Scheduling Responsibilities " section of this report). An employer may also delay leave for an employee who does not provide medical certification for leave related to a serious health condition or a serious injury or illness within 15 days of receiving written notice that such certification is required by the employer (see " Employer Rights to Require Certification " section of this report). Leave may be denied if medical certification is incomplete or insufficient, and is not corrected by the employee. It may also be denied if the employer does not have enough information to determine that the employee's request falls under FMLA. However, if it is later determined (e.g., through additional information provided by the employee) that the reason for leave qualifies under the act, then leave must be approved; FMLA leave designation may be applied retroactively if doing so does not result in harm or injury to an employee. FMLA guarantees unpaid leave . However, an employee may elect to use—or an employer may require that employees use—earned or accrued paid leave concurrently with unpaid FMLA leave, as long as use of such leave is consistent with the employer's leave policy. Employers are obligated to notify employees that they may use paid leave alongside FMLA leave and convey the conditions related to such use of leave. Employers must notify employees when paid leave is designated as FMLA leave. FMLA leave is job-protected , which means—with some exceptions—an employer must return the employee to the same job or to one that is equivalent in terms of pay, benefits, working conditions, and responsibilities to the one held prior to taking leave. An exception is made for key employees and in other limited circumstances. An employer may deny job reinstatement to certain highly-paid, salaried employees—called key employees —if doing so is "necessary to prevent substantial and grievous economic injury to the operations of the employer." FMLA and DOL regulations define a key employee as a salaried FMLA-eligible employee who is among the highest paid 10% of all the employees (both salaried and non-salaried) within 75 miles of the employee's worksite at the time leave is requested. The employer must satisfy several notification requirements when designating a key employee and when it is determined that reinstatement of a key employee would result in substantial and grievous economic consequences to business operations. A key employee retains all rights under FMLA "unless and until the employee either gives notice that he or she no longer wishes to return to work, or the employer actually denies reinstatement at the conclusion of the leave period . " An employer may deny reinstatement and is not required to offer an alternate position to an employee who has been laid off (for reasons unrelated to FMLA leave use) while on FMLA leave. Reinstatement may be delayed if an employee is required to supply fitness-for-duty certification and does not provide it; an employer may deny reinstatement of an employee who is no longer able to perform the essential functions of the position. An employee who obtains FMLA leave fraudulently or who violates a uniformly-applied policy governing outside or supplemental employment while on leave has no right to reinstatement. Employers are required to maintain coverage under pre-existing group health benefit plans during the employee's absence under the same conditions that were in place prior to taking leave. The employee and employer are responsible for paying their respective shares of the health plan premium during the period of FMLA leave. Employers may recover their share of premiums paid during a period of FMLA leave if the employee does not return to work following the expiration of the employee's leave entitlement, unless the failure to return is due to a serious health condition (the employee's or a covered family member), the serious illness or injury of a covered servicemember, or circumstances outside the employee's control. Employers must allow employees to use FMLA leave intermittently when leave is taken for a serious health condition or a serious injury or illness and intermittent leave is medically necessary, or when leave is used to tend to a qualifying military exigency. For example, an employee with a serious health condition that requires multiple treatments (e.g., dialysis for kidney disease) must be permitted to use FMLA leave intermittently; an employee may use leave intermittently to attend periodic school meetings for the child of a covered military member on active duty. Similarly an employee must be permitted to use FMLA leave to reduce the usual number of hours worked per week or per day (i.e., a reduced leave schedule) to care for themselves or certain family members when medically necessary, or to tend to a qualifying military exigency. For example, an employee may use FMLA leave to work a reduced schedule while recovering from surgery if medically necessary or to attend weekly counseling sessions related to the active duty status of a covered military member. The act requires employees seeking to use FMLA leave intermittently or to work a reduced schedule to give 30 days of notice to employers, where possible; to provide the dates for which a reduced schedule is needed; and to provide certification, if required by the employer. When the need for intermittent or reduced schedule leave is foreseeable (e.g., based on planned medical treatments), the employer may transfer temporarily the employee to a position better suited to the anticipated schedule, as long as the employee is qualified for the alternative position and the alternative position has equivalent pay and benefits. The act does not require employers to permit intermittent or reduced schedule leave for employees using FMLA leave for the birth or placement of a new child. However, an employer and employee may agree to such an arrangement. Special rules concerning the use of intermittent and reduced schedule leave apply to certain local educational agency employees and to airline flight crew employees. See Appendix A and Appendix B . The act permits employees to use leave to care for or address the needs of certain family members (see " Leave Entitlement " for FMLA-qualifying reasons for leave). The set of family members for whom FMLA leave may be taken varies by the reason for leave, but the group of family members for whom at least one category of FMLA leave may be taken includes an employee's spouse, son or daughter, parent, or an individual for whom the employee is next of kin. With few exceptions, an employee may not use FMLA leave to care for other close family members, including parents-in-law, grandparents, cousins, siblings, or grandchildren. Under FMLA, a son or daughter is a biological, adopted, or fostered child, a stepchild, legal ward, or an individual for whom an employee is standing in loco parentis. In general, FMLA leave may be used for a son or daughter if the child is under the age of 18, or 18 years or older and incapable for self-care due to a mental or physical disability. However, military exigency leave or military caregiver leave may be used for a son or daughter who is any age. S pouse refers to a husband or a wife. FMLA recognizes any marriage performed legally in the United States, including common law marriage. The FMLA definition includes spouses of a marriage performed outside the United States that would be legal had it been performed in at least one U.S. state. Domestic partnerships are not recognized by the act. A parent is a biological, adoptive, step- or foster parent, or an individual who stood in loco parentis to the employee when he or she was a child. FMLA does not require a legal relationship to exist between a parent and child; it is sufficient for an individual to take on the role of a parent. This holds even when the child's biological or legal parent is also serving in a parental role, and means that FMLA does not limit a child to two parents. FMLA leave may be taken by an employee who is next of kin for a covered servicemember with a serious illness or injury. The next of kin of a covered servicemember is either (1) the one person designated in writing by the servicemember as next of kin or (2) the nearest blood relative(s) other than the covered servicemember's spouse, parent, son, or daughter. Employers may require confirmation of the relationship between an employee and the individual for whom he or she seeks to use FMLA leave. Such confirmation can take the form of a statement from the employee or an official document (e.g., birth certificate, court document). In general, FMLA applies to private-sector employers that are engaged in commerce or in an industry affecting commerce, and have at least 50 employees who are employed for each working day during each of 20 or more calendar workweeks in the current or preceding calendar year. All public agencies (i.e., federal, state, and local governments) covered by the act are covered employers regardless of employment levels. Title I provisions and accompanying DOL regulations apply to covered employers in the private sector, state and local governments, and some federal government agencies. The Congressional Accountability Act of 1995 extended FMLA Title I provisions to many congressional employees, and it is enforced by the U.S. Congress Office of Compliance. The Government Accountability Office and the Library of Congress are also covered by Title I, but its provisions are administered by the U.S. Comptroller General of the United States and the Librarian of Congress, respectively. Most federal civil service employees are covered by Title II of the act, which is administered by OPM. However, Title I as administered by DOL applies to the following federal agencies and employees: U.S. Postal Service and the U.S. Postal Regulatory Commission; part-time federal executive branch employees who do not have an established regular tour of duty during the administrative workweek; federal executive branch employees serving under intermittent appointments or temporary appointments with a time limitation of one year or less; federal executive branch employees who are not covered by Title II of FMLA; and; federal judicial branch employees who are employed in a unit that has employees in the competitive service (e.g., U.S. Tax Court employees). FMLA eligibility is defined in terms of an employee's work history with a specific employer, and the size of the employer's workforce employed in or around the employee's worksite. In general, to be eligible to take FMLA leave, an employee must work for a covered employer (see " Employer Coverage "); have 1,250 hours of service in the 12 months prior to the start of leave; have worked for the employer for 12 months (months need not be consecutive, but months that precede a break in service of 7 years or more are generally not counted); and work at a location where the employer has 50 or more employees within 75 miles. In practice, these requirements mean that FMLA eligibility is not transferable across employers. They also mean that eligibility is not permanent: an employee may lose eligibility while working for a given employer if his or her hours dip below the 1,250 hours required in the 12 months before leave commences requirement, if the employers' workforce within 75-miles of the worksite falls below 50 employees, or if the employer is no longer covered by the law. Special rules concerning the hours-of-service requirement apply to airline flight crew employees. See Appendix A for more information. The act provides rules concerning employer and employee notification requirements, employee's responsibilities for scheduling of leave, employer rights to certification, and employer recordkeeping requirements. Employers have several notification requirements under FMLA: General Notice . All covered employers must post a written notice that describes the act's provisions and how to file a complaint with DOL for FMLA violations. The general notice must be displayed in a prominent place that can be viewed readily by all employees and applicants. In addition, covered employers with a t least one eligible employee must include this information with other written materials describing employee benefits or leave (e.g., in an employee handbook), or provide it to each employee at the time of hiring. Electronic posting and provision is permitted. Eligibility Notice. Employers must provide a notice that indicates an individual employee's FMLA eligibility status each time that employee makes a new FMLA leave request. If an employee is deemed ineligible for FMLA leave, the employer must provide at least one reason for ineligibility. Absent extenuating circumstances, this notice must be provided within five business days of a request. Notice may be given orally or in writing. Rights and Responsibilities Notice. Employers must provide a written notice that outlines the employee's rights, expectations, and obligations under the act and explains the consequences of a failure to meet obligations to each employee who receives the eligibility notice. Designation of Leave Notice . Employers must determine whether a request for leave will be designated as FMLA-qualifying and notify the employee accordingly. If leave is determined to be FMLA-qualifying, the employer must also indicate how much leave will be counted against the employee's FMLA entitlement; whether the employee is required to substitute accrued paid leave for unpaid leave, or if paid leave requested under separate leave plan (e.g., employee requested sick leave for prenatal care) will be designated as FMLA-qualifying and counted against the employee's FMLA entitlement; and identify any requirements for a fitness-for-duty certificate upon return to work (unless the need for such certification is established clearly in written materials describing the employer's leave policy). Once the employer has acquired sufficient information to determine whether the requested leave is FMLA-qualifying, the employer has five business days to provide the designation notice, absent extenuating circumstances. The designation notice must be given in writing. An employee seeking to use FMLA leave must provide enough information to permit the employer to determine whether the leave request is (or is likely to be) FMLA-qualifying, and the expected timing and duration of leave. Employees must provide a 30-day advance notice to employers when the need for leave is foreseeable based on an expected birth or a scheduled medical treatment. When the need for leave is not foreseeable (e.g., hospitalization resulting from an automobile accident) or when leave is needed to address a qualifying military exigency, notice must be given "as soon as practicable." In some cases, an employer may delay approval of FMLA leave when advance notice requirements are not met. In general, employers may condition FMLA leave approval upon an employee's adherence to the employer's policy for requesting leave. For example, if established in employer policy, an employer may require written request for leave, or require the employee to call-in prior to an absence when using intermittent leave. There are limits, however, on when employer policy can be used to deny or delay FMLA leave. Employers may not apply a longer notice period than the 30-day notice provided in the act (e.g., the employer cannot require a 45-day notice). An FMLA leave request that does not meet employer policy may not be denied if unusual circumstances prevent the employee from following employer policy (e.g., emergency medical treatment is required). When the need for FMLA leave is based on a planned medical treatment and is foreseeable, the employee must make a reasonable effort to schedule the treatment so as not to disrupt unduly the business operations. Plans made between the employer and employee regarding scheduling of leave and the timing of planned medical treatment are subject to the approval of the employee's health care provider. In some instances, employers may require that an employee's request for FMLA leave be supported by medical certification (e.g., that a serious health condition exists) or other certification (e.g., to determine active duty status of a military member). Employers must notify employees each time certification is required, and inform employees of the anticipated consequences should the employee fail to provide certification (e.g., denial of leave). An employer may require an employee requesting leave for a serious health condition—his or her own, or that of a family member—to provide medical certification verifying that such a condition exists, and related information. A new certification of a serious health condition can be required every 12 months. Medical certification of a serious health condition must be obtained from a health care provider (selected by the employee), and may contain the following information: the provider's contact information and details about the provider's practice and medical specialty; the date the serious health condition began; the likely duration of the serious health condition; appropriate medical facts; a statement that the employee is unable to perform at least one essential job function, or if leave is take to care for a family member a statement that the employee is needed to care for the relative in question; in the case of intermittent leave or leave on a reduced schedule, a statement that the leave is medically necessary and, if possible, the expected dates and duration of leave; and for planned medical treatment, the expected dates for treatment and duration of leave. An employer may require a second opinion, at the employer's expense, when the employer has reason to doubt the validity of the medical certification provided. The employer may select the health care professional providing the second opinion, but may not select a provider who is "employed on a regular basis by the employer" (i.e., cannot use the company doctor). Conflicting opinions are resolved by a third medical opinion, obtained at the employer's expense. The third opinion is final and binding. Employers have the right to request recertification of a medical condition "on a reasonable basis," thus allowing them to confirm that a certified condition is still present. DOL regulations permit employers to require recertification of a medical condition only in connection with an absence. Employers may require recertification every 30 days (in connection with an absence), unless the original certification indicated that the medical condition is expected to be more than 30 days in duration. Recertification may be required in 30 or fewer days, however, if (1) the employee requests an extension of leave, (2) circumstances related to the original certification have changed significantly (e.g., a change in the employee's health requires three days of leave per week instead of two days of leave per week), or (3) the employer has acquired information that calls into question the employee's need for leave or the "continuing validity" of the original certification. In all cases, employers may require recertification every six months, regardless of the expected duration of the medical condition. A key difference between certification and recertification of a serious health condition is that employers may not request a second opinion on a recertification. When FMLA leave is sought to care for a covered servicemember with a serious injury or illness, employers may require military and medical certification that the servicemember for whom the employee requires leave is a covered servicemember with a serious injury or illness . This information can be provided by a U.S. Department of Defense (DOD) health care provider; a U.S. Department of Veterans Affairs (VA) health care provider; a DOD TRICARE network or non-network authorized private health care provider; or any health care provider as defined in the act. The employer may collect the following information from the health care provider: the provider's contact information, and details concerning the provider's practice, medical specialty, and provider type (e.g., DOD health care provider, VA health care provider); whether the covered servicemember's injury or illness was incurred in the line of duty on active duty or, if not, whether the covered servicemember's injury or illness existed before the beginning of the servicemember's active duty and was aggravated by service in the line of duty on active duty; the approximate start date of the serious injury or illness, or when it was aggravated, and its expected duration; appropriate medical facts regarding the covered servicemember's health condition that are sufficient to support the need for leave; information sufficient to establish that the covered servicemember is in need of care; for a single continuous period of care, the dates and duration of the care period or planned treatments; and, for intermittent or reduced schedule leave, a statement indicating that care is need on this basis, and estimated frequency, dates, and duration of care. The employer may collect certain additional information from the employee or the covered servicemember for whom the employee would provide care. These include contact information, a statement of the relationship between the employee and covered servicemember, and the covered servicemember's current Armed Forces status, among others. An employer may not require second and third opinions for FMLA leave to care for a covered servicemember with a serious injury or illness when the certification has been completed by a DOD health care provider, a VA health care provider, or a DOD TRICARE network or non-network authorized private health care provider. Second and third opinions are permitted, however, when the certification has been completed by another type of health care provider. Recertifications are not permitted for leave to care for a covered servicemember. Employers must accept invitational travel orders (ITOs) or invitational travel authorizations (ITAs) issued to any family member (including someone other than the employee requesting leave) to join an injured or ill servicemember at his or her bedside, as sufficient certification of the need for leave to care for a covered servicemember with a serious injury or illness. Employees may use FMLA leave to care for the covered servicemember named on the ITO or ITA for the time period indicated on the order or authorization; leave may be used in one block, intermittently, or to work a reduced schedule during the indicated time period. Employers may require additional certification for leave that continues beyond the time period indicated on the ITO or ITA. Employers must accept documentation that shows a veteran servicemember's enrollment in the Department of Veterans Affairs Program of Comprehensive Assistance for Family Caregivers as certification of the servicemember's serious injury or illness. However, employers may require additional certification that the covered veteran was discharged or released under conditions other than dishonorable. An employer may require an employee who requests FMLA leave for a qualifying military exigency to provide a copy of the military member's active duty orders or other military documentation that demonstrates that the military member is on covered active duty or has received a call to covered active duty status, and provides the dates of the military member's covered active duty service. An employee seeking leave for a qualified military exigency may be required to supply his or her employer the following information: appropriate facts describing the qualifying exigency for which FMLA leave is requested that are sufficient to support the need for leave; the approximate or expected start date of the qualifying exigency; expected date(s) of leave; in the case of intermittent or reduced schedule leave, the expected frequency and duration of the qualifying exigency; where the qualifying exigency involves meeting with a third party (e.g., school counselor), appropriate contact information for the individual or entity with whom the employee is meeting and a brief description of the meeting's purpose; and where the qualifying exigency involves rest and recuperation leave, a copy of the military member's rest and recuperation orders (or similar military documentation) and the dates of the military member's rest and recuperation leave. An employer may condition job-reinstatement on a health care provider certification that an employee is fit to return to work, as long as the requirement is part of a uniformly-applied employer policy or practice. Fitness-for-duty certification can be required only from an employee who uses FMLA leave to attend to his or her own serious health condition, and employers must notify employees that a certificate will be required as part of the designation notice (see " Employer Notification Requirements "). In general, an employer may not require fitness-for-duty certification for use of intermittent or reduced schedule leave; special rules apply, however, if reasonable safety concerns exist. Employers may not require second or third opinions on a fitness-for-duty certification. Employers are required to maintain certain records, as determined by DOL regulations, and make them available to DOL for inspection on an annual basis. DOL regulations require that covered employers with eligible employees maintain the following records: basic payroll and employee data; FMLA leave dates; hours of FMLA leave if taken in increments of less than one full day; copies of employees' requests for FMLA leave (if provided in writing), and all written notices provided to employees by the employer; any documents (including written and electronic records) describing employee benefits or employer policies and practices regarding leave usage (paid and unpaid); premium payments of employee benefits; and, records of any dispute regarding designation of leave as FMLA leave. Records containing medical histories of employees or their family members (e.g., medical certifications) created for FMLA purpose must be maintained as confidential medical records and stored separately from usual personnel files. Special rules regarding recordkeeping apply to airline flight crew employers (see Appendix A ). FMLA prohibits the interference, restraint, or denial of rights provided through the act, and the dismissal of or discrimination against those who protests a prohibited act. For example, employers cannot take adverse employment actions (e.g., refuse to promote, institute disciplinary action) against employees for taking FMLA leave. Efforts to disqualify an employee from FMLA leave eligibility (e.g., by manipulating work hours or moving employees to another worksite to avoid employing 50 workers within 75 miles of a worksite) may be interpreted as interference with employee rights under FMLA. Interference with proceedings or inquires is further prohibited. Employees cannot waive, nor may employers induce employees to waive, their prospective rights under FMLA. Employees who believe their rights under the FMLA have been violated have two courses of action. Employees may (1) file a complaint with the DOL Wage and Hour Division or (2) bring a private civil action against an employer for violations. Legal action must be taken within two years from the date of the last violation, or within three years for a willful violation. FMLA provides two remedy categories for violations. Employees may be awarded 1. damages equal to lost compensation or actual monetary losses sustained as a direct result of violation (e.g., the cost of hiring a nurse to care for a spouse with a serious health conditions), interest on damages, and liquidated damages for willful violations, and 2. equitable relief, as appropriate, including employment, reinstatement, and promotion. In addition, an employee may recoup reasonable court fees and expenses from an employer who violates the act. Special Rules for Airline Flight Crew Employees The Airline Flight Crew Technical Correction Act (AFCTCA) of 2009 ( P.L. 111-119 ) amended FMLA to establish special rules regarding the "hours of service" eligibility criterion for airline flight crew employees, and authorized the Secretary of Labor provide a method for calculating the leave entitlement for airline flight crews. Employers of airline flight crew also have additional recordkeeping requirements. Congress passed the AFCTCA to address unique scheduling and timekeeping practices for airline flight crew that effectively curtailed access to FMLA protections for this group of workers. The act was viewed as a technical correction to extend eligibility to airline flight crew employees. Hours of Service Rule for Airline Flight Crew A two-part test determines whether an airline flight crew employee meets the hours-of-service requirement for FMLA eligibility. A crewmember meets this requirement if, in the previous 12 months, he or she worked or was paid by the employer for (1) at least 60% of the applicable total monthly guarantee and (2) at least 504 hours (not counting personal commute time, vacation leave, medical leave, or sick leave). Calculation of Leave Entitlement DOL adopted a uniform leave entitlement for airline flight crew employees that is based on the assumption of a six-day workweek. As such, an eligible airline flight crew employee is entitled to 72 days of leave (=12 workweeks x 6 days/workweek) during a 12-month period: for the birth and care of the employee's child, provided leave is taken within 12 months of the child's birth; for the placement of an adopted or fostered child with the employee, provided leave is taken within 12 months of the child's placement; to care for a spouse, child, or parent with a serious health condition; for the employee's own serious health condition that renders the employee unable to perform at least one essential functions of his or her job; and for qualified military exigencies related to the covered active duty status of the employee's spouse, son, daughter, or parent who is a covered military member. In addition, DOL regulations provide 156 days of leave (= 26 workweeks x 6 days/workweek) in a single 12-month period to eligible airline flight crew employees for the care of a covered military servicemember with a serious injury or illness. Maximum Increment of Leave for Intermittent or Reduced Schedule Leave Employers may record FMLA leave for airline flight crew employees in one-day increments, even if the employee's need for leave is less than one day. This means that an eligible airline flight crew employee who has a need for two hours of FMLA-qualifying leave can be required to use one full day of leave, which would then be counted against the employee's FMLA leave entitlement. Following intermittent or reduced schedule leave, the airline flight crew employee must be permitted to return to work in the same or equivalent position, unless it is physically impossible to do so (e.g., the flight is in air); in such an event the full period of physically impossibility would be counted as FMLA leave and deducted from the employee's entitlement. Additional Record Keeping Requirements In addition to standard recording keeping requirements, covered employers of airline flight crew employees must maintain records on the applicable monthly guarantee (including relevant collective bargaining agreements and employer policy materials), and a record of hours worked and hours paid for each employee. Special Rules for Local Educational Agency Employees FMLA applies special rules to employees of local educational agencies (e.g., local school boards, and public and private elementary and secondary schools) regarding job restoration; a sub-group of these employees—instructional employees—have special rules concerning the use of intermittent leave and reduced leave schedules, and the timing of FMLA leave use. Through these provisions, Congress sought to recognize the "unique educational mission of ... elementary and secondary schools ... [and] balance the educational needs of children with the family leave needs of teachers." Job Restoration Local educational agencies may use established policies and practices, or collective bargaining agreements to determine how to restore an employee to an equivalent position. These policies must be available in writing, be made known to the employee prior to the start of FMLA leave, explain clearly the employee's restoration rights, and provide substantially the same protections as provided in the a ct for reinstated employees . Instructional Employees' Use of Intermittent Leave or Reduced Leave Schedules Under certain conditions, local educational agencies may require instructional employees with a foreseeable need for intermittent leave or a reduced leave schedule to instead take a block (or blocks) of leave or accept a temporary reassignment to an alternate position. If the employee elects to take a block of leave (i.e., instead of temporary reassignment) the entire period of leave will count as FMLA leave and be deducted from the employee's FMLA entitlement. Local educational agencies may apply this restriction on intermittent leave or reduced leave schedules if the need for FMLA is based on a serious health condition or serious injury or illness that is foreseeable based on planned medical treatment and the employee would be on leave for more than 20% of the total number of working days in the leave period. Instructional Employee's Use of Leave Near the End of an Academic Term In some circumstances, local educational agencies may require instructional employees returning from FMLA leave near the end of an academic term to continue leave until the term concludes. If the agency elects to continue leave, only the leave actually used for an FMLA qualifying reason may be deducted from the employee's leave entitlement. However, the employee receives the same protections as those provided under FMLA concerning the continuation of group health insurance and job restoration for the entire leave period. A local educational agency may require an instructional employee to continue leave through the end of an academic term when: leave begins more than five weeks before the end of term, lasts at least three weeks, and concludes during the three-week period before the end of term. leave is taken to bond with a newborn or newly-placed child, to care for a family member with a serious health condition, or to care for a seriously injured or ill covered servicemember; begins during the five-week period before the end of term; lasts more than two weeks; and concludes during the two-week period before the end of term. leave is taken to bond with a newborn or newly-placed child, to care for a family member with a serious health condition, or to care for a seriously injured or ill covered servicemember; begins during the three-week period before the end of term; and lasts more than five working days. Legislative History
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The Family and Medical Leave Act of 1993 (FMLA; P.L. 103-3, as amended) entitles eligible employees to unpaid, job-protected leave for certain family and medical reasons, with continued group health plan coverage. FMLA requires that covered employers grant up to 12 workweeks in a 12-month period to eligible employees for one or more of the following reasons: the birth and care of the employee's newborn child, provided that leave is taken within 12 months of the child's birth; the placement of an adopted or fostered child with the employee, provided that leave is taken within 12 months of the child's placement; to care for a spouse, child, or parent with a serious health condition; the employee's own serious health condition that renders the employee unable to perform the essential functions of his or her job; and qualified military exigencies arising from the covered activity duty status of a covered military member who is the employee's spouse, child, or parent. In addition, the act provides up to 26 workweeks of leave in a single 12-month period to eligible employees to care for a covered military servicemember (including certain veterans) with a serious injury or illness that was sustained or aggravated in the line of duty while on active duty, if the eligible employee is the covered servicemember's spouse, child, parent, or next of kin. FMLA leave has four fundamental characteristics: 1. It is an entitlement, which means that, unlike other forms of leave (like vacation days), it must be granted to an eligible employee with an FMLA-qualifying need for leave who meet the act's notification and documentation requirements. 2. FMLA guarantees unpaid leave, but provides that employees may elect to substitute or employers may require the substitution of certain types of accrued paid leave for unpaid FMLA leave, within the constraints of employer policy. 3. FMLA leave is job-protected, which means that—with few exceptions—an employer must return the employee to the same job or to one that is equivalent in terms of pay, benefits, working conditions, and responsibilities to the one held prior to taking leave. 4. Pre-existing group health benefits must be maintained during the employee's absence under the same conditions that were in place prior to taking leave. FMLA applies to covered employers and eligible employees in both the private and public sectors. Some provisions for federal civil service employees differ from those that apply to private-sector and state and local government employees. Employer coverage and employee eligibility for FMLA leave are not universal. In general, employers engaged in commerce with 50 or more employees are covered. Employee eligibility is defined in terms of an employee's work history with a specific employer, and the size of the employer's workforce in or around the employee's worksite. This report describes the major provisions of Title I of the act—which apply to the private sector, state and local governments, and certain federal agencies—as administered by the Secretary of Labor.
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Foreign nationals may be admitted to the United States temporarily or may come to livepermanently. Those admitted on a permanent basis are known as immigrants or legal permanentresidents (LPRs), while those admitted on a temporary basis are known as nonimmigrants. (1) Nonimmigrants include awide range of people, such as tourists, foreign students, diplomats, temporary agricultural workers,exchange visitors, internationally known entertainers, foreign media representatives, businesspersonnel, and crew members on foreign vessels. Most of these nonimmigrant visa categories aredefined in §101(a)(15) of the Immigration and Nationality Act (INA). These visa categories arecommonly referred to by the letter and numeral that denotes their subsection in §101(a)(15), forexample, B-2 tourists, E-2 treaty investors, F-1 foreign students, and H-1B temporary professionalworkers. Intracompany transferees who work for an international firm or corporation in executiveand managerial positions or have specialized product knowledge are admitted on the L-1 visas. Their immediate family (spouse and minor children) are admitted on L-2 visas. Congress established the L visa in 1970 largely in response to unintended consequences ofthe Immigration Amendments of 1965 that made multinational corporations unable to transfertop-level personnel to offices in the United States as easily as they had prior to the implementationof the 1965 Immigration Amendments. Because many of the employees that firms sought to bringinto the United States were not intending to stay in the United States and were likely to be transferredabroad in a few years, Congress opted to create a nonimmigrant (i.e., temporary) category for alienswho performed in managerial/executive capacity or who had specialized knowledge. These alienshad to have been employed in that capacity by that firm for at least one year prior to seeking the Lvisa. (2) As part of the Immigration Amendments of 1990, Congress made several changes to the Lvisa category, most notably clarifying that specialized knowledge meant specialized knowledge ofthe firm's product. Congress placed time limits on the L visas, allowing managers and executivesholding L visas to stay for up to seven years and those having specialized product knowledge to stayfor up to five years. Congress also amended the INA to permit aliens with L visas to petition tobecome LPRs, allowing for what is known as "dual intent" in immigration policy. (3) In the 1990 Act, Congressfurther added managers and executives to the priority worker (also known as first preference)category of employment-based LPR admissions, facilitating the adjustment of L nonimmigrants toLPR status. (4) The 107th Congress enacted a change to the INA that reduced the length of time an L-1 wouldhave to work for certain multinational firms abroad from one year to six months prior to transferringto a U.S. location. This legislation also amended the INA to permit the spouses of L-1nonimmigrants (i.e., L-2 nonimmigrants) to work while they are in the United States. (5) During the 108th Congress, Title IV of P.L. 108-447 , the Consolidated Appropriations Actfor FY2005, included a provision that renders ineligible for L visa status those aliens who serve ina capacity involving specialized knowledge at the worksite of an employer other than the petitioningemployer or its affiliate if (1) the alien will be controlled principally by the unaffiliated employer;or (2) the placement with the unaffiliated employer is part of an arrangement merely to provide laborrather than to use the alien's specialized knowledge. It also added a provision that requires theSecretary of Homeland Security to impose a fraud prevention and detection fee of $500 on H-1B(foreign temporary professional workers) and L (intracompany business personnel) petitioners. (6) The number of L visas issued has increased by 363.5% over the past 25 years. The U.S.Department of State (DOS) issued only 26,535 L visas in FY1980. L visa issuances began increasingin the mid-1990s and peaked at 122,981 in FY2005, as Figure 1 depicts. Typically, over half of theL visas issued any given year are L-1 visas to the individual qualifying as an intracompany transfer,and the remainder are immediate family coming on L-2 visas. Of the 122,981 L visas issued inFY2005, a total of 65,458 are L-1 visas for the qualifying (principal) nonimmigrant. Figure 1. Intracompany L Visas Issued, FY1980 to FY2005 The country sending the most intracompany transfers in FY2005 was India, as Figure 2 illustrates. Almost two-thirds (39,849 or 32.4%) of the 122,981 L visas were issued to aliens fromIndia in FY2005. Great Britain (including Northern Ireland) and Japan followed with 12,869 (10.5%)and 11,998 (9.8%) respectively of all L visas issued. Figure 2 depicts the top 10 countries that arethe source country for L nonimmigrants in FY2005, and these 10 countries comprise 74.9% of allL visas issued in FY2005. Canadians coming as intracompany transfers are not required to have Lvisas to enter the United States, according to longstanding agreements with Canada. Data on the number of L nonimmigrants who enter the United States, according to statisticalreports of the Department of Homeland Security (DHS) Office of Immigration Statistics, evidencea growth pattern steeper than the number of visas issued by DOS. The admission of Lnonimmigrants grew sixfold over the past 24 years, from 65,044 in FY1981 to 102,555 in FY1990to 456,583 in FY2004. When the analysis is limited to L-1 visa holders, the number of admissionshas grown from 63,180 in FY1990 to 314,484 in FY2004, an increase of almost 400% in 14 years. These admissions data, however, include multiple entries by the same person over the course of afiscal year. Given the purpose of their visas, L nonimmigrants may travel back and forth from theUnited States more than once a year for business. A comparison of the admission data with the visaissuance data suggest that not only have the number of L visa holders increased, but these L visaholders travel abroad more frequently now than a decade ago. Figure 2. Top Ten Source Countries for L Visas in FY2005 A firm or corporation that seeks to have an L-1 nonimmigrant enter the United States mustfile an I-129 petition with the United States Citizenship and Immigration Services (USCIS) in theDHS, and may file blanket petitions under specified circumstances. (7) Once the employer's petitionis approved, the alien residing abroad applies for a visa with the DOS Bureau of ConsularAffairs. (8) The DOSconsular officer, at the time of application for a visa, as well as the DHS immigration inspectors, atthe time of application for admission, must be satisfied that the alien is entitled to a nonimmigrantstatus. (9) The prospective L nonimmigrant must demonstrate that he or she meets the qualificationsfor the particular job as well as the visa category. The alien must have been employed by the firmfor at least six months in the preceding three years in the capacity for which the transfer is sought. The alien must be employed in an executive capacity, a managerial capacity, or have specializedknowledge of the firm's product to be eligible for the L visa. (10) The INA does not requirefirms who wish to bring L intracompany transfers into the United States to meet any labor markettests (e.g., demonstrate that U.S. employees are not being displaced or that working conditions arenot being lowered) in order to obtain a visa for the transferring employee. (11) For employers to sponsor LPRs who are members of the professions holding advanceddegrees, persons of exceptional ability, skilled workers with at least two years training, professionalswith baccalaureate degrees, and unskilled workers or to hire H nonimmigrants as temporary workers,they must demonstrate that U.S. workers are not adversely affected by the hiring of these foreignworkers. To do so, the employer who seeks to hire a prospective foreign worker petitions with theUSCIS and the Employment and Training Administration (ETA) in Department of Labor(DOL). (12) While working in the United States, L visa holders are generally required to pay federalincome taxes, provided they meet the "substantial presence test" that determines whether the foreignnational is considered a resident alien for tax purposes. (13) Moreover, L visa holders are not exempt from the requirementsto pay Social Security and Medicare (often referred to as FICA) taxes on compensation from workwithin the United States. (14) Tax treaties, however, may override the resident alien tax rulesin limited instances, especially with respect to double taxation of earnings. If a nonimmigrant isdefined as a resident of a foreign country under a tax treaty, then he or she is a nonresident alienregardless of whether the substantial presence test is met. (15) Some are arguing that foreign managers and specialized personnel should not be brought intothe United States if there are qualified U.S. managers and specialized personnel currently in thatposition or in that local labor market. Some of those advocating reform maintain that L-1 visasshould be limited to only top-level executives of multinational firms and that mid-level managersand specialized personnel should be admitted only after a determination that comparable U.S.personnel are not adversely affected. Some argue that the L-1 visa currently gives multinationalfirms an unfair advantage over U.S.-owned businesses by enabling multinational corporations tobring in lower-cost foreign personnel. Supporters of current law argue that it is essential for multinational firms to be able to assigntop personnel to facilities in the United States on an "as needed basis" and that it iscounterproductive to have government bureaucrats delay these transfers to perform labor markettests. They warn these multinational firms will find it too burdensome and unprofitable to dobusiness in the United States. Some point out that U.S. corporations who do business abroad mightwell lose the reciprocal benefit of transferring top U.S. personnel overseas if restrictions are addedto the L visa. There have been a series of media reports that firms are opting to bring in foreignprofessional workers on L-1 visas rather than the H-1B visa for professional specialty workers. (16) Critics cite the law onH-1B visas in which employers seeking to hire H-1B nonimmigrants must attest to the DOL that theyare paying the foreign workers the same wages as similarly employed U.S. workers and that havenot laid off U.S. workers 90 days before or after hiring the H-1B. (17) Some are asserting thatcertain employers are "end running" the labor attestation requirements of the H-1B visa byexaggerating the specialized product knowledge of their professional workers so that they qualifyfor an L visa and that some firms are bringing in L-1 nonimmigrants expressly to "outsource" themto other firms. Advocates of reforming current law warn that the L visa is replacing the H-1B visafor information technology positions and that L admissions will soar in numbers because H-1Badmissions are numerically limited. (18) Supporters of current law assert that intracompany transfers are essential personnel that donot need to be subjected to the labor market tests designed for foreign workers filling "rank and file"positions. They maintain that corporate flexibility and control on issues of staffing top-levelmanagement are essential to success. They warn that labor attestation for L visas would make itmore costly and time-consuming to do business in the United States, reducing investment in theUnited States and ultimately resulting in multinational firms moving jobs off shore. Some observethat L-1 employees do not technically constitute new hires who could displace U.S. workers; theymaintain instead that the L-1 employee is being transferred temporarily within the firm to add valueor provide expertise based on their international experience with the firm. (19) Critics of current law on L visas are concerned that free trade agreements retain the currentlanguage on L visas and would bar the United States from statutory changes to L visas as well asother temporary business and worker nonimmigrant categories. For example, the U.S.-SingaporeFree Trade Agreement states that the United States shall not require labor certification or othersimilar procedures as a condition of entry and shall not impose any numerical limits on intracompanytransfers from Singapore. (20) Similar language is also in the U.S.-Chile Free TradeAgreement. (21) Proponents of these trade agreements point out that they are merely reflecting current law andpolicy and that such agreements on the flow of business people and workers are essential to U.S.economic growth and business vitality. The House passed H.R. 2738 and H.R. 2739 , legislation that respectively would implement the Chile and SingaporeFTAs, on July 24, 2003. The Senate followed, passing the implementing language for both FTAson July 31, 2003. The North American Free Trade Agreement (NAFTA) has immigration provisionsconcerning intracompany transferees similar to the Chile and Singapore FTAs. NAFTA requires thethree signatory countries -- Canada, Mexico, and the United States -- to grant temporary entry tobusiness persons employed by a foreign enterprise who seek to render services to that enterprise orits affiliate or subsidiary, in a capacity that is managerial, executive or that involves specialknowledge. These intracompany transferees must have worked continuously for one year out of thepast three in a foreign country for the same firm that they are seeking to serve in the United States. No party to NAFTA may impose numerical limits or labor market tests as a condition of entry forintracompany transferees. (22) Negotiators for the Uruguay Round Agreements of the General Agreement on Trade andTariffs (GATT), completed in 1994 and known as the General Agreement on Trade in Services(GATS), included very specific language on "intra-corporate transfers." (23) This language is similarbut not identical to the definitions of intracompany transferee found in the regulations governing theL visa. (24) Given the issues being raised about the L visa, some are concerned that these tradeagreements constrain Congress as it considers revisions of immigration law and policy on the L visa. Since the GATS and FTAs provide specific definitions of intracompany transferees, prohibit laborcertification or similar labor condition tests for intracompany transferees, and prohibit numericallimits on intracompany transferees, some of the options being considered in legislation discussedbelow, if enacted, may violate GATS or the FTAs. (25) The DHS Office of the Inspector General (OIG) examined the potential vulnerabilities andabuses in the L-1 visa at the request of Congress. (26) The DHS OIG issued a report in January 2006 that reached thefollowing conclusions about the L visa: The visa allows for the transfer of managers and executives, but adjudicatorsoften find it difficult to be confident that a firm truly intends to use an imported worker in such acapacity. The visa allows for the transfer of workers with "specialized knowledge," butthe term is so broadly defined that adjudicators believe they have little choice but to approve almostall petitions. The transfer of L-1 workers requires that the petitioning firm is doing businessabroad, but adjudicators in the United States have little ability to evaluate the substantiality of theforeign operation. The visa encompasses petitioners who do not yet have, but are merely in theprocess of establishing, their first U.S. office. The visa permits petitioners to transfer themselves to the UnitedStates. The DHS OIG also found that "though the L-1 visa program is not specifically tailored for thecomputer or information technology (IT) industries, the positions L-1 applicants are filling are mostoften related to computers and IT. From 1999 to 2004, nine of the ten firms that petitioned for themost L-1 workers were computer and IT related outsourcing service firms that specialize in laborfrom India." (27) In this 2006 report, the DHS OIG made three recommendations: (1) establish a procedure toobtain overseas verification of pending H and L petitions; (2) explore whether ICE Visa SecurityOfficers abroad could assist in checking L petitions in the countries where the ICE officers areassigned; and (3) seek legislative clarification on the concepts of manager and executive and the term"specialized knowledge." (28) On May 19, 2003, Representative John Mica introduced H.R. 2154 , whichwould have amended the INA to prevent an employer from placing a nonimmigrant who is anintracompany transfer with another firm. H.R. 2154 would have required the employer tofile with DOL an application stating that the employer will not place the L-1 nonimmigrant withanother firm where the nonimmigrant performs duties (in whole or in part) at one or more work sitesowned, operated, or controlled by the other firm. H.R. 2154 is aimed at prohibiting theoutsourcing of L-1 visa holders. Representative Rosa DeLauro introduced the L-1 Nonimmigrant Reform Act( H.R. 2702 ) on July 10, 2003, which would have amended the INA to require employersof L-1 visa holders to submit labor condition applications attesting that the employer is offeringcomparable wages, that the conditions of other workers will not be adversely affected, that there isno strike or lockout, and that U.S. workers were not laid off 180 days prior and would not be laid off180 days after the hiring of the L visa holder. H.R. 2702 also would have prohibited theemployer from outsourcing, leasing, or otherwise contracting for the placement of the L visa holderwith another firm. The bill further would have given DOL authority to investigate complaints madeagainst a firm hiring L visa holders, and would establish fines and penalties for violators. Many ofthese attestation requirements were comparable to the requirements for the H-1B visa. On July 24, 2003, Senator Christopher Dodd and Representative Nancy Johnson introducedthe USA Jobs Protection Act of 2003 ( S. 1452 / H.R. 2849 ), which wouldhave made several changes to current law on L visas. Foremost, S. 1452/H.R.2849 would have added labor attestation requirements to the L visa, would have hadlay-off protections for U.S. workers employed by firms using L visas, would have restricted theoutsourcing of L-1 visa holders to other firms, would have given DOL authority to investigatecomplaints, and would have authorized DOL to assess a fee to process the application. Morespecifically, S. 1452/H.R. 2849 would also have required -- only in the case ofthe specialized knowledge provision of the L-1 visa -- that the employer, prior to filing the petition,file with DOL an application stating that the employer has taken good faith steps to recruit (usingprocedures that meet industry-wide standards) U.S. workers for the jobs for which the L-1nonimmigrants are sought. Among other provisions, S. 1452/H.R. 2849 wouldhave reduced by two years the total time an L visa holder could remain in the United States. S.1452/H.R. 2849 also would have revised the law on H-1B visas. Senator Saxby Chambliss, then-chair of the Senate Judiciary Subcommittee on Immigration,Border Security, and Citizenship, introduced legislation entitled the L-1 Visa (IntracompanyTransferee) Reform Act of 2003 ( S. 1635 ), on September 17, 2003. This bill wouldhave amended the INA so that L-1 visa holders entering through the specialized knowledge provisionmust be controlled and supervised by petitioning employer, or its affiliate, subsidiary or parentcompany. It also would have made the placement of a prospective L-1 nonimmigrant enteringthrough the specialized knowledge provision ineligible for the visa if the placement of the alien ata work site that was unaffiliated with the petitioning employers was merely to provide labor for thatunaffiliated employer. S. 1635 would have reinstated the one-year period of continuousemployment abroad that had been reduced to six months by P.L. 107-125 . The Save American Jobs Through L Visa Reform Act of 2004 ( H.R. 4415 )would have eliminated "specialized knowledge" as a basis for obtaining an L (intracompanytransferee) nonimmigrant visa and would have imposed an annual numerical limitation of 35,000on the number of L visas that may be issued to principal aliens. As introduced by RepresentativeHenry Hyde, H.R. 4415 also would have removed L nonimmigrants from those classes ofaliens that are not presumed to be immigrants under §214(b). Representative Lamar Smith introduced H.R. 4166 , the American WorkforceImprovement and Jobs Protection Act, which would have required the Secretary of HomelandSecurity to impose a fraud prevention and detection fee on H-1B or L (intracompany businesspersonnel) petitioners for use in combating fraud and carrying out labor attestation enforcementactivities. It also would have rendered ineligible for L visa status those aliens who serve in a capacityinvolving specialized knowledge at the worksite of an employer other than the petitioning employeror its affiliate if (1) the alien will be controlled principally by the unaffiliated employer; or (2) theplacement with the unaffiliated employer is part of an arrangement merely to provide labor ratherthan to use the alien's specialized knowledge. Additionally, it would have eliminated the currentreduction in the continuous employment requirement for aliens seeking L visa status pursuant to anemployer's blanket petition. H.R. 4166 was introduced on April 2, 2004. On July 29, 2003, the Senate Committee on the Judiciary Subcommittee on Immigration helda hearing titled "The L1 Visa and American Interests in the 21st Century Global Economy." (29) The House Committee onInternational Relations held a hearing on "L Visas: Losing Jobs Through Laissez-Faire Policies?"on February 4, 2004. (30) L Visa Reform and Fraud Prevention. Provisionsof H.R. 4166 were incorporated into Title IV of P.L. 108-447 , the ConsolidatedAppropriations Act for FY2005. Specifically, it states that an alien is ineligible for an L visa if (i) the alien will be controlled and supervised principally by such unaffiliated employer; or (ii) the placement of the alien at the worksite of the unaffiliatedemployer is essentially an arrangement to provide labor for hire for the unaffiliated employer, ratherthan a placement in connection with the provision of a product or service for which specializedknowledge specific to the petitioning employer is necessary. (31) The act also requires the Secretary of Homeland Security to impose a fraud prevention anddetection fee of $500 on H-1B (foreign temporary professional workers) and L (intracompanybusiness personnel) petitioners. The act requires that the H-1B and L fraud prevention and detectionfee be divided equally among DHS, the DOS and DOL for use in combating fraud in H-1B and Lvisa applications with DOS, investigating H-1B and L petitions with USCIS, and carrying out DOLlabor attestation activities. (32) L Visa Reform. The Comprehensive ImmigrationReform Act ( S. 2611 / S. 2612 ) includes a substantial revision of the lawon L visas. Most importantly, §411 of S. 2611/S. 2612 would add certainrequirements for L visa applicants seeking to come to the United States to work in new or unopenedfacilities and would expand the staffing resources of DHS, DOS, and DOL to investigate abuses andenforce violations of the L visa. The identical language was introduced by Senator Specter (S.2611) and Senator Hagel (S. 2612) and is expected to be debated on the Senatefloor before the Memorial Day recess. (33) Representative Nancy Johnson has introduced the USA Jobs Protection Act of 2005( H.R. 3322 ), which would do the following: add labor attestation requirements to theL visa, enact lay-off protections for U.S. workers employed by firms using L visas, restrict theoutsourcing of L-1 visa holders to other firms, give DOL authority to investigate complaints, andauthorize DOL to assess a fee to process the application. More specifically, H.R. 3322would require -- only in the case of the specialized knowledge provision of the L-1 visa -- that theemployer, prior to filing the petition, file with DOL an application stating that the employer hastaken good faith steps to recruit (using procedures that meet industry-wide standards) U.S. workersfor the jobs for which the L-1 nonimmigrants are sought. Representative Rosa DeLauro has introduced the L-1 Nonimmigrant Reform Act( H.R. 3381 ), which would amend the INA to require employers of L-1 visa holders tosubmit labor condition applications attesting that the employer is offering comparable wages, thatthe conditions of other workers will not be adversely affected, that there is no strike or lockout, andthat U.S. workers were not laid off 180 days prior and would not be laid off 180 days after the hiringof the L visa holder. H.R. 3381 also would prohibit the employer from outsourcing,leasing, or otherwise contracting for the placement of the L visa holder with another firm. The billfurther would give DOL authority to investigate complaints made against a firm hiring L visaholders, and would establish fines and penalties for violators. Additionally, H.R. 3381would establish an annual 35,000 L-1 visa limit, eliminate L-1 blanket visa authority, and require(1) an L-1 worker to have a bachelor's degree or higher in his or her area of special knowledge; and(2) verification by the Secretary of State. L Visa Fees. The House Committee on theJudiciary Chairman James Sensenbrenner has introduced H.R. 3648 , which wouldimpose additional fees with respect to immigration services for L visa intracompany transferees. More specifically, H.R. 3648 would require the Secretaries of State and Homeland Securityto each charge additional fees of $1,500 to employers filing for visa applications and nonimmigrantpetitions for L visas. The House Committee on the Judiciary ordered H.R. 3648 reportedon September 29, 2005. These provisions were included in Title V of H.R. 4241 , theDeficit Reduction Act of 2005, which the House passed on November 18, 2005. On October 20, 2005, the Senate Committee on the Judiciary approved compromise languagethat would raise the minimum fee for L-1 visas by $750, to a total of $1,440. This language wasforwarded to the Senate Budget Committee for inclusion in the budget reconciliation legislation. On November 18, 2005, the Senate passed S. 1932 , the Deficit Reduction OmnibusReconciliation Act of 2005, with these provisions as Title VIII. The conference report ( H.Rept. 109-362 ) on S. 1932 , which was renamed theDeficit Reduction Act of 2005, was reported on December 19 (during the legislative day ofDecember 18). It did not include the Senate provisions that would recapture H-1B visas unused inprior years. On December 19, the House agreed to the conference report by a vote of 212-206. OnDecember 21, the Senate removed extraneous matter from the legislation pursuant to a point of orderraised under the "Byrd rule," and then, by a vote of 51-50 (with Vice President Cheney breaking atie vote), returned the amended measure to the House for further action.
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Concerns are growing that the visa category that allows executives and managers ofmultinational corporations to work temporarily in the United States is being misused. This visacategory, commonly referred to as the L visa, permits multinational firms to transfer top-levelpersonnel to their locations in the United States for five to seven years. The number of L visasissued has increased by 363.5% over the past 25 years. The U.S. Department of State (DOS) issuedonly 26,535 L visas in FY1980. L visa issuances began increasing in the mid-1990s and peaked at122,981 in FY2005. Some are now charging that firms are using the L visa to transfer "rank and file" professionalemployees rather than limiting these transfers to top-level personnel, thus circumventing immigrationlaws aimed at protecting U.S. employees from the potential adverse employment effects associatedwith an increase in the number of foreign workers. Proponents of current law maintain that anyrestrictions on L visas would prompt many multinational firms to leave the United States, as wellas undermine reciprocal agreements that currently permit U.S. corporations to transfer theiremployees abroad. Title IV of P.L. 108-447 , the Consolidated Appropriations Act for FY2005, renders ineligiblefor L visa status those aliens who serve in a capacity involving specialized knowledge at the worksiteof an employer other than the petitioning employer or its affiliate if (1) the alien will be controlledprincipally by the unaffiliated employer; or (2) the placement with the unaffiliated employer is partof an arrangement merely to provide labor rather than to use the alien's specialized knowledge. Italso requires the Secretary of Homeland Security to impose a fraud prevention and detection fee of$500 on H-1B (foreign temporary professional workers) and L (intracompany business personnel)petitioners. In the 109th Congress, the Comprehensive Immigration Reform Act ( S. 2611 / S. 2612 ) would add certain requirements for L visa applicants seeking to cometo the United States to work in new or unopened facilities and would expand the staffing resourcesof DHS, DOS, and DOL to investigate abuses and enforce violations of the L visa. Other bills thatwould reform the L visa include H.R. 3322 and H.R. 3381 . Earlier, the House Committee on the Judiciary reported H.R. 3648 , which wouldimpose additional fees with respect to immigration services for L visa intracompany transferees. Thebill would require the Secretaries of State and Homeland Security to each charge fees of $1,500 toemployers filing certain visa applications and nonimmigrant petitions for L visas. These provisionswere included in Title V of H.R. 4241 , the Deficit Reduction Act of 2005, which theHouse passed on November 18, 2005. The Senate version ( S. 1932 ) would raise theminimum fee for L-1 visas by $750. The conference report on S. 1932 did not includethese L visa provisions. This report tracks legislative activity and will be updated as action warrants.
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Since the terrorist attacks of September 11, 2001 (9/11), domestic terrorists— people who commit crimes within the homeland and draw inspiration from U.S.-based extremist ideologies and movements —have not received as much attention from federal law enforcement as their foreign counterparts inspired by Al Qaeda. This was not necessarily always the case. The FBI reported in 1999 that "[d]uring the past 30 years, the vast majority—but not all—of the deadly terrorist attacks occurring in the United States have been perpetrated by domestic extremists." The U.S. government reacted to 9/11 by greatly enhancing its counterterrorism efforts. This report discusses how domestic terrorists broadly fit into this new counterterrorism landscape, a terrain that in the last 10 years has been largely shaped in response to terrorists inspired by foreign ideologies. This report focuses especially on how domestic terrorism is conceptualized by the federal government and issues involved in assessing this threat's significance. Today (perhaps in part because of the government's focus on international terrorist ideologies), it is difficult to evaluate the scope of domestic terrorist activity. For example, federal agencies employ varying terminology and definitions to describe it. Also, domestic terrorism-related intelligence collection efforts have not necessarily received the same attention as similar efforts to counter foreign threats. Beyond these issues, the Obama Administration's community outreach-driven strategy to quell terrorism-related radicalization in the United States focuses on individuals inspired by Al Qaeda. How domestic terrorism fits into this strategy is unclear. Congress may opt to examine these and other issues related to domestic terrorism. Domestic terrorists may not be the top federal counterterrorism priority, but they feature prominently among the concerns of some law enforcement officers. For example, in 2011, Los Angeles Deputy Police Chief Michael P. Downing included "black separatists, white supremacist/sovereign citizen extremists, and animal rights terrorists" among his chief counterterrorism concerns. Also possibly contributing to domestic terrorism's secondary status as a threat, a large number of those labeled as domestic terrorists do not necessarily use traditional terrorist tactics such as bombings or airplane hijackings. Additionally, many domestic terrorists do not intend to physically harm people but rather rely on alternative tactics such as theft, trespassing, destruction of property, and burdening U.S. courts with retaliatory legal filings. While plots and attacks by foreign-inspired homegrown violent jihadists have certainly earned more media attention, domestic terrorists have been busy as well. It is worth noting that in terms of casualties on U.S. soil, an act of domestic terrorism is second only to the events of 9/11. Timothy McVeigh's bombing of the Alfred P. Murrah Federal Building in Oklahoma City on April 19, 1995, claimed 168 lives and injured more than 500 others. Some estimates suggest that domestic terrorists are responsible for carrying out dozens of incidents since 9/11, and there appears to be growth in anti-government extremist activity as measured by watchdog groups in the last several years. Much like their jihadist counterparts, domestic terrorists are often Internet savvy and use the medium as a resource for their operations. Prison has been highlighted as an arena that can foster terrorist radicalization, and white supremacy—a set of beliefs held by white supremacist extremists—has long played a role in the activities of several U.S. prison gangs. Sovereign citizen anti-government ideas (that have inspired some domestic terrorists) have also circulated in U.S. prisons. Terrorists are typically driven by particular ideologies. In this respect, domestic terrorists are a widely divergent lot, drawing from a broad array of philosophies and worldviews. These individuals can be motivated to commit crimes in the name of ideas such as animal rights, white supremacy, and opposition to abortion, for example. However, the expression of these worldviews (minus the commission of crimes) involves constitutionally protected activity. Aware of the lines between constitutionally protected speech and criminality, domestic terrorists often rope themselves off from ideological (above-ground) elements that openly and often legally espouse similar beliefs. In essence, the practitioners who commit violent acts are distinct from the propagandists who theorize and craft worldviews that could be interpreted to support these acts. Thus, terrorist lone actors (lone wolves) or isolated small groups (cells) generally operate autonomously and in secret, all the while drawing ideological sustenance— not direction —from propagandists operating in the free market of ideas. This report provides background regarding domestic terrorists—detailing what constitutes the domestic terrorism threat as suggested by publicly available U.S. government sources. It illustrates some of the key factors involved in assessing this threat and concludes by examining potential issues for Congress. This report does not discuss in detail either violent jihadist-inspired terrorism or the federal government's role in counterterrorism investigations. It is meant to be read in conjunction with CRS Report R41780 , The Federal Bureau of Investigation and Terrorism Investigations ; CRS Report R42553 , Countering Violent Extremism in the United States ; and CRS Report R41416 , American Jihadist Terrorism: Combating a Complex Threat , which provide greater context in these areas. Two basic questions are key to understanding domestic terrorism. First, what exactly constitutes "domestic terrorism?" Answering this question is more complicated than it may appear. Some consider all terrorist plots occurring within the homeland as acts of domestic terrorism. According to this perspective, a bombing plot involving U.S. citizens motivated by a foreign terrorist group such as Al Qaeda constitutes domestic terrorism. While this conceptualization may be true at some level, a practical definition of domestic terrorism distilled from federal sources is much narrower. It suggests that domestic terrorists are Americans who commit ideologically driven crimes in the United States but lack foreign direction or influence—whether tactical or philosophical. This conceptualization excludes homegrown individuals directed or motivated by groups such as Al Qaeda. Second, what particular groups are considered domestic terrorist organizations? The U.S. government does not provide a precise, comprehensive, and public answer to this question. Rather, in broad terms, the Department of Justice (DOJ) has identified a number of general threats that embody this issue. In the most general statutory terms, a domestic terrorist engages in terrorist activity that occurs in the homeland. The Federal Bureau of Investigation (FBI, the Bureau) has lead responsibility for terrorism investigations at the federal level. The FBI generally relies on two fundamental sources to define domestic terrorism. First, the Code of Federal Regulations characterizes "terrorism" as including "the unlawful use of force and violence against persons or property to intimidate or coerce a government, the civilian population, or any segment thereof, in furtherance of political or social objectives." Second, 18 U.S.C. Section 2331(5) more narrowly defines "domestic terrorism" and differentiates it from international terrorism and other criminal activity. This definition comes from Section 802 of the USA PATRIOT Act ( P.L. 107-56 ). According to 18 U.S.C. Section 2331(5), domestic terrorism occurs primarily within U.S. territorial jurisdiction, and domestic terrorism involves (A) ... acts dangerous to human life that are a violation of the criminal laws of the United States or of any State; (B) appear to be intended— (i) to intimidate or coerce a civilian population; (ii) to influence the policy of a government by intimidation or coercion; or (iii) to affect the conduct of a government by mass destruction, assassination, or kidnapping.... The definitions cited above are too broad to capture what the FBI specifically investigates as "domestic terrorism." Besides the statutory definitions regarding the crime of domestic terrorism, the FBI has historically emphasized particular qualities inherent to the actors who engage in domestic terrorism. According to the Bureau, domestic terrorists do not simply operate in the homeland, but they also lack foreign direction . In fact, the Bureau's practical, shorthand definition of domestic terrorism is "Americans attacking Americans based on U.S.-based extremist ideologies." The Department of Homeland Security (DHS) follows this construction. On the surface, the FBI's shorthand definition for domestic terrorism appears straightforward. However, there is inherent ambiguity to it. Namely, some of the "U.S.-based extremist ideologies" driving what the Bureau views as domestic terrorism have international roots and active followings abroad. The ideologies supporting eco-extremism and animal rights extremism (discussed below) readily come to mind, and people have long committed crimes in their names outside the United States. At least in part, their origins lay in the United Kingdom. Nazism—with its German origins and foreign believers—is an element within domestic white supremacist extremism. Anarchism, the philosophy followed by anarchist extremists, also has long-standing European roots. The racist skinhead movement traces its origins abroad—to the United Kingdom—as well. It is unclear exactly what the FBI means when it emphasizes U.S.-based ideologies in its framing of domestic terrorism. A few more issues make it hard to grasp the breadth of domestic terrorist activity in the United States. First, counting the number of terrorist prosecutions in general has been difficult in the post-9/11 period. Second, there may be some ambiguity in the investigative process regarding exactly when criminal activity becomes domestic terrorism. Third, the federal government appears to use the terms "terrorist" and "extremist" interchangeably when referring to domestic terrorism. It is unclear why this is the case. Finally, and most importantly, which specific groups are and should be considered domestic terrorist organizations? The U.S. government does not provide a public answer to this question. Rather, the federal government defines the issue in terms of "threats," not groups. While statutory and practical federal definitions exist for "domestic terrorism," there is little clear sense of the scope of the domestic terrorist threat based on publicly available U.S. government information. Most broadly, it has been said that in much of the post-9/11 period, the federal courts and DOJ may have applied different parameters when sorting, counting, and categorizing all types of terrorist prosecutions—let alone domestic terrorism cases. A 2009 study (critiqued by DOJ) found that the U.S. Federal District Courts, DOJ's National Security Division, and federal prosecutors rely on different criteria to determine whether or not specific cases involve terrorism at all. A bit more narrowly, in many instances, individuals considered to be domestic terrorists by federal law enforcement may be charged under non-terrorism statutes, making it difficult to grasp from the public record exactly how extensive this threat is. Regarding the prosecution of domestic terrorism cases, DOJ has noted that, "[a]lthough we do have at least one specialized [federal] statute aimed at animal enterprise terrorism, domestic terrorism cases often involve firearms, arson or explosive offenses; crimes relating to fraud; and threats and hoaxes." In some instances, the crimes committed by people the FBI describes as domestic terrorism suspects do not violate federal law. When this occurs, the Bureau, "support[s] [its local] partners any way [it] can—sharing intelligence, offering forensic assistance, conducting behavioral analysis, etc." Thus, individuals considered domestic terrorists by federal law enforcement may not necessarily be federally charged as terrorists. It may not be possible for investigators to describe the criminal activity involved early in an investigation as domestic terrorism. In these instances, investigators can work toward clarifying the motives of the suspects involved. Domestic terrorism cases differ from ordinary criminal activity in key ways. Most importantly, unlike ordinary criminals—who are often driven by self-centered motives such as profit and tend to opportunistically seek easy prey—domestic terrorists are driven by a cause or ideology. If the motives involved eventually align with the definition laid out in 18 U.S.C. Section 2331(5), presumably the case becomes a domestic terrorist investigation. In some instances, ideologically motivated actors can also collaborate with profit-driven individuals to commit crimes. To further cloud matters, another category of criminal activity, hate crime, may appear to involve ideological issues. However, as described by one federal official, a "hate crime" "generally involve[s] acts of personal malice directed at individuals" and is missing the broader motivations driving acts of domestic terrorism. For investigators, distinguishing between "personal malice" and ideologically motivated actions may be difficult in specific cases. This suggests that sorting domestic terrorism from hate crimes depends on the degree of a suspect's intent. Did the suspect articulate an ideology, belong to a domestic terrorist group, or follow an extremist movement? The grey area between domestic terrorism and hate crime hints that in some instances, suspects with links to domestic terrorist movements or ideologies supporting domestic terrorism may be charged with hate crimes. It is unclear to what extent this influences how the government understands the threat posed by extremist movements that hold racist beliefs. If some individuals of this ilk commit crimes against police or judges, for example, is the government more apt to label this activity as terrorism while individuals sharing these same racist motivations but targeting ordinary citizens based on race, religion, disability, ethnic origin, or sexual orientation are charged with hate crimes? The FBI's public description of the case of confessed would-be bomber Kevin Harpham exemplifies how difficult it may be to characterize acts as domestic terrorism. Initially the FBI viewed the case as domestic terrorism. In 2011, Harpham, allegedly motivated by white supremacist ideology, left a bomb—which never detonated—along the route of a parade in Spokane, WA, honoring Dr. Martin Luther King, Jr. The FBI's Northwest Joint Terrorism Task Force led the investigation. In prepared public remarks framing the "current state of the terrorism threat" from April 2011, the FBI's Assistant Director for the Counterterrorism Division noted that Harpham's case was one of "several recent domestic terrorism incidents [that] demonstrate the scope of the threat." Harpham eventually pled guilty to committing a federal hate crime and attempting to use a weapon of mass destruction. Thereafter, the Bureau described the case as the successful prevention of a "horrific hate crime." Another concept that muddies discussion of domestic terrorism is "extremism." The latter term is commonly applied to homegrown actors, whether they be domestic terrorists or adherents of ideologies forwarded by foreign groups such as Al Qaeda. National security expert Jonathan Masters has suggested that many law enforcement officials likely view "extremism" as largely synonymous with "terrorism." Masters has also found that there is a "lack of uniformity in the way domestic terrorist activities are prosecuted" in the United States. Presumably, using the term "extremist" allows prosecutors, policy makers, and investigators the flexibility to discuss terrorist-like activity without actually labeling it as "terrorism" and then having to prosecute it as such. This flexibility is certainly an asset to prosecutors. They can charge subjects of FBI domestic terrorism investigations under a wider array of statutes and, as a result, not describe the subjects publicly as terrorists. However, for policy makers this flexibility makes it hard to determine the scope of the domestic terrorist threat. One cannot get a clear sense of scope if some individuals are charged and publicly described as terrorists, others are discussed as extremists, and still others enter the public record only as criminals implicated in crimes not necessarily associated with terrorism, such as trespassing, arson, and tax fraud. The FBI's public formulation of "extremism" suggests two components. First, extremism involves hewing to particular ideologies. Second, it also includes criminal activity to advance these ideologies. Thus, according to this construction, an anarchist believes in a particular ideology—anarchism. An "anarchist extremist" is an anarchist who adopts criminal tactics. One scholar has indicated a similar bifurcation: First, extremism refers to an ideology outside a society's key values, and for liberal democracies, such ideologies "support racial or religious supremacy and/or oppose the core principles of democracy and human rights." Second, extremism can refer to the use of tactics that ignore the rights of others to achieve an ideological goal. The FBI and DHS have recently popularized the phrase "homegrown violent extremist" (HVE). It separates domestic terrorists from U.S.-based terrorists motivated by the ideologies of foreign terrorist organizations . (HVEs include some of the actors this report considers as "homegrown violent jihadists.") According to DHS and the FBI, a HVE is "a person of any citizenship who has lived and/or operated primarily in the United States or its territories who advocates, is engaged in, or is preparing to engage in ideologically-motivated terrorist activities (including providing support to terrorism) in furtherance of political or social objectives promoted by a foreign terrorist organization, but is acting independently of direction by a foreign terrorist organization." According to the FBI and DHS, an HVE is not a domestic terrorist—they are two distinct categories of terrorist actors. The federal government does not generate an official and public list of domestic terrorist organizations or individuals. The development of such a list may be precluded by civil liberties concerns (i.e., inclusion in a publicly available list may impinge on a group's exercise of free speech or its other constitutionally protected activities). However, a lack of official lists or processes to designate groups or individuals as domestic terrorists makes it difficult to assess domestic terrorism trends and evaluate federal efforts to counter such threats. An unnamed DHS official cited in a news report stated that "unlike international terrorism, there are no designated domestic terrorist groups. Subsequently, all the legal actions of an identified extremist group leading up to an act of violence are constitutionally protected and not reported on by DHS." Constitutionality aside, the lack of a list may also contribute to a certain vagueness in the public realm about which groups the federal government considers domestic terrorist organizations. While the government does not provide an official and public list of domestic terrorist organizations, it does include domestic terrorists (along with international terrorists) in its Terrorist Screening Database, commonly known as the "Terrorist Watchlist." The government is much less vague regarding foreign terrorist organizations. They are officially designated as such according to a well-established legally and procedurally proscribed regimen. According to the Department of State's Bureau of Counterterrorism, as of December 2013, the Secretary of State had designated 54 foreign terrorist organizations according to Section 219 of the Immigration and Nationality Act, as amended. As discussed above, DOJ and the FBI do not list domestic terrorist organizations publicly and officially. This may complicate the understanding that federal policy makers have of what exactly the government considers "domestic terrorism." While not naming specific groups , DOJ and the FBI have openly delineated domestic terrorist threats . DOJ has identified domestic terrorism threats to include criminal activity by "animal rights extremists, eco-terrorists, anarchists, anti-government extremists such as 'sovereign citizens' and unauthorized militias, [b]lack separatists, [w]hite supremacists, and anti-abortion extremists." The actors who constitute each of the domestic terrorist "threats" outlined by DOJ draw upon ideologies whose expression largely involves constitutionally protected activity. The FBI safeguards against cases focused solely on constitutionally protected activities. All FBI investigations have to be conducted for an authorized national security, criminal, or foreign intelligence collection purpose. The purpose of an investigation may not be to solely monitor First Amendment rights. However, it is unclear how DOJ or the FBI arrive at their list of domestic terrorism threats. This poses at least two fundamental questions: How does a particular brand of dissent become ripe for description by DOJ and the FBI as driving a "domestic terrorism" threat? What criteria are involved in such a process? How many crimes or plots attributed to a specific ideology have to occur to stimulate the identification of a new extremist threat? Is the severity of the crimes linked to an ideology taken into consideration? At what point do ideologically driven domestic terrorism threats cease to exist? Should there be a means for public petitioning of the government to eliminate various threats as investigative priorities? The below discussion of domestic terrorism threats does not necessarily presume the priority of one over the other. It is also important to note that instances of animal rights extremism and eco-te rrorism within the last dozen years are more readily available in the public record than cases involving other types of domestic terrorism. The extensive use of such examples in this report does not imply the prominence of animal rights extremism or eco-terrorism over other domestic terrorist threats. The term "animal rights extremism" covers criminal acts committed in the name of animal rights. Environmental extremism—most often referred to as "Eco-terrorism"—includes criminal acts committed in the name of the environment. These terms are not applied to groups or individuals involved with environmental movements or animal welfare protection/rights activism within the "confines of civil society and the rule of law." Many of the crimes committed by both animal rights extremists and eco-terrorists are perpetrated by independent small cells or individuals who harass and intimidate their victims. These cells or lone actors engage in crimes such as vandalism, theft, the destruction of property, and arson. Most animal rights and eco-extremists also eschew physical violence directly targeting people or animals. Regardless, crimes committed by eco-terrorists and animal rights extremists have caused millions of dollars in property damage, and some have involved the intimidation and harassment of victims. These two types of extremism are often discussed together, because the two broader radical movements from which they draw their philosophical underpinnings have similar beliefs and overlapping membership. The two movements —the Animal Liberation Front (ALF) and the Earth Liberation Front (ELF)—have the greatest reach among animal rights extremists and eco-terrorists. The ALF and the ELF are too diffuse to be called groups. Neither the ALF nor the ELF maintains formal rosters or leadership structures, for example. However, each communicates a sense of shared identity and attracts people who commit crimes in its name. They achieve this via "above-ground" wings. Largely using websites, ALF and ELF supporters publish literature highlighting movement philosophies, tactics, and accounts (press releases) of recent movement-related criminal activity. Much of this involves protected speech and occurs in the public realm. Press releases allow "underground" extremists to publicly claim responsibility for criminal activity in the name of either movement while maintaining secrecy regarding the details of their operations. The ALF and the ELF do not work alone. Members of other entities such as Stop Huntingdon Animal Cruelty (SHAC) have committed crimes in the name of animal rights, for example. Additional factors tangle our understanding of the ALF and the ELF. People can simultaneously participate in both. This may partly be true because the movements are so amorphous. The two movements also share similar agendas, and in 1993 they declared solidarity. All of this can play out confusingly in the real world. For example, an individual can commit a crime and claim responsibility for it online in the name of both the ALF and the ELF. One case especially highlights intersections between the ALF and the ELF. In late 2005 and early 2006, the FBI dismantled a network that, according to DOJ, committed violent acts in the name of both the ALF and the ELF. The group included about 20 individuals and called itself "the Family." It was reportedly responsible for at least 25 criminal incidents totaling approximately $48 million in damages in the late 1990s and early 2000s and disbanded at some point in 2001, due to law enforcement pressure on the group. The Family was responsible for an arson attack in 1998 at the Vail Ski Resort. Eight simultaneous fires damaged radio towers, ski lift towers, restaurants, and the ski patrol office at the Colorado site and totaled over $24 million in losses. Both the ALF and the ELF rely on and borrow from a number of philosophical underpinnings to rationalize their beliefs and actions. These help forge a common identity among individuals in each movement. These ideas are also key principles professed by more mainstream animal rights or environmental activists engaged in legal protest. The ALF: Animal Rights and Speciesism. The ALF's moral code includes the belief that animals possess basic inalienable rights such as life, liberty, and the pursuit of happiness, and this suggests that animals cannot be owned. According to the ALF, the U.S. legal system—which describes animals as property—is corrupt, and there exists a "higher law than that created by and for the corporate-state complex, a moral law that transcends the corrupt and biased statutes of the US political system." Simply put, the rights of one species do not trump the rights of others. To suggest otherwise is to be prejudiced, according to animal rights adherents. For the ALF and other animal rights supporters, the favoring of one species, particularly humans, over others has a name: speciesism. For the ALF, speciesism is a "discriminatory belief system as ethically flawed and philosophically unfounded as sexism or racism, but far more murderous and consequential in its implications." Thus, the movement couches the theft or illegal release of animals used in research or for economic gain as "liberation." The ALF views the destruction of laboratory infrastructure or tools as the elimination of items used to enslave species who have the same rights as humans. Intimidation of scientists and employees of businesses tied to animal research or testing is rationalized as confrontation with "oppressors" or those who, in the eyes of movement adherents, abuse and murder animals. The ELF: An Ideological Mélange. Eco-terrorists are motivated by a mélange of environmental philosophies. There is no single formula for what constitutes the ideological makeup of an ELF follower, but several concepts likely play key roles in the movement. These are biocentrism, deep ecology, social ecology, and green anarchism. Biocentrism argues for the equality of all organisms. Deep ecology suggests that all species are part of "the larger super-organism that is nature." It criticizes industrialization and views modern human impact on the earth as negative and hearkens back to small communities centered on subsistence agriculture. Social ecology suggests that hierarchical human society leads to social inequalities and environmental harm. Green anarchism ascribes environmental harm to civilization and domestication and embraces the notion of "rewilding," or rejecting civilization and returning to a hunter-gatherer state to preserve one's natural surroundings. According to the FBI, anarchist extremists commit crimes in the name of anarchist ideals. These ideals include belief that individual autonomy and collective equality are fundamental and necessary for a functional, civilized society. [Anarchism] resists the existing hierarchical structure of society that gives some people authority and control over others. [According to anarchists] authority imbues power, and power always is used in illegitimate and self-serving ways by those who have it. Anarchist extremists as well as anarchists engaging in constitutionally protected activity can oppose government, business, or social interests that they view as dangerous. As this suggests, anarchists advocate some form of revolution that realigns authority and power in the societies they desire to transform. However, adherents cannot agree to a single means for attaining revolutionary change. As one may assume, anarchist activity is decentralized. In fact, a basic, temporary organizational structure—the affinity group—likely plays a larger role in shaping the work of U.S. anarchists than any formal long-lasting entities or networks. Affinity groups are "autonomous militant unit[s] generally made up of between five-to-twenty individuals who share a sense of the causes worth defending and the types of actions they prefer to engage in. The decision-making process is anarchist, that is to say, egalitarian, participatory, deliberative, and consensual." An affinity group often consists of a circle of friends. The friends coalesce around a specific objective and break apart when they achieve their desired ends. Individual groups can band together in "clusters" and clusters can coordinate their efforts, if need be. The ends can be legal or illegal, violent or non-violent, covert or open. These structures have a long history among anarchists, but other movements use them as well. Also, anarchists can engage in what they call "black bloc" tactics. These involve secretive planning for public—often criminal—activity in which participants, typically dressed in black, act en-masse. Adding to the sprawling nature of the anarchist movement, some adherents also participate in the ALF and the ELF. These three movements share general philosophical tenets such as opposition to globalization and capitalism. The FBI has described anarchist extremists as typically being "event driven," meaning they show up at political conventions, economic and financial summits, environmental meetings, and the like. They usually target symbols of Western civilization that they perceive to be the root causes of all societal ills—i.e., financial corporations, government institutions, multinational companies, and law enforcement agencies. They damage and vandalize property, riot, set fires, and perpetrate small-scale bombings. Law enforcement is also concerned about anarchist extremists who may be willing to use improvised explosives devices or improvised incendiary devices. Anarchist extremists in the United States have been involved in illegal activity during mass protests surrounding events such as the 1999 World Trade Organization Ministerial Conference in Seattle, WA. Anarchist extremists reportedly committed crimes during the 2008 Republican National Convention in St. Paul, MN. To coordinate their protests during the convention, some anarchists formed what they called the "RNC Welcoming Committee" (RNCWC). In September 2007, the RNCWC developed a plan to broadly organize the activities of affinity groups intending to disrupt the convention. Law enforcement infiltrated and undermined these efforts, arresting 800 people, including eight involved with the RNCWC. Initially, in Minnesota state court, the eight "had been charged with felonies: first-degree damage to property and second-degree conspiracy to riot. Prosecutors added a more serious charge of conspiracy to riot in furtherance of terrorism, which was later dismissed." Five of the eight pled guilty to gross misdemeanor charges in 2010. The others had all of the charges they faced dismissed. On April 30, 2012, five men who reputedly had anarchist sympathies were arrested for purportedly scheming to blow up a bridge near Cleveland, OH. The plot was apparently timed to coincide with peaceful protest activity arranged by Occupy Cleveland, an offshoot of the Occupy Wall Street movement. Occupy Cleveland representatives have stated that the alleged would-be bombers "were in no way representing or acting on behalf of Occupy Cleveland." An FBI sting operation led to the quintet's arrest. Purportedly, the group relied on an undercover FBI employee to supply them with two inert bombs that the conspirators believed were functional. Criminal acts involving anarchist extremists do not have to be event-driven. For example, DHS has noted that anarchist extremists had set fires at urban development project sites in Vancouver, Canada, and Seattle, WA, in 2013. Anarchist extremists are also suspected in a similar incident that occurred in Grand Rapids, MI in 2011. These attacks followed instances of what DHS characterized as "lower-level criminal activity or mischief involving anarchist or 'anti-gentrification statements.'" In another case that was not "event-driven," Joseph Konopka, the self-dubbed "Dr. Chaos," allegedly led a group of boys he called "The Realm of Chaos" in a series of crimes involving vandalism to radio and cell phone towers in the late 1990s and early 2000s. In 2002, he was arrested in Chicago for storing more than a pound of deadly cyanide powder in a passageway in a Chicago Transit Authority subway tunnel. He had obtained the material (potassium cyanide and sodium cyanide) from an abandoned warehouse. In 2002, Konopka pled guilty in federal court to possessing chemical weapons, and in 2005 he pled guilty to 11 felonies, including conspiracy, arson, creating counterfeit software, and interfering with computers in Wisconsin. The term "white supremacist extremism" (WSE) describes people or groups who commit criminal acts in the name of white supremacist ideology. At its core, white supremacist ideology purports that the white race ranks above all others. WSE draws on the constitutionally protected activities of a broad swath of racist hate-oriented groups active in the United States ranging from the Ku Klux Klan to racist skinheads. Some of these groups have elaborate organizational structures, dues-paying memberships, and media wings. Additionally, many individuals espouse extremist beliefs without having formal membership in any specific organization. A large proportion of white supremacists dualistically divide the world between whites and all other peoples who are seen as enemies. Particular animus is directed toward Jews and African Americans. In fact, a common racist and revisionist historical refrain is that the civil rights movement succeeded only because Jews orchestrated it behind the scenes. Scholars indicate that white supremacists believe in racial separation and that society discriminates against them. To them, whites have lost "ground to other groups and ... extreme measures are required to reverse the trend." All of this has been encapsulated in a slogan known as the "Fourteen Words": "We must secure the existence of our race and a future for white children." This was coined by David Lane, a member of a violent terrorist group active in the 1980s. The Fourteen Words have been described as "the most popular white supremacist slogan in the world." Neo-Nazism and its obsession with Adolph Hitler and Nazi Germany is also a prominent component of white supremacist extremism in the United States. The father of American neo-Nazism, George Lincoln Rockwell, became publicly active in the late 1950s. According to one scholar, Rockwell laid down three concepts that have shaped neo-Nazism ever since. For his followers, he reconfigured the racial notion of "white," broadening it beyond "Aryan" to include people of Southern and Eastern European descent. Additionally, Rockwell denied the Holocaust. He also encouraged tying neo-Nazism to religion, and some of his followers took up the obscure creed of Christian Identity. Aside from racial superiority, a dualistic view of the world, and neo-Nazism, at least two other broad concepts shape white supremacy in the United States. They are the inevitability of violent conflict, and a belief that conspiracies hostile to white supremacy shape the existing world. It can be said that WSE broadly shares these concepts with the militia movement (discussed below). The FBI has stated that white supremacists "commonly anticipate" waging war against their opponents. For example, the inevitability of RAHOWA—an acronym for "racial holy war"—is a central tenet of the neo-Nazi Creativity Movement, which has its roots in the Church of the Creator, a racist group founded by Ben Klassen in 1973. Klassen, who committed suicide in 1993, argued that whites had no choice but to wage war against non-whites. Likewise, some white supremacists use racism to interpret apocalyptic imagery from Norse mythology embodied in Odinism. Most Odinists are not racists, however. Conspiracism has been defined as "the idea that most major historic events have been shaped by vast, long-term, secret conspiracies that benefit elite groups and individuals." Conspiracy theories are not the province of a particular movement or group. Regardless, conspiracy theories can particularly shape the outlooks and actions of white supremacist extremists. Media sources have stated that Richard Poplawski—convicted of shooting and killing three Pittsburgh police officers in April 2009—believed that a Zionist conspiracy controlled government and major corporations in the United States. As in Poplawski's example, anti-Semitism plays a prominent role in the racist conspiracies of many white supremacists. These people—as well as anti-government extremists—believe in something they call the Zionist Occupied Government (ZOG). ZOG refers to the federal government, which adherents contend is "controlled or manipulated by international Jewish interests." On its website, one WSE group has sold versions of a video game titled "ZOG's Nightmare." Gameplay involves shooting nonwhites while being chased by a police agency controlled by Jews. Racists explain all sorts of personal or social grievances by invoking ZOG. One scholar has described ZOG as an omnipresent and omnipotent cabal involving at its heart varying constellations of Jews, Illuminati, Freemasons, plutocrats, and multinational corporations. It operates through many social 'front' institutions, from the United Nations to Parent-Teacher Associations.... ZOG can be used to explain not only the existence of affirmative action, environmental pollution, and pornography but also why a certain individual made poor grades in school, lost his job, or seems unable to find a partner. According to adherents, ZOG is said to control the media, arts, religion, science, and education. In the 1980s and 1990s, a small number of figures dominated white supremacist circles. They were intimately linked to their own relatively cohesive organizations. By the early 2000s, these groups fragmented as they lost their leaders. This fragmented situation likely persists. In fact, one study from 2006 has described "a recent crisis of leadership in the hate movement." Two particularly well-known white supremacist figures died in the last decade. William Pierce, head of the National Alliance, died in 2002. Richard Butler, leader of Aryan Nations, died in 2004. Both Pierce and Butler articulated clear ideologies that attracted followers and drew upon resources such as rural headquarters/compounds to sustain their organizations. By the early 2000s, the National Alliance even had a substantial revenue stream estimated at $1 million annually generated from a publishing company and record labels it owned as well as dues. The deaths of Butler and Pierce exacerbated the downfall of both organizations. The decline of these groups also resulted from a number of other forces, such as infighting among members and pressure from law enforcement and watchdog groups. Two prominent white supremacist movements are discussed below. One white supremacist organization active in the United States is the National Socialist Movement (NSM). It has benefitted from the decline of these other groups as well as new leadership in the form of Jeff Schoep. The NSM also capitalized on the expansion of the Internet in the early 2000s. The group, which emerged in 1974, is a descendant of the American Nazi Party, and until the 1990s and early 2000s "it operated only on the fringes of the neo-Nazi movement." As of 2008, the group had around 500 members and close associates throughout the United States. The NSM is flexible about membership, allowing its members to also participate in other white supremacist organizations. Individuals allegedly tied to the NSM at some point in their lives have run afoul of the law. In Minnesota in April 2012, Joseph Benjamin Thomas was indicted on drug-related charges, and Samuel James Johnson was indicted on weapons-related charges. Purportedly the two were tied to NSM—at one point Johnson had served as its leader in Minnesota. The duo had reportedly formed their own white supremacist group, gathering weapons and ammunition and planning to attack the government and other targets. In June 2012, Johnson pled guilty to "one count of being a felon in possession of firearms." In July 2012, Thomas pled guilty to "possession with intent to distribute more than 50 grams of high-purity methamphetamine." William White, a onetime member of the NSM and founder of his own white supremacist organization, has faced charges in several criminal cases. In December 2013, DOJ announced an indictment of White that included "five counts of making threats in aid of extortion over the Internet and one count of the unlawful use of identification information in furtherance of those offenses." He allegedly threatened a Florida judge, a state attorney, and an FBI agent, with kidnapping, torture, rape, and murder. DOJ claims that White included the families of these individuals in his threats. The officials that White threatened had been involved in prosecuting suspects tied to the American Front, a white supremacist organization in Florida. White apparently hoped that his threats would somehow secure the release of the American Front suspects. In January 2011, White was convicted of soliciting violence online against the jury foreman in U.S. v. Matthew Hale . In April 2011, a federal judge reversed White's conviction. Upon appeal, the conviction was reinstated. In an unrelated case, in December 2009, White was convicted of four counts of communicating threats in interstate commerce and one count of witness intimidation. One of the convictions for communicating threats in interstate commerce was later reversed. The witness intimidation charges involved White reportedly attempting to "delay or prevent the testimony" of African Americans in a discrimination case. According to publicly available information, in 2005 and 2006 White was involved with NSM, for a time serving as its national spokesman. His activity with NSM ceased after he had a falling out with Schoep. In the United States, racist skinheads have a legacy stretching back to the early 1980s. However, skinhead culture originated in the United Kingdom in the late 1960s and today has a global reach. Since the early 2000s, the movement in the United States has been characterized by a proliferation of regional groups or crews rather than a united core organization. In law enforcement circles, racist skinheads have a reputation for violence. This is "reinforced by hate-filled white power music and literature." "[T]hey foster [their reputed toughness] through their appearance (shaved heads or close-cropped hair, white power tattoos) and dress (bomber jackets, 'braces' (suspenders), steel-toed boots.)" Skinheads emerged as a non-racist movement among British working-class youth in the late 1960s. These early skinheads rejected the hippie lifestyle and embraced elements of Jamaican culture, particularly reggae and ska music. As immigration from South Asia to the UK grew, some white British skinheads embraced racism and neo-Nazism. This racist skinhead variant of the subculture materialized in the U.S. Midwest and in Texas in the early 1980s. In the mid-1990s, many U.S.-based racist skinhead groups allied with one another to form the Hammerskin Nation (HSN). HSN eventually developed chapters throughout the United States and in Europe. It had its own annual meeting/concert called Hammerfest, ran a record label, and had a publishing company. In the early 2000s, other groups such as the Outlaw Hammerskins, Hoosier State Hammerskins, and Ohio State Skinheads challenged HSN for preeminence. These groups saw HSN as "elitist." In 2011, by one measure, 133 skinhead groups were active in the United States. In January 2010, the FBI released a bulletin that, among other things, emphasized that some racist skinheads formed the most violent segment of WSE adherents. This supported the findings in a 2008 FBI assessment. Between 2007 and 2009, skinheads were involved in 36 of the 53 violent incidents the FBI identified in the United States as being tied to WSE proponents. The Bureau has stated that "violence is an integral part of the racist skinhead subculture." Elements within the fractious movement even target one another. These criminal acts are typically unrehearsed and opportunistic, targeting nonwhites and "other religious and social minorities." An apparent recent exception involved greater levels of planning. One man was convicted and two others pled guilty in a Connecticut case that involved the illegal sale of firearms and homemade grenades. The scheme included multiple meetings between late 2008 and early 2010 to negotiate the transactions, prepare the firearms, and assemble the grenades. The trio was tied to a skinhead group known as Battalion 14 (originally called the Connecticut White Wolves). They sold the weapons to a convicted felon working as an FBI cooperating witness. The informant posed as a member of the Imperial Klans of America, a Ku Klux Klan organization. Two others in the case, including the leader of Battalion 14 and a man not tied to the group, were acquitted of charges. As mentioned above, DOJ considers both unauthorized militias and sovereign citizens as anti-government extremists. Neither militia membership nor advocacy of sovereign citizen tenets makes one a terrorist or a criminal . However, in some instances both militia members and sovereign citizens have committed crimes driven in part by their ideologies. The militia movement emerged in the 1990s as a collection of armed, paramilitary groups formed to stave off what they perceived as intrusions of an invasive government. Central to this is a fear of firearm confiscation by a federal government thought to be out of control. Some adherents also believe in anti-Semitic and racist ideologies. Regardless, most militia members engage in constitutionally protected activity. Militia groups typically coalesce around a specific leader. Groups can run training compounds where they rehearse paramilitary tactics, practice their survival skills, and receive weapons instruction and lessons in movement ideology. Some militia groups also maintain websites for recruitment and fundraising. Extremists within the movement who run afoul of law enforcement "tend to stockpile illegal weapons and ammunition, trying illegally to get their hands on fully automatic firearms or attempting to convert weapons to fully automatic. They also try to buy or manufacture improvised explosive devices." Segments of the militia movement believe that the U.S. government is either run by some hidden conspiracy or is an overreaching sham. Some see a "New World Order" controlling U.S. institutions such as the media and the federal government. They contend that this is partly fostered by international organizations such as the United Nations. From this perspective, these organizations sap American sovereignty. Some militia supporters believe that agents of an un-authentic "Shadow Government" are interested in seizing lawfully owned firearms as part of a plan to undermine democracy. Importantly, others in the militia movement hold that the federal government has overstepped its constitutional bounds. One scholar has noted that some militia members assert that they have "the right to organize, purchase and use firearms, and enforce the law against agents of the government who behave unconstitutionally." A small minority of Americans who held anti-government fears formed militias largely in response to two incidents in the early 1990s. These were confrontations between federal law enforcement and private citizens at Ruby Ridge, ID, and at a site near Waco, TX. Both involved warrants related to firearms violations. In August 1992, Randy Weaver and his family were engaged in an 11-day standoff with federal law enforcement agents. Randy Weaver had failed to appear in court on firearms-related charges in 1991. Subsequently, an unsuccessful operation to arrest Weaver led to the death of his 14-year-old son and a U.S. Marshal. It also precipitated the standoff. During the standoff, Weaver and a friend were shot and wounded. An FBI sniper also shot and killed Weaver's wife, Vicki. Weaver was eventually found guilty of failing to appear in court on the gun charges that played a role in the standoff. In October 1993, he was sentenced to 18 months in jail and a $10,000 fine. In 1995, Weaver received a $3.1 million settlement in a wrongful death suit filed against the U.S. government. The events at Ruby Ridge helped precipitate the militia movement, whose members tend to view Randy Weaver as a hero and demonize the federal government. The militia movement also emerged because of the 51-day standoff between federal law enforcement and a religious sect named the Branch Davidians near Waco. On February 28, 1993, an unsuccessful attempt by ATF agents to arrest the sect's leader, David Koresh, initiated the events near Waco. He was wanted on suspicion of federal firearms and explosives violations. Four ATF agents and six Branch Davidians died in a gunfight during the operation. Protracted discussions followed between federal negotiators and Koresh. These failed. On April 19, federal agents assaulted the Davidian compound, which caught on fire. At least 75 Branch Davidians perished in the assault. If the incidents involving the Weavers and the Branch Davidians helped form the militia movement, Timothy McVeigh's bombing of the Alfred P. Murrah Federal Building in Oklahoma City on April 19, 1995, helped usher in a temporary decline. In the bombing's aftermath, militia groups received greater law enforcement scrutiny. The bombing claimed 168 lives, and until 9/11 was the largest single act of terrorism on U.S. soil. The militia movement included 441 groups in 1995. By 2000, this number was reportedly down to 72. Although McVeigh's bombing cannot fully account for a dip in militia activity, it impacted the movement by causing some groups to temper their rhetoric while others grew more extreme, and militias became more marginalized. The militia movement has experienced a recent resurgence. One watchdog group has attributed this partly to a rise in anti-government anger since 2008. According to another organization, the number of militias in the United States jumped from 42 in 2008 to a recent high of 334 in 2011 (see Figure 1 ). This resurgence may exhibit a key difference from its precursor. Social networking websites have encouraged looser organization of smaller, largely web-based cells. Several examples highlight how some militia adherents have allegedly engaged in criminal activity since 9/11. In November 2011, the FBI arrested four retirees, Samuel J. Crump, Ray H. Adams, Dan Roberts, and Frederick W. Thomas, who allegedly formed a fringe militia group and planned violent attacks on government officials. The group, based in northern Georgia, purportedly had ties to an unnamed militia organization. According to DOJ, the quartet "discussed multiple criminal activities, ranging from murder; theft; manufacturing and using toxic agents; and assassinations in an effort to undermine federal and state government and to advance their interests." Between June and November 2011, Roberts and Thomas met with an FBI undercover agent to negotiate the purchase of matériel for the plot: "a silencer for a rifle and conversion parts to make a fully automatic rifle, as well as explosives." In October, plotters reportedly discussed making ricin, a deadly poison derived from castor beans. In April 2012, Roberts and Thomas pled guilty to conspiring to obtain an unregistered explosive device and silencer. Crump and Adams were found guilty of "conspiring to make ricin to be used as a weapon in January 2014. Also, they were found guilty of one count each of possessing a biological toxin for use as a weapon." Adams was acquitted of "attempting to develop, produce and possess a biological toxin." In June 2012, three individuals were found guilty in Anchorage, AK of conspiracy and firearms charges related to a scheme purportedly led by Francis "Schaeffer" Cox. He and his followers allegedly plotted "a potential retaliatory response to any attempt by law enforcement to arrest Cox, who had an outstanding bench warrant for not attending a trial over a misdemeanor weapons charge." They were members of the Alaska Peacemaker's Militia based in Fairbanks, AK, and also held sovereign citizen beliefs. The plotters supposedly codenamed their plan "241 (two for one)," because they reputedly intended to kill two government officials for every militia member killed in the operation. The above alleged activities are not necessarily indicative of trends toward violence in the larger militia movement, and in one prominent case, DOJ failed to convince the presiding judge of serious charges revolving around a purported violent plot. In March 2012, a federal judge acquitted members of a Michigan Militia group known as the Hutaree on charges of seditious conspiracy or rebellion against the United States and conspiring to use weapons of mass destruction. The judge also cleared the accused Hutaree members of weapons crimes related to the conspiracies. The case garnered headlines in March 2010, when nine Hutaree members were indicted for allegedly preparing to violently confront U.S. law enforcement. Their supposed plotting included the murder of a local law enforcement officer and an attack on fellow officers who gathered in Michigan for the funeral procession. According to DOJ, the Hutaree discussed the use of explosives against the funeral procession. Audio recordings by an undercover FBI agent of reputed Hutaree leader David Brian Stone capture him discussing the New World Order and how, "it's time to strike and take our nation back so we will be free of tyranny.... The war will come whether we are ready or not." According to DOJ, the group had a hit list that included federal judges, among others. However, during the trial an Assistant U.S. Attorney acknowledged that the Hutaree had not formed a "specific plan" to attack government targets. U.S. District Judge Victoria Roberts stated that, "The court is aware that protected speech and mere words can be sufficient to show a conspiracy. In this case, however, they do not rise to that level." Three Hutaree members pled guilty to firearms charges. The FBI defines the sovereign citizen movement as "anti-government extremists who believe that even though they physically reside in this country, they are separate or 'sovereign' from the United States. As a result, they do not accept any government authority, including courts, taxing entities, motor vehicle departments, or law enforcement." However, simply holding these views is not a criminal act, and numerous movement adherents solely exercise their beliefs via constitutionally protected activities. The ideas behind the movement originated during the 1970s with a group known as the Posse Comitatus and enjoyed some popularity in extremist circles during the 1980s and 1990s. Early on, the movement featured white supremacist elements, but this has not kept some African Americans from subscribing to its ideals in recent years. In the 1990s, the movement attracted 250,000 followers and was marked by the FBI's standoff with a group known as the Montana Freemen that lasted 81 days. Current estimates suggest a membership of 300,000. For the most part, the sovereign citizen movement is diffuse and includes few organized groups. The FBI suggests that sovereigns "operate as individuals without established leadership and only come together in loosely affiliated groups to train, help each other with paperwork [critical to some of their schemes], or socialize and talk about their ideology." The movement involves leaders described as "gurus" who proselytize online, in print publications, or via in-person seminars. These gurus rouse followers into believing a conspiracy theory in which the legitimate federal government has been replaced by a government designed to take away the rights of ordinary citizens. This shares the same broad interplay between concepts of legitimate and illegitimate rule seen in the New World Order and WSE theories about ZOG. Gurus can also promote illegal techniques that individuals can use to supposedly cut their ties to the federal government or avoid its reach, particularly when it comes to taxation. Sovereign citizens reject the legitimacy of much of the U.S. legal system. Many believe that the 14 th Amendment "shifted the nation from its original common-law roots with states' rights to a federal corporation that legally enslaved everyone." According to movement members, the amendment ushered in an illegitimate federal government by supposedly abrogating individual rights and replacing them with a system that "grant[ed] privileges through contracts such as marriage and driver's licenses, gun permits, and property codes." By ignoring all sorts of laws, avoiding taxes, disregarding permit requirements, and destroying government-issued identification documents, some sovereign citizens have tried to cut formal ties with what they perceive as an illegitimate regime. Sovereigns have filed court documents stating that they are not U.S. citizens. They have also created bogus financial documents to harass or defraud their enemies. (For more information, see the " "Paper Terrorism": Liens, Frivolous Lawsuits, and Tax Schemes " section in this report). Sovereign citizens have in some instances created fictitious entities and used fake currency, passports, license plates, and driver licenses. In 2009, a federal jury found three men guilty of conspiring to use and sell fraudulent diplomatic credentials and license plates that they believed allowed "their customers [to] enjoy diplomatic immunity and [to] no longer ... pay taxes or be subject to being stopped, detained, or arrested by law enforcement personnel." In 2003, Ronald K. Delorme developed the Pembina Nation Little Shell Band of North America into a sovereign citizen group. It is a sham Native American tribe that anyone can join to try and avoid taxes and government-imposed costs, such as auto registration fees. For example, news reports indicate that in June 2010, a sheriff's deputy in Florida pulled over John McCombs when the law enforcement official noticed a Pembina Nation Little Shell license plate on the motorcycle McCombs was driving. According to publicly available sources, McCombs presented a fraudulent letter of diplomatic immunity and an invalid Pembina Nation Little Shell vehicle registration. Some sovereign citizen fraud appears to be motivated by economic opportunism rather than ideology. This includes "pyramid schemes, other investment schemes, bogus trust scams, real estate fraud, and various types of tax frauds [as well as] more esoteric scams ... ranging from immigration fraud to malpractice insurance fraud." In November 2011, husband and wife Monty and Patricia Ervin were convicted in federal court of conspiring to defraud the United States as well as three counts of tax evasion. In addition, the federal jury convicted Patricia of structuring transactions to avoid bank reporting requirements. The couple allegedly had not filed federal income tax returns between 2000 and 2008, denied their U.S. citizenship, and dubbed themselves "sovereign" when the IRS investigated. The Ervins earned more than $9 million from investment properties they owned. A group of self-proclaimed sovereign citizens in North Georgia was indicted in March 2011 for using sovereign schemes to allegedly steal millions of dollars worth of real estate. In a few recent cases, avowed sovereign citizens have been involved in violent altercations with law enforcement officers. According to a September 2011 FBI publication, since 2000 "lone-offender sovereign-citizen extremists have killed six law enforcement officers," and the Bureau sees sovereign citizens as a growing threat to U.S. law enforcement. Perhaps the most publicized example of alleged sovereign violence directed at police occurred in 2010. In May of that year, two self-professed sovereign citizens were involved in a violent confrontation with West Memphis, TN, police officers. During a traffic stop, Joe Kane fired an AK-47 assault rifle and killed two officers. Kane and his father Jerry fled the scene. Law enforcement sighted their vehicle in a nearby parking lot 90 minutes later. The duo died in the ensuing shootout, which also wounded two more officers. The FBI had investigated Jerry Kane five years before the murders because he was allegedly traversing the United States peddling what the FBI termed a "debt elimination scheme." In June 2012, the FBI issued a bulletin suggesting that some sovereign extremists may be moving away from more spontaneous violence simply in reaction to encounters with police and are potentially preparing for conflict in advance, "making more specific plans to interfere with state and local law enforcement officers during traffic stops and, in some cases, intentionally initiating contact with law enforcement." In August 2013, authorities in Las Vegas, NV, arrested two reputed Sovereigns, David Allen Brutsche and Devon Campbell Newman, after a local investigation uncovered the duo's purported schemes to kidnap and kill police officers. Reportedly, the Las Vegas Metropolitan Police Department ran an undercover investigation to nab the two after they encountered Brutsche in what has been characterized as a series of vehicle stops during which "Brutsche would espouse his Sovereign Citizen beliefs that he wasn't bound by the law Metro officers were enforcing." Brutsche pled guilty to felony kidnapping conspiracy in February 2014 after "prosecutors abandoned the two most serious charges—conspiracy to murder and attempted armed kidnapping." Other cases have garnered attention. For example, in July 2011 James M. Tesi allegedly shot at a local police officer trying to arrest him near Fort Worth, TX. Tesi was reportedly wounded in the altercation. Outstanding "arrest warrants for speeding, driving without a license in possession, and failure to appear" prompted the attempted apprehension. Court documents described in news reporting noted that Tesi linked himself to a sovereign citizen group. In February 2012, Tesi was found "guilty of aggravated assault on a public servant with a deadly weapon." In June 2011, a police officer in Page, AZ, shot and killed William Foust while responding to a domestic violence 911 call. The shooting reportedly occurred during a physical struggle in which Foust attempted to "gain control of" the police officer's Taser. According to a press account, Foust had declared his sovereign citizen status in court proceedings in Kanab, UT (about 75 miles from Page), related to a speeding ticket. DOJ includes black separatism in its list of movements that potentially spawn domestic terrorists. However, most black separatists solely engage in constitutionally protected behavior. Since 9/11, there has been little public discussion of federal investigations involving black separatist extremists. One group exhibiting what can be described as black separatist views, the New Black Panther Party for Self Defense (NBPP), received national scrutiny over voter intimidation allegations involving members of its Philadelphia chapter during the 2008 federal general election. The NBPP emerged in the early 1990s, and it is not tied to the Black Panthers from the 1960s. Watchdog groups have described the NBPP as "a virulently racist and anti-Semitic organization whose leaders have encouraged violence against whites, Jews, and law enforcement officers," as well as "the largest organized anti-Semitic and racist black militant group in America." The NBPP, which denies that it is a hate group, engages in "high-profile" rhetoric at rallies or demonstrations intended to encourage confrontation with authorities. The group's actions occur "on behalf of the poor or disadvantaged, involving the ready display of firearms." As an example of the rhetoric the group uses, an NBPP representative characterized the March 2011 shooting death of a drug suspect in Jacksonville, FL, as "a violent act of terrorism" committed by police. Soon after the shooting, the Jacksonville Sheriff's Office said that the confrontation involved undercover officers serving a search warrant at an apartment. Officers claimed that inside the apartment, the victim—an alleged drug dealer with a criminal record—was holding a firearm. In 2008, the Philadelphia, PA, chapter of the NBPP was involved in a case that generated public controversy. A 2009 civil suit filed by DOJ claimed that two NBPP members wearing the group's paramilitary uniforms loitered around the entrance to a 2008 federal general election polling station in Philadelphia. One of the NBPP members allegedly carried a nightstick. According to DOJ, some poll watchers feared for their safety because of this activity. Philadelphia police officers responding to claims of voter intimidation removed the nightstick-wielding NBPP member and allowed the other to remain (the latter was a certified poll watcher). Police asked people at the polling station whether they had been threatened by the two individuals. All those questioned replied that they had not. However, at least one individual claimed that the presence of the two NBPP members had been intimidating. The NBPP disavowed the actions of its two members. In May 2009, DOJ voluntarily dismissed claims against defendants in the case, and a July 2009 letter from 10 Members of Congress to DOJ's Inspector General questioned the decision to do so. DOJ's Office of Professional Responsibility (OPR) investigated, and in March 2011, OPR issued a report which argued that DOJ officials did not act inappropriately regarding the matter. The vast majority of anti-abortion activists engage in constitutionally protected activity. However, anti-abortion extremism involves crime committed in the name of the anti-abortion movement. Sixty-six instances of "extreme violence" targeting abortion providers and clinics occurred in the United States from 1997 through 2010, according to one group that supports abortion rights and tracks criminal activity intended to limit access to abortion services. These cases involved shootings, bombings, arson incidents, and acid attacks. Since 1993, eight clinic workers have been murdered by anti-abortion extremists in the United States. Because of a wave of violence focused on abortion providers in the 1980s and early 1990s, Congress passed and President Clinton signed into law the Freedom of Access to Clinic Entrances Act (FACE Act) (18 U.S.C. §248) in 1994. As with other types of domestic terrorism investigations, it is unclear exactly which incidents of violence perpetrated against abortion providers the FBI considers terrorist acts. The 2009 murder of George Tiller, an abortion provider, received sizeable public attention. On January 29, 2010, Scott Roeder was convicted of first-degree murder and two counts of aggravated assault for killing Tiller. Roeder shot Tiller while the latter was at church on May 31, 2009. Roeder was sentenced to "life in prison with no possibility of parole for 50 years." A number of other unrelated schemes targeting abortion clinics have been uncovered since Roeder's arrest. These incidents appear to involve individuals largely operating alone. In January 2012, Bobby Joe Rogers was charged in the firebombing of a Pensacola, FL, abortion clinic on New Year's Day 2012. The bombing destroyed the clinic, which had been targeted in the past. In February 2012, a federal grand jury indicted him on two counts—arson and damaging a reproductive health facility. He pled guilty to the charges in July 2012. In May 2011, Ralph Lang was arrested after allegedly accidently firing his handgun through the door of the hotel room in Madison, WI. He was reportedly planning to kill abortion providers in the area. One underground network that supports attacks on abortion clinics is the Army of God (AOG). The loosely structured organization openly promotes anti-abortion violence. However, its members deny that they are terrorists. They also deny that attacks against clinics and abortion providers constitute violent activity, because they see it as "Godly work." AOG first made headlines with the 1982 kidnapping of a doctor and his wife, both of whom ran an abortion clinic in Illinois. Three individuals who claimed membership in AOG were responsible. The group disseminates a manual that "is a 'how to' for abortion clinic violence. It details methods for blockading entrances, attacking with butyric acid, arson, bomb making, and other illegal activities. The manual contains anti-abortion language as well as anti-government and anti-gay/lesbian language. The manual begins with a declaration of war on the abortion industry." Eric Rudolph, who in the late 1990s bombed an abortion clinic near Atlanta, GA, and one in Birmingham, AL, "published his writings on the Army of God website." The boundary between constitutionally protected legitimate protest and terrorist activity has received much attention in public discussions of domestic terrorism. As an example of this, the next several sections of this report explore such considerations regarding the ALF. U.S. law enforcement, some business groups, and some scientists—among others—have stressed that animal rights extremists (and eco-terrorists) are a security and law enforcement concern. In 2008, the FBI stated that animal rights extremists and eco-terrorists together posed a serious domestic terrorism threat for several reasons, including the number of crimes attributed to animal rights extremists and eco-terrorists (between 1,800 and 2,000 incidents accounting for more than $110 million in damages from 1979 to early 2009), the broad pool of victims (such as large pharmaceutical corporations, scientific laboratories, ski resorts, automobile dealerships, individual researchers, and lumber companies), and the movement's rhetoric and destructive tactics. In March 2012, the FBI suggested that the threat from eco-terrorists may be declining in recent years. As articulated by some scientific researchers, the monetary toll on legitimate businesses and laboratories in the United States exacted by animal rights and eco extremists is compounded by less tangible issues. For example, animal rights extremists and eco-terrorists have impacted the work of scientists. In some cases, special equipment and research materials have been destroyed in attacks. The consequences of criminal activity in the name of movements such as the ALF can also be more personal. Two advocates of animal research conducted strictly according to federal regulations have noted that the actions of animal rights extremists have pushed some scientists to quit lab work involving animals. Often, this work relates to products and procedures that some maintain cannot feasibly be marketed without animal testing. In 2006, a UCLA professor of behavioral neuroscience declared he was stopping his research on monkeys because of what he described as harassment by animal rights groups. Additionally, animal rights extremists are said to be driving out students from research programs. Critics of U.S. efforts to fight animal rights extremism and eco-terrorism have suggested that the threat is overblown by law enforcement and that the government's pursuit of purported extremists perpetuates a "green scare," chilling the exercise of protected speech by protesters. Some say that the government conflates property crime with terrorism. Others add that people engaged in what the government describes as animal rights extremism or eco-terrorism do not deserve the terrorist label. The Animal Enterprise Terrorism Act ( P.L. 109-374 ; AETA) expanded the federal government's legal authority to combat animal rights extremists who engage in criminal activity. Signed into law in November 2006, it amended the 1992 Animal Enterprise Protection Act ( P.L. 102-346 ; AEPA). Namely, the AETA Amends the federal criminal code to revise criminal prohibitions against damaging or interfering with the operations of an animal enterprise to include intentional damage or loss to any real or personal property and intentional threats of death or serious bodily injury against individuals (or their family members, spouses, or intimate partners) who are involved with animal enterprises. The AETA expanded the AEPA to include both successful and attempted conspiracies. It also prohibits intentionally placing a person in "reasonable fear" of death or serious bodily injury while damaging or interfering in the operations of an animal enterprise. The AETA revised and increased monetary and criminal penalties. It also stipulates that it does not prohibit First Amendment-protected activity. DOJ successfully prosecuted individuals on charges relating to animal enterprise terrorism for the first time under the AEPA in 2006 (the case had been built before the AETA had been signed into law). Six individuals were convicted for what DOJ described as "their roles in a campaign to terrorize officers, employees, and shareholders of HLS [Huntingdon Life Sciences, a research corporation that performs animal research and has U.K. and U.S. facilities]." These individuals belonged to an animal rights campaign named Stop Huntingdon Animal Cruelty (SHAC) and the entity SHAC USA, Inc. SHAC involves both legal protests and criminal activity against HLS. Reportedly, the six incited threats, harassment, and vandalism and on this basis were convicted of violating the AEPA. DOJ has noted that SHAC's stated mission was to work "outside the confines of the legal system." DOJ proved in court that the group managed websites that encouraged others "to direct their intimidation, harassment, and violence against HLS and its targeted employees, as well as secondary targets—companies and employees who did business with HLS." DOJ has also successfully applied the AETA. For example, on February 14, 2011, Scott DeMuth was sentenced to six months in prison on one count of misdemeanor conspiracy to commit animal enterprise terrorism. He was involved in a raid that released about 200 ferrets at a Minnesota farm in 2006. Activists had claimed the action in the name of the ALF. In another case, William James Viehl and Alex Hall were sentenced to 24 months and 21 months in prison, respectively, under AETA. The duo had released 650 minks, destroyed breeding records, and vandalized structures at the McMullin Ranch in South Jordan, UT, in 2008. DOJ has experienced at least one setback in its application of the AETA. In February 2009, the FBI announced the arrests of what it described as "four animal rights extremists." The four (two women, two men, all in their 20s) allegedly violated the AETA by using "force, violence, or threats to interfere with the operation of the University of California." The incidents leading to the indictment included protests at the houses of researchers from the University of California, Berkeley and University of California, Santa Cruz. According to the FBI's press release, in one instance, three of the indicted individuals tried to forcibly enter the home of a researcher, whose husband was hit by an object while confronting the protesters. In July 2010, a federal judge dismissed the indictment against the four. According to the ruling, the indictment failed to specifically describe crimes allegedly committed by the defendants. Opponents of the prosecution stress that the case involved over-broad application of AETA to First Amendment-protected behaviors. Criticisms of federal government efforts to counter animal rights extremists have focused on the AETA itself and First Amendment-related issues. Opponents of the AETA suggest that it expanded the AEPA too much by making it easier to prosecute individuals who wage protest campaigns against secondary or tertiary targets—companies or people (such as insurers) indirectly tied to an animal enterprise. Opponents also take issue with the inclusion of "reasonable fear" in the AETA, suggesting that protected speech or activities may possibly be interpreted as provoking "reasonable fear" in some instances. Echoing critiques of the AETA, one observer emphasizes that while activities linked to U.S.-based animal rights extremists have caused significant property damage, none of these criminal acts has physically harmed people. This critic suggests that describing vandalism or arson as terrorism and not ordinary crime dampens constitutionally protected protest activity by people who support animal rights or radical environmentalism but do not engage in criminal activity. In essence, this position argues that the U.S. government is encouraging a "green scare" by labeling the activity of movements such as the ALF and the ELF as terrorism or extremism. After serving 40 months in prison for her involvement with SHAC USA, Lauren Gazzola argued that she was not a terrorist, claiming, "I hadn't hurt anyone or vandalized any property. In fact, the indictment didn't allege that I'd committed any independent crime at all, only that I'd 'conspired' to publish a website that advocated and reported on protest activity against a notorious animal testing lab in New Jersey." The U.S. Code's definition of "domestic terrorism" has been seen by some as potentially chilling to legitimate animal rights and environmental protest activities. As mentioned, the current delineation of domestic terrorism in the U.S. Code includes criminal acts "dangerous to human life" that appear to intend to intimidate or coerce a civilian population or influence governmental policy via intimidation or coercion. This line of reasoning suggests that the crimes committed by animal rights extremists and eco-terrorists cannot be compared to clearly violent attacks by groups such as Al Qaeda. An opposing commentary stresses that such discussion is irrelevant and miss[es] the mark. The ALF ideology encourages members to instill fear in those who engage in the activities that the ALF opposes: fear of harm to themselves and their families, and fear of personal and professional economic loss. Additionally, these arguments assume that "true terrorism" is fundamentally different from animal rights terrorism. While it is true that animal rights terrorism, as a whole, does not engage in the same scale of violence as other extremist groups, those working in academia, research, agriculture, and food service industries are no less fearful when their homes and workplaces are firebombed; violent tactics can instill fear even when they are used infrequently. Domestic terrorist attacks have come nowhere near the devastation of 9/11. However, it is worth noting that (as mentioned above) Timothy McVeigh's bombing of the Alfred P. Murrah Federal Building in Oklahoma City on April 19, 1995, claimed 168 lives and injured more than 500 others. It ranks as the second-deadliest terrorist attack on U.S. soil, behind only the devastation wrought by Al Qaeda on 9/11. Domestic terrorists feature prominently among the concerns of some law enforcement officers. For example, Los Angeles Deputy Police Chief Michael P. Downing recently described violent Islamists such as Al Qaeda, Hezbollah, and Hamas as Los Angeles's main terrorist threats "along with three other terrorist categories: black separatists, white supremacist/sovereign citizen extremists, and animal rights terrorists." In one 2008 study, state police agencies "overwhelmingly reported" dangerous domestic extremist groups present in their jurisdictions. Of course, as one expert reminds us, most followers of extremist viewpoints pose no threat: "Most of them are not going to do anything but bore their relatives and friends with ridiculous papers and treatises." Five themes speak to the possible threat posed by domestic terrorists. First, domestic terrorists likely have been responsible numerous incidents since 9/11, and there appears to be growth in anti-government extremist activity as measured by watchdog groups in the last several years. Second, a large number of those labeled as domestic terrorists do not necessarily use major terrorist tactics such as bombings or airplane hijackings. Third, domestic terrorists—much like their violent jihadist analogues—are often Internet savvy and use the medium as a resource for their operations. Fourth, domestic terrorism can be seen as a somewhat decentralized threat often involving lone wolves and movements operating under the model of leaderless resistance. Finally, prison has been highlighted as an arena in which terrorist radicalization can occur, and WSE plays a role in the activities of several U.S. prison gangs. Sovereign citizen theories have also taken root in U.S. prisons. There is no publicly-available list of domestic terrorist incidents (foiled plots or attacks) kept by the U.S. government. This makes it especially challenging for anyone trying to develop a sense of this particularly diverse threat. However, a September 2011 study by the New America Foundation and Syracuse University's Maxwell School of Public Policy found 114 individuals involved in non-jihadist terrorist acts in the 10 years following 9/11. The study did not limit its findings to animal rights extremists, eco-terrorists, anarchist extremists, sovereign citizens, unauthorized militias, black separatists, white supremacists, and anti-abortion extremists. It included incidents by what it described as left-wing and right-wing terrorists. Some U.S. government sources suggest levels of domestic terrorist activity. Examples of such sources include the following: An unclassified 2008 DHS report includes a table that lists selected criminal acts perpetrated by people involved in the animal rights extremist and eco-terrorist movements. This list counts 74 criminal acts between 9/11 and March 2008. As noted, the FBI estimated that animal rights extremist and eco-terrorists together committed between 1,800 and 2,000 criminal incidents accounting for more than $110 million in damages from 1979 to early 2009. In 2012, the FBI also publicly discussed a decline in eco-terrorism, especially after a wave of successful prosecutions in 2007. The Bureau reportedly attributes the perceived dip to activists possibly viewing "a Democratic administration as more sympathetic to their goals and [thus] be less inclined to take radical steps." An unclassified FBI intelligence bulletin estimates that 53 acts of violence were committed by what it calls "white supremacist extremists" between 2007 and 2009 in the United States. Victims included other white supremacists, African Americans, and Latinos. Most of the incidents involved assaults. The bulletin bases these findings on law enforcement and media reporting. In February 2012, the FBI announced that sovereign citizen convictions increased from 10 in 2009 to 18 in both 2010 and 2011. Domestic terrorists have been responsible for killing Americans. The study by the New America Foundation and Syracuse University's Maxwell School of Public Policy counted "[a]t least 14 people ... killed in right- and left-wing terrorism-related incidents [in the 10 years since 9/11]." On January 29, 2010, Scott Roeder was convicted of first-degree murder and two counts of aggravated assault for killing abortion provider George Tiller. Described as a neo-Nazi and white supremacist, James von Brunn reportedly shot and killed a security guard at the U.S. Holocaust Memorial Museum in Washington, DC, in June 2009. In January 2010, the 89-year-old von Brunn died in federal prison, before he could be tried. Additionally, a key caveat regarding the violence involved in domestic terrorist activity may be of importance. Many domestic terrorist incidents have been linked to either animal rights extremists or eco-terrorists. As highlighted elsewhere in this report, many animal rights extremists and eco-terrorists claim to avoid violent acts that directly target people. The attacks by these individuals can often be described as property crimes involving arson or vandalism. Beyond counting terrorist incidents, the Southern Poverty Law Center (SPLC) has noted both a rise in the number of hate groups from 2000-2012 and a marked expansion in the militia movement (discussed elsewhere in this report) over the same period. Between 2009 and 2012, militia groups resurged to levels not seen since the 1990s. The SPLC's figures likely capture a range of activity broader than that described by DOJ and the FBI as domestic terrorism. Regardless, the SPLC argues that the rise is "driven by resentment over the changing racial demographics of the country, frustration over the government's handling of the economy, and the mainstreaming of conspiracy theories and other demonizing propaganda aimed at various minorities." SPLC also assesses that 2010 was the first year ever that the number of hate groups topped 1,000 ( Figure 1 ). While some domestic terrorism suspects engage in violent plotting, others commit much different crimes that do not physically harm people. This latter group differs from their homegrown violent jihadist counterparts, who are often bent on killing or harming people. Two types of activities that avoid visiting violence upon people but are commonly associated with subjects of domestic terrorism investigations stand out. First, many animal rights extremists, eco-terrorists, and anarchist extremists believe in "direct action." This typically involves what movement members would characterize as non-violent but criminal protest or resistance activities furthering the movement's ideology. While direct action has a long legacy among anarchists, in recent years the ALF and the ELF have played a large role in articulating its meaning. Second, "paper terrorism" is a term used to describe some of the non-violent criminal activity committed by sovereign citizens involving the filing of fraudulent documents in the hopes of harassing enemies or bilking state or federal tax authorities. Anarchist extremists, animal liberation extremists, and environmental extremists refer to much of their operational activity as "direct action." This term has a long history, and it can be used to describe legitimate protest such as letter writing campaigns or work stoppages. However, this report uses "direct action" to describe criminal activities such as sabotage and arson. ALF and ELF members understand that criminality and direct action are one and the same. The Animal Liberation Primer, a movement resource, highlights criminality in the actions of supporters: "anyone working in the ALF is a criminal. You have to begin to think like a criminal." ALF and ELF members also generally view direct action as nonviolent and heroic. Using politically charged language, the ALF allegedly styles itself along the lines of the Underground Railroad, freedom fighters in Nazi Germany, anti-Apartheid protestors, U.S. civil rights activists, and Palestinian groups opposing Israel. The ELF views constitutionally protected protest as "state sanctioned" and eschews such activity. The ELF, much like the ALF, also wraps itself in the mantle of reformers and describes itself as inheriting the spirit of Luddites, abolitionists, suffragists, and even the American revolutionary-era Boston Tea Party. The ALF's version of direct action is framed as what it considers to be "economic sabotage" or "ethical vandalism." The ALF supports the destruction of property and intimidation of individuals and businesses considered by the movement to be involved in the exploitation of animals. Cells and individuals linked to the ALF also engage in trespassing and theft, or what they perceive as "live liberations" or "rescuing" animals from "the horrors of exploitation" and human use by stealing them from places such as legitimate research facilities or farms. Economic sabotage can be virtual. The North American Animal Liberation Press Office (NAALPO) has carried claims of cyber hacking incidents in the name of animal rights. NAALPO is one of the web-based vehicles used by ALF supporters to publicize criminal activities claimed on behalf of the movement. Like the ALF, the ELF's discussions of direct action also revolve around economic sabotage. The ELF rejects legal protest tactics partly for what it views as pragmatic reasons—"because they have been proven not to work, especially on their own." Economic sabotage in the name of environmentalism has a long history, perhaps stretching back to the 1950s, and has been called "monkeywrenching," a term taken from a 1975 novel, The Monkey Wrench Gang by Edward Abbey. The book depicts such activity. A guidebook that describes monkeywrenching offers what can be interpreted as a call to arms for would-be extremists: It is time for women and men, individually and in small groups to act heroically in the defense of the wild, to put a monkeywrench into the gears of the machine that is destroying natural diversity. Though illegal, this strategic monkeywrenching can be safe, easy, and—most important—effective. The guidebook also defines monkeywrenching as nonviolent by stressing that it should never target people or "other forms of life." Federal officials are especially concerned about the use of incendiary devices and explosives by animal rights extremists and eco-terrorists. In congressional testimony from 2005, then-ATF Deputy Assistant Director Carson Carroll stated that the "most worrisome" trend regarding animal rights extremists and eco-terrorists was their "willingness to resort to incendiary and explosive devices." This pronouncement came on the heels of two related incidents that occurred near San Francisco, CA, and involved explosive devices. An entity called the Revolutionary Cells of the Animal Liberation Brigade claimed responsibility for both attacks, which the FBI has also linked to a man named Daniel San Diego. In August 2003, two ammonium nitrate pipe bombs exploded at the campus of the biotechnology firm Chiron but caused little damage and no injuries. In October 2003, a reputed 10-pound ammonium nitrate bomb damaged the offices of Shaklee, a health, beauty, and household product company. No one was injured. The perpetrator(s) believed that both companies did business with Huntingdon Life Sciences (the same firm targeted by SHAC and discussed above). A related communiqué stressed that, "all customers and their families are considered legitimate targets." One commentator has suggested that the combination of "fire" as a tactic and instilling "fear" as a goal ensures eco-terrorists will continue to warrant the terrorist label. Both animal rights extremists and eco-terrorists have histories of using incendiary devices to damage or destroy property—the Vail, CO, fire (mentioned elsewhere in this report) setting a prominent example for extremists. In fact, one of the hallmark publications circulated in extremist circles is a handbook on how to fashion incendiary devices titled Arson Around with Auntie ALF . A recent example underscores this focus on arson. In January 2012, NAALPO issued a communiqué in which "unnamed activists" claimed responsibility for setting fires that damaged 14 tractor trailer rigs at the Harris Ranch, a cattle feedlot in Coalinga, CA. The perpetrators used containers of accelerant, kerosene-soaked rope, and digital timers to set the blazes. According to the communiqué, the fires apparently embodied a reaction to "the horrors and injustices of factory farming ." Some ELF adherents have focused on targets they perceive as emblematic of urban sprawl or the excesses of industrialized society. Since 2000, a number of ELF actions have involved the torching of housing projects as well as activities such as the damaging and destruction of sports utility vehicles and other emblems of industrialized society and urban sprawl. Between August and October 2002, three individuals tied to the ELF damaged construction vehicles and sports utility vehicles, and vandalized fast food restaurants in Virginia. In one incident, these individuals vandalized two homes under construction, spray painting "sprawl" on one of the structures. In November 2005, the ELF claimed responsibility for fires set in five townhomes under construction in Hagerstown, MD. Similar activity has occurred on the West Coast. Both the ALF and the ELF have established guidelines and posted them on the web for cells or lone wolves to follow. The guidelines are straightforward and short for both movements (see Figure 2 ). A key point in the guidelines for both the ALF and the ELF is to avoid harming any animal, human and non-human. The ALF also stipulates that individuals professing affiliation with the movement must be vegetarians or vegans. Interestingly, the ALF employs a number of caveats in its understanding of violence. On the one hand, it supports intimidation as a tactic. On the other, the movement does not see intimidation as potentially involving violence. The ALF also views arson as "violence against property," not people. Beyond this, ALF does not greatly elaborate on its notion of violence. Some animal rights extremists support violence. For example, in February 2012 Meredith Lowell was arrested for allegedly using a Facebook page she created (under an assumed name) to solicit a hit man to kill "someone who is wearing fur." In the investigation, the FBI used an undercover employee to pose as a hit man and communicate with Lowell online. She was arrested before anyone could be harmed. An animal rights extremist entity named the "Justice Department" believes in the efficacy of violence against humans. Founded in the United Kingdom in 1993, the "Justice Department" has been described as an offshoot of the ALF. In 1999, the first incident claimed in its name on U.S. soil involved the mailing of more than 80 envelopes containing razor blades allegedly positioned to cut recipients. Some of the razors may have been covered in rat poison. The letters were received by animal researchers, hunting guides, and others in the United States and Canada. In November 2010, individuals asserting ties to the "Justice Department" mailed two communiqués to NAALPO. The missives claimed that "Justice Department" extremists had mailed AIDS-tainted razors to two scientists at the University of California, Los Angeles. One of the communiqués read: We are the past generation of animal liberationists, but we will now be the future, striking at the heart of the vivisection industry, and if we have to go back to egg timers and insence [sic] sticks then we will. Mark our words, we will destroy all who fall into our focus. Presumably, allusion to egg timers and incense sticks suggests timing devices and fuses for explosive or incendiary devices. Sovereign citizens have committed non-violent crimes based on their ideological underpinnings. These are often bundled under the concept of "paper terrorism." This concept can include forging documents (fake money orders and bad personal checks, for example), failing to pay taxes, phony tax filings, and presenting sham legal arguments in court. Sovereign citizens have filed fraudulent property liens against their foes. Some sovereigns hold illegal courts and target officials with fake criminal indictments. They can also "issue warrants for judges and police officers." While these acts may not be violent, they are frequently "designed to intimidate or defraud targeted individuals, private institutions, or government entities." Thus, some sovereigns saddle their opponents with time-consuming legal efforts to wipe out sham retaliatory court filings. As a result, sovereign foes incur court fees and their credit ratings potentially suffer. In some cases, these proceedings arise from what most citizens might consider fairly mundane run-ins with law enforcement authorities. Some sovereigns do not necessarily see violations like parking tickets and trespassing arrests as run-of-the-mill. They can react to such encounters with police by challenging the very authority and jurisdiction of U.S. law enforcement and by harassing officials with dubious liens, for example. In November 2011, Kenneth W. Leaming, from Spanaway, WA, was arrested for allegedly issuing billions of dollars in frivolous liens to intimidate public officials enforcing laws against sovereign citizens. Reportedly, he had been tied to other sovereign citizen adherents and groups. Also, he purportedly planned to harass the children of U.S. Supreme Court Chief Justice John Roberts. In 2013, Leaming was convicted of "three counts of filing false liens against federal officials and one count of harboring federal fugitives and being a felon in possession of firearms." Sovereign citizen guru Roger Elvick is the reputed founder of "redemption," a concept that blurs the line between sovereign citizen ideology and pure scam. Redemption suggests that when the United States left the gold standard during the Great Depression, the nation found a way to monetize people. According to the theory, each child who is born in the United States and has a birth certificate also has a U.S. Treasury account "valued from $630,000 to more than $3 million" viewed as collateral against the nation's debts. Redemption supporters hold that by filing certain forms with state or federal authorities, people can draw money from these accounts. To do so, they occasionally attempt to pass bogus checks. On a broad level, redemption can be viewed as an ideologically driven tactic meant to illegally wrangle money from the U.S. government via the IRS. According to DOJ, in some instances this involves the filing of "a series of false IRS forms, including tax returns, amended returns, and Forms 1099 (including Form 1099-OID) or Forms W-2, to request fraudulent tax refunds based on phony claims of large income tax withholding." In addition, DOJ describes some redemption adherents as scammers who dupe customers into filing false IRS forms to redeem money via the purported secret accounts the government holds for its citizens. One guru recently pled guilty to money laundering charges. In another case, in December 2009 Audie Watson received a 14-year prison sentence for his involvement in an immigration benefit fraud scheme that sold membership in the Pembina Nation Little Shell Band to illegal aliens. Watson and co-conspirators charged individuals $1,500 and couples $2,000. They conned clients into believing that membership could be used to avoid removal from the United States. In March 2011, DOJ announced that the U.S. District Court for the Western District of Missouri had permanently barred Gerald A Poynter "from preparing tax returns for others and from promoting" a redemption scam. Poynter informed his customers that he could obtain tax refunds for them, charged them for his services, and then produced fraudulent IRS forms claiming $64 million in refunds for 165 customers. In the counterterrorism world, there has been much concern regarding violent jihadist use of the Internet. However, domestic terrorists also are computer savvy and active online. One count suggested that 657 U.S.-based hate websites existed in 2010. A web presence may help extremist groups—sometimes relatively small, with rosters in the 100s or fewer—educate their existing membership and forge a group identity. Also, in many instances they can use websites to focus on outsiders to propagandize, socialize, and recruit new adherents. A few domestic terrorists also have exploited the web to harm their targets. White supremacists have long been using computer technology to communicate and interact. As one study has suggested, white supremacists "were among the very early users of the electronic communication network that eventually evolved into the Internet." Among a variety of findings, the study indicated that white supremacist extremist websites were possibly an effective recruiting tool that the groups exploited. Membership forms are available on some sites. Others exhibit multimedia material, and some actually retail items such as music and video games. The Internet allows individuals and groups to connect with one another and to disseminate ideology. It also enables groups to manage how others perceive them. Many white supremacist sites claim that their sponsoring groups are non-violent and not even racist. Some white supremacists may be unwilling to affirm their views in public spaces such as work, school, or in street demonstrations. To them, the virtual realm is an important antidote. As one study has suggested, "free spaces" in both the real and virtual worlds—where conflict with non-believers will be minimized—are important for adherents. In them they can "meet, articulate, and support their views." Supremacists can turn to virtual free spaces to receive indoctrination into movement culture, key narratives outlining movement grievances, adopt ideologies, and "talk of violence against 'racial enemies.'" Much of this online ideological activity involves constitutionally protected speech. A number of examples stand out. The ALF and the ELF have their long-established guidelines posted on the web for independent groups or individuals to follow. Movement websites virtually connect like-minded individuals. As mentioned elsewhere in this report, key ideological texts are also made available online. The websites of animal rights extremists and eco-terrorists also post press releases publicizing crimes perpetrated on behalf of the movements. Reverend Donald Spitz administers the Army of God's website. Among other things, the site includes lists of people who support "violent opposition to abortion" as well as listing people incarcerated because of anti-abortion crimes they committed. The National Socialist Movement sponsors its own social networking site, the "New Saxon Social Network." Some domestic terrorists also engage in cyber attacks. According to DOJ, an animal rights extremist cell (SHAC USA, Inc.) active between 2001 and 2004 listed online the personal information—names, addresses, phone numbers—of workers at a firm it was targeting. (The business uses animals in its research.) The extremist cell likely devised the list to help focus the activities of the group's online followers. In some cases, the published information included the names of spouses and children of employees, license plate numbers, churches attended by the employees, as well as the schools their children attended. The websites used by the extremist cell also posted suggestions for action by supporters—including what it described as the "top 20 terror tactics." Supporters across the United States vandalized victims' homes and automobiles and engaged in cyber attacks against the research firms and other companies tied to it, among other activities. In January 2009, in an unclassified assessment available on the Internet, DHS stated that "leftwing" extremists were likely to increasingly use cyber attacks. The assessment noted that animal rights extremists engaged in cyber attacks such as "deletion of user accounts, flooding a company's server with e-mails, and other types of e-mail assaults intended to force businesses to exhaust resources." Domestic terrorism can be described as a decentralized threat. As this report has already suggested, domestic terrorism suspects generally operate on their own or in small, independent cells. In other words, they do not necessarily belong to organizations with cohesive, well-articulated leadership structures or cadres. However, independently acting domestic terrorism suspects are not necessarily isolated, adrift, and cut off from any outside contact or influence. Some take ideological cues from broader movements or groups espousing extremist ideas. These groups or movements publicly disavow violent criminal behavior and engage in constitutionally protected activities. This dynamic—the interplay between above-ground groups or movements proffering extremist dogma or ideology (protected speech) that is then consumed and acted upon by independent underground groups or cells who commit crimes—is a critical feature of domestic terrorism. Within the domestic terrorism realm, the notions of decentralized activity received attention in the 1980s and early 1990s when white supremacist Louis Beam circulated his theories of "leaderless resistance." He saw leaderless resistance as a means to transform the white supremacy movement. Beam described it as a means of avoiding law enforcement infiltration of white supremacist groups, and he suggested two levels of leaderless movement activity. First, on an operational level, militant, underground, ideologically motivated cells or individuals (lone wolves) engage in movement-related illegal activity without any centralized direction or control from an organization that maintains traditional leadership positions and membership rosters. Second, on another level, the above-ground public face (the "political wing") of the movement propagandizes and disseminates ideology—engaging in protected speech. In this system, underground cells or lone wolves would be responsible for their own actions, and the public face of the movement would not be held accountable. Online comments from the leadership of the neo-Nazi National Socialist Movement (NSM) offer a specific example of an above-ground movement avoiding violence and the terrorist label. The NSM's leader has posted the following statement on the group's website: I want it made perfectly clear to all of our members, supporters, prospective members, readers, etc. that the National Socialist Movement condemns illegal actions and in such we do not endorse any acts of violence or terrorism. The NSM is a White Civil Rights Movement that adheres to Political activism, and a legal means to restore America to its former glory. Acts of violence or terrorism against America, or its Citizens is unacceptable, and not tolerated within the ranks of the National Socialist Movement. One of the key texts read by neo-Nazis and anti-government extremists is The Turner Diaries, a 1978 novel by William Pierce, the deceased founder of the neo-Nazi group National Alliance. This book can be seen as an above-ground product that motivates underground cells or individuals to commit crimes. The book has partly inspired a number of violent acts by white supremacist extremists and anti-government extremists. The Turner Diaries predates the widespread acceptance of the "leaderless resistance" concept. However, its lasting place in the neo-Nazi and anti-government extremist movements highlights how leaderless resistance works. Pierce's book has been described as "the most widely read book among far-right extremists." The novel reflects the author's own racist religious philosophies. Perhaps 500,000 copies of the book have been sold. In it, Pierce emphasized that the current racial order of things had to be cataclysmically destroyed and reborn in accordance with white supremacist ideals. To convey this message, he devised his book as the edited diaries of neo-Nazi character Earl Turner. As such, Turner's story is annotated by a fictionalized editor, one Andrew Macdonald. The novel describes Turner leading a terrorist group whose actions trigger a race war that results in the overthrow of the government—controlled by Jews in Pierce's construction. Turner also initiates a nuclear war that wipes out earth's non-white human inhabitants. The atomic apocalypse allows for the rebirth of a revitalized white race. The book has informed the activities of domestic terrorists. In September 1983, white supremacist Robert Mathews formed a small underground group known as The Order. Its inspiration came from passages in The Turner Diaries. The group planned for and engaged in what it viewed as a revolution. Over the next 15 months, The Order went on a violent crime spree. Among other crimes, it robbed banks, armored cars, electronic stores, a truck stop, and a video store, and allegedly gave some of the spoils to Richard Butler, who was at the time the leader of the WSE group Aryan Nations. The Order also bombed a synagogue and murdered a Jewish talk show host, Alan Berg, before it was dismantled by federal law enforcement. Anti-government extremist Timothy McVeigh, an avid reader of the book, had passages from the Turner Diaries with him when he was arrested. The 1995 bombing of the Alfred P. Murrah federal building in Oklahoma City mimicked one described in the novel and involved a small cell of underground conspirators. Sales of the book allegedly rose after the bombing. The concept of leaderless resistance has been mirrored by other extremist movements in the United States. Both the ALF and the ELF have rejected recognizable leadership structures or hierarchies and follow a leaderless resistance model instead, making their activities more difficult for law enforcement to investigate. According to the model, above-ground elements in the movements provide guidelines and an ideological platform that underground individuals (lone wolves) or independent cells can draw upon to motivate their own criminal actions. Exercising First-Amendment rights, the above-ground components of the ALF and the ELF lawfully communicate shared identities largely via websites. As one scholar has suggested for the ELF, this possibly creates a broad consensus focused on a very specific cause and avoids internecine conflicts over ideological fine points. Much like the NSM, the above-ground elements of the ALF take pains to distinguish themselves from criminal activity. For example, NAALPO states: Disclaimer: The Animal Liberation Press Officers do not engage in illegal activities, nor do they know any individuals who do. Rather, the Press Office receives and posts communiqués from anonymous parties and provides comment to the media. Additionally, the above-ground literature of both the ALF and the ELF suggests that independent cells avoid communication with one another. This leaderless format is followed to avoid law enforcement infiltration and is based on models used by other domestic terrorists. As one scholar has suggested, this parallels franchising in the business world. Some domestic terrorists are "lone wolves." This can be seen as a form of leaderless resistance. One scholar has offered a succinct conceptualization: Lone wolf terrorism involves terrorist attacks carried out by persons who (a) operate individually, (b) do not belong to an organized terrorist group or network, and (c) whose modi operandi are conceived and directed by the individual without any direct outside command hierarchy. Lone wolves have committed crimes in the names of a number of domestic terrorism movements. For example, according to the FBI, when it comes to violence attributed to white supremacist extremism, lone wolves play a prominent role. Lone wolves filter in and out of WSE groups. They can either get dismissed from these groups because of their "violent tendencies" or voluntarily leave because they find the organizations too passive. There is little research on the lone wolf phenomenon and no universally accepted definition of the term. The above definition stresses how lone wolves operate. Just as critical is what they believe. Lone wolves can hew to broader ideological causes and use them to justify their actions. This suggests that lone wolves potentially adopt the ideas of broader terrorist movements while not claiming formal membership in them. Divining exactly what "formal membership" constitutes leads to debate regarding whether or not some individuals acted as lone wolves or part of larger movements. For example: On January 29, 2010, Scott Roeder was convicted of first-degree murder and two counts of aggravated assault for killing abortion provider George Tiller. Roeder allegedly had "connections with militant abortion foes but few formal ties with known groups." Some supporters of abortion rights consider his contacts among anti-abortion adherents as evidence of possible conspiracy. Meanwhile, some anti-abortion activists have stressed that Roeder was a lone wolf. He remains the only person convicted of Tiller's murder. Because lone wolves are not plugged into terrorist organizations, distinguishing them from individuals who commit hate crimes can also be difficult. In these cases, as mentioned above, the FBI likely attempts to determine whether the motives involved were personal (hate crime) and not focused on broader ideologies (domestic terrorism). Lone wolves present particular challenges to law enforcement. Because lone wolves, by definition, operate alone, it can be difficult for law enforcement to assess exactly which radicalized individuals intend to turn their beliefs into action and pursue terrorist activity. One former FBI counterterrorism official has said: The lone wolf is arguably one of the biggest challenges to American law enforcement. How do you get into the mind of a terrorist? The FBI does not have the capability to know when a person gets up in middle America and decides: "I'm taking my protest poster to Washington or I'm taking my gun." Aside from intent, it is also hard to assess the operational capability of potential lone wolf terrorists—knowledge of explosives, familiarity with firearms, or experience in surveillance, for example. Lone wolves do not participate in terrorist networks or training camps that can be infiltrated or whose communications can be traced. They do not rehearse their schemes or practice their criminal skills with conspirators who can potentially act as cooperating witnesses. To attempt to overcome these issues, the FBI asserted in 2009 that it was "beginning an extensive study on identified lone offenders to come up with indicators and behavior predictors that investigators can use to assess suspects." Not all of the news for law enforcement regarding lone wolves is necessarily dire. They have weaknesses. Their lack of tradecraft may make it harder for lone wolves to engage in large-scale attacks. Likewise, lone wolves do not necessarily experience the reinforcement of a closely knit terrorist social network. They cannot rely on others to assist them in any type of complicated plot. Regardless, lone wolf attacks can be lethal. For example, according to one scholarly examination, between 1990 and April 2009, "far-rightists" have been responsible for the deaths of 42 law enforcement officers—most from state and local agencies in the United States. Most of the incidents involved firearms, and most of the assailants acted alone . Other instances of fatalities have been documented as well. Aside from the 2010 actions of Scott Roeder and the 2009 shooting involving James von Brunn (discussed elsewhere), suspected lone wolves were involved in at least two fatal shooting incidents in 2009, according to media sources and watchdog groups. The individuals involved in these incidents held white supremacist beliefs. Richard Poplawski shot and killed three Pittsburgh police officers in April 2009. He has been described as a "white supremacist" lone wolf. He had posted anti-government messages on racist websites. On January 21, 2009, Keith Luke allegedly shot and killed two Cape Verdean immigrants and raped and shot a third. Police arrested him before he could attack a synagogue, as he planned. Luke purportedly informed police that he had decided to go on his spree after reading about "the demise of the white race" on a neo-Nazi website. He reputedly said that he was "fighting for a dying race" and that he had been planning the attack for six months. The shootings perpetrated by Roeder and von Brunn had been described by the federal government as terrorist acts. It is unclear whether the Poplawski and Luke cases are considered as such. Lone wolves do not necessarily have to focus on gun-related crimes. Kevin Harpham's case illustrates as much. On March 9, 2011, law enforcement officers arrested Kevin Harpham (discussed elsewhere) and charged him in connection to a bomb concealed in a backpack and placed along the route of a Martin Luther King, Jr. Day March in Spokane, WA. In September 2011, Harpham pled guilty to committing a federal hate crime and attempting to use a weapon of mass destruction. Media reports and watchdog groups have indicated that Harpham had ties to white supremacists. Allegedly, he was a member of the neo-Nazi National Alliance in 2004. The group denied that he was still a member. Harpham had also been in contact with Paul Mullet, leader of a white supremacist group active in Athol, ID. Mullet said that he and Harpham spoke many times but that the latter never joined Mullet's group. Harpham reportedly made postings on white supremacist websites and read The Turner Diaries . Also, lone wolf activity is not solely the domain of purported white supremacists. Another case illustrates the kind of attack a domestic lone wolf animal rights extremist can commit: In November 2010, Walter Bond pled guilty to two felonies stemming from an April 2010 arson that destroyed a store known as the Sheepskin Factory in Glendale, CO. Speaking from jail, Bond condemned the business, which sold sheepskin products, as engaging in "blood trade" and drawing profits "from the death and exploitation of suffering animals." Bond worked alone. A web posting claimed the arson "in defense and retaliation for all the innocent animals that have died cruelly at the hands of human oppressors." Apparently, Bond strongly identified with the notion of being a lone wolf. The ATF, working with a confidential informant, recorded Bond discussing the fire and the fact that he actually used the nickname "Lone Wolf." In a jailhouse letter, Bond stated, "I used the name 'ALF Lone Wolf' in the media to convey to my ALF brothers and sisters worldwide (whoever they are) the power of acting alone." As some experts have pointed out, prison offers an environment in which individuals can potentially radicalize on the way to becoming terrorists. This issue has loomed large among experts examining international terrorism. A scholar of the prison radicalization phenomenon in the United Kingdom notes that jail time potentially jump starts the radicalization process for individuals who are at risk of radicalizing. Prison brings together disaffected people who may be receptive to anti-social messages offering "clear, albeit intolerant, solutions to complex problems of identity and belonging." In other words, some disaffected prisoners may discover and adopt terrorist ideals as they try to find meaning behind bars, potentially establishing bonds with like-minded people in jail. Another study of government policies on prison radicalization in 15 countries (including the United States) concludes that "[w]hether or not one believes that prisons have become Al Qaeda's 'universities' or 'finishing schools' there can be no question that prisons matter." They matter because they have figured largely in the development of many previous radical movements around the globe. Prisons also unsettle prisoners who "are more likely than elsewhere to explore new beliefs and associations." Some prison gangs delve into radical or extremist ideologies that also motivate domestic terrorists, and in a number of instances, these ideologies are integral to fashioning cohesive group identities within prison walls. It must be reiterated, however, that even for gangs exhibiting these ideological dimensions, criminal enterprises such as drug trafficking—not radical beliefs—largely drive their activities. The largest white supremacist prison gangs illustrate this. Several gangs in America's penal institutions subscribe to white supremacist beliefs, views broadly shared by some domestic extremist groups such as the National Socialist Party, the National Alliance, Aryan Nations, and racist skinheads. A national-level gang of this ilk with approximately 15,000 members in and out of prison, the Aryan Brotherhood, has factions within facilities managed by the California Department of Corrections and the Federal Bureau of Prisons. The Nazi Low Riders, a regional-level gang with a membership estimated between 800 and 1,000, exists in correctional facilities on the West Coast and in the Southwest. Another white supremacist gang with a prison and street presence, Public Enemy Number One—largely a local-level organization with between 400 and 500 members—is mostly active in California with scattered groups outside of the state. These three groups may espouse racial hatred, but they are largely guided by the profit motive, not extremism. For example, one expert has described the Aryan Brotherhood's ideological underpinnings as "mostly just a good recruiting tool and a way to maintain structure and discipline. These guys are more about making money than starting any kind of white revolution." As another indicator of the primacy of profit, members of all three white supremacist groups often set aside their racism and "have working relationships with Hispanic street gangs and non-white prison gangs such as the Mexican Mafia, due to a shared interest in criminal activity, particularly the drug trade." However, members of racist gangs do commit hate crimes. For example, in 1998 "[t]wo of the three men who murdered James Byrd Jr., a black man, by tying him to their pickup truck and dragging him over three miles of road near Jasper, Texas, were ex-cons who belonged to the [Aryan] Brotherhood." One study has estimated that "hundreds, possibly thousands" of sovereign citizens have been incarcerated in the United States since the 1990s, where some have continued to practice their beliefs and even pass their knowledge on to other prisoners. An unknown number of prisoners have converted to the movement's ideology, while others have simply used sovereign tactics. The following cases suggest how this may occur. In September 2010, Marlon T. Moore pled guilty to one count of filing a false claim with the IRS, requesting a fraudulent refund of $9,087,987.95. Prior to his 2010 guilty plea, he had become a sovereign citizen during a six-year stint in prison on drug-related money laundering charges. In 1992, James T. McBride discovered sovereign citizen ideology while in a Michigan prison on drug-related charges. After he left prison, among other things, he became a sovereign guru and operated a business that peddled sovereign ideas. Congress may choose to consider issues in three areas regarding the federal role in combating domestic terrorism: (1) assessing this threat's scope, (2) the adequacy of domestic terrorism intelligence collection efforts, and (3) how domestic terrorism fits into the Obama Administration's efforts to counter radicalization that may lead to terrorism. As this report suggests, at least three factors may make it hard for policy makers to form a baseline evaluation of the domestic terrorism threat from publicly available information. First, federal agencies employ varying terminology to describe the threat. Second, the federal government lacks a public and official method for either designating specific domestic groups as terrorists or formally and openly describing particular extremist movements as threats. Finally, there is no clear sense of how many domestic terrorism plots and attacks the government has investigated in recent years. The federal government has used broad conceptualizations to describe domestic terrorism. DOJ discusses the issue in terms of a handful of general "threats" such as animal rights extremists, eco-terrorists, anarchists, and anti-government extremists—not specific groups. Additionally, terms such as "terrorism" and "extremism" appear to be used interchangeably. Presumably, using the term "extremist" allows lawyers, policy makers, and investigators the flexibility to discuss terrorist-like activity without actually labeling it as "terrorism" and then having to prosecute it as such. However, this may lead to inconsistencies in the development and application of the law in the domestic terrorism arena. For example, policy makers may ponder why a specific terrorism statute covers ideologically motivated attacks against businesses that involve animals, while there are no other domestic terrorism statutes as narrow in their purview covering a particular type of target and crime. The federal government lacks a process for publicly designating domestic terrorist organizations. In other words, there is no official open-source roster of domestic groups that the FBI or other federal agencies target as terrorist organizations. The lack of such a designation may spring partly from First Amendment concerns. Such a list might discourage speech and expression related to the ideologies underpinning the activities of named groups. Regardless, this stands in stark contrast to the world of international counterterrorism, where the United States maintains a well-established—legally and procedurally proscribed—regimen regarding the identification of foreign terrorist organizations (FTOs). Official FTO designation benefits counterterrorism efforts in a number of ways. Most importantly, it facilitates the prosecution of those who provide material support to listed foreign terrorist groups. Arguably, because there is no domestic terrorism equivalent of FTO designation, it is more difficult to press material support charges against domestic terrorists. In 2010, one scholar was unable to identify any material support cases involving "a domestic terrorist group or its supporters." According to the Department of State, FTO designation has other effects. It 1. Supports [U.S.] efforts to curb terrorism financing and to encourage other nations to do the same. 2. Stigmatizes and isolates designated terrorist organizations internationally. 3. Deters donations or contributions to and economic transactions with named organizations. 4. Heightens public awareness and knowledge of terrorist organizations. 5. Signals to other governments our concern about named organizations. This description suggests that the absence of a designation regimen for domestic terrorist groups makes it harder for the federal government to discredit such groups and simultaneously strengthen public understanding of the domestic terrorist threat. Likewise, the lack of a list might make it more difficult for the federal government to communicate exactly what the threat is to its own agencies, let alone local or state entities. While there is no official designation process for domestic terrorist organizations , as it stands, DOJ and the FBI have publicly named and discussed domestic terrorism threats —such as animal rights extremism or anarchist extremism—without illuminating exactly how they arrive at these categories. Federal lawmakers may opt to consider the feasibility of officially formalizing this process and/or opening it up to greater oversight. Ideally, an attempt to render this process less bureaucratically opaque would simultaneously (1) enhance federal efforts to combat domestic terrorism while (2) protecting civil rights and civil liberties. For example, such a list may potentially offer agencies outside of DOJ—including relevant players at the state and local level—formal opportunities to provide input into ranking domestic terrorism threats while enshrining mechanisms by which individuals who believe in the philosophies undergirding a designated threat could petition to have that threat "de-listed." On the other hand, making this process more open may take away the FBI's flexibility to rapidly adapt its domestic terrorism priorities, especially if threats quickly mutate. A publicly available official accounting of domestic terrorist plots and incidents may help policy makers understand the scope of the threat in lieu of a regimen designed to name domestic terrorism organizations. However, the federal government does not produce such a document. The National Counterterrorism Center's (NCTC) Worldwide Incidents Tracking System (WITS) had provided an official record of terrorism incidents around the globe, including the United States. This was a publicly accessible database active from 2004 to early 2012. It included basic information regarding terrorist incidents. Prior to the advent of WITS, the FBI used to publish regular reports on terrorist activity in the United States. The lack of a publicly available federal accounting of domestic terrorism plots and attacks makes it especially difficult to determine the scope of this diverse threat, which, for example, can be investigated and prosecuted at the state or local, let alone federal, level. Also, the lines between domestic terrorism and other forms of criminality such as tax fraud or hate crimes can be blurry. A fuller accounting of domestic terrorism plots and attacks may call such prosecutorial flexibility into question. Such an accounting may reveal the instances in which FBI investigated individuals as domestic terrorists but DOJ did not prosecute them as such. Regardless, a better sense of domestic terrorism's scope publicly proffered by the federal government may assist policy makers. It may be of policymaking value for executive branch agencies to release annual statistics on domestic terrorism prosecutions, naming individuals and movements involved. Congress may also consider requesting an even more detailed annual public report that counts and describes the domestic terrorist plots dismantled; the number of attacks investigated; and the federal, state, and local agencies involved. The lack of such an accounting makes it difficult for policy makers to exercise oversight by comparing the levels of domestic terrorist activity against items such as homegrown violent jihadist activity and other threats to the homeland. A regular public accounting could also help policy makers assess the effectiveness of the government's response to the domestic terrorist threat. It may also assist policy makers who wish to compare one domestic terrorist threat against another. Finally, without a clear, publicly available understanding of the domestic terrorist threat, it may be difficult to measure how much federal funding is allocated to this issue. Intelligence collection efforts against foreign terrorist groups have received much scrutiny since 9/11. U.S. efforts to gather information versus domestic terrorism actors have not. Domestic terrorism does not feature in the Director of National Intelligence's National Intelligence Priorities Framework (NIPF), described as the "means to capture issues of critical interest to senior Intelligence Community (IC) customers and communicating those issues to the IC for action." Importantly, for intelligence gathering and program prioritization purposes, "there is no ... standard across federal agencies that can be applied to [domestic terrorism] cases." Also, there likely is no established standard for the collection of intelligence from state and local investigators. Congress may choose to examine these issues as well as the scope of intelligence collection efforts focused on domestic terrorism. By law, "NCTC serves as the primary organization in the United States Government ... for integrating and analyzing all intelligence pertaining to counterterrorism (except for information pertaining exclusively to domestic terrorism)." Because of its lead status for counterterrorism investigations in the homeland, the FBI arguably serves the parallel role for the domestic terrorist threat. The development of any interagency regimen for the collection and analysis of domestic terrorism information might start with the Bureau's capacities in this regard. Congress may wish to consider whether the FBI has allocated appropriate resources and expended enough effort in collection and analysis of domestic terrorism-related intelligence as well as the safeguarding of civil rights. In August 2011, the Obama Administration released a strategy for countering the radicalization of terrorists, also described as combating violent extremism (CVE). This document was fleshed out to a degree by the Administration's release in December 2011 of its "Strategic Implementation Plan for Empowering Local Partners to Prevent Violent Extremism in the United States." The Administration's CVE strategy and plan revolve around countering the radicalization of all types of potential terrorists, but the radicalization of violent jihadists is its key focus. Regardless, domestic terrorism falls under the strategy's purview. Federal CVE efforts often depend on government agencies cooperating with local groups. In fact, the Obama Administration's national CVE strategy highlights a "community-based approach" for the federal government. To this end, the strategy states that the federal government most effectively acts as a "facilitator, convener, and source of information." As all of this may suggest, to date the bulk of federal-level CVE work has revolved around community engagement . Congress may opt to ask the Administration which domestic terrorists it will focus on under the strategy and which communities it intends to engage regarding issues surrounding non-jihadist terrorism.
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The emphasis of counterterrorism policy in the United States since Al Qaeda's attacks of September 11, 2001 (9/11) has been on jihadist terrorism. However, in the last decade, domestic terrorists—people who commit crimes within the homeland and draw inspiration from U.S.-based extremist ideologies and movements—have killed American citizens and damaged property across the country. Not all of these criminals have been prosecuted under terrorism statutes. This latter point is not meant to imply that domestic terrorists should be taken any less seriously than other terrorists. The Department of Justice (DOJ) and the Federal Bureau of Investigation (FBI) do not officially list domestic terrorist organizations, but they have openly delineated domestic terrorist "threats." These include individuals who commit crimes in the name of ideologies supporting animal rights, environmental rights, anarchism, white supremacy, anti-government ideals, black separatism, and anti-abortion beliefs. The boundary between constitutionally protected legitimate protest and domestic terrorist activity has received public attention. This boundary is especially highlighted by a number of criminal cases involving supporters of animal rights—one area in which specific legislation related to domestic terrorism has been crafted. The Animal Enterprise Terrorism Act (P.L. 109-374) expands the federal government's legal authority to combat animal rights extremists who engage in criminal activity. Signed into law in November 2006, it amended the 1992 Animal Enterprise Protection Act (P.L. 102-346). Five discussion topics in this report may help explain domestic terrorism's significance for policy makers: Level of Activity. Domestic terrorists have been responsible for orchestrating more than two-dozen incidents since 9/11, and there appears to be growth in anti-government extremist activity as measured by watchdog groups in the last several years. Use of Nontraditional Tactics. A large number of domestic terrorists do not necessarily use tactics such as suicide bombings or airplane hijackings. They have been known to engage in activities such as vandalism, trespassing, and tax fraud, for example. Exploitation of the Internet. Domestic terrorists—much like their jihadist analogues—are often Internet savvy and use the medium as a resource for their operations. Decentralized Nature of the Threat. Many domestic terrorists rely on the concept of leaderless resistance. This involves two levels of activity. On an operational level, militant, underground, ideologically motivated cells or individuals engage in illegal activity without any participation in or direction from an organization that maintains traditional leadership positions and membership rosters. On another level, the above-ground public face (the "political wing") of a domestic terrorist movement may focus on propaganda and the dissemination of ideology—engaging in protected speech. Prison Radicalization. Prison has been highlighted as an arena in which terrorist radicalization can occur. Some prison gangs delve into radical or extremist ideologies that motivate domestic terrorists, and in a number of instances, these ideologies are integral to fashioning cohesive group identities within prison walls. It must be reiterated, however, that even for gangs that exhibit these ideological dimensions, criminal enterprises such as drug trafficking—not radical beliefs—largely drive their activities. Congress may choose to consider issues in three areas regarding the federal role in combating domestic terrorism. First is the issue of definitions. It is difficult to assess the scope of domestic terrorism because federal agencies use varying terms to describe it. Even more basically, there is no clear sense of how many domestic terrorist attacks have occurred or how many plots the government has foiled in recent years. Second, Congress may review the adequacy of domestic terrorism intelligence collection efforts. For intelligence gathering and program prioritization purposes, there is no standard set of intelligence collection priorities across federal agencies that can be applied to domestic terrorism cases. Also, there likely is no established standard for the collection of intelligence from state and local investigators—aside from suspicious activity reporting. Finally, it may be of value to explore how domestic terrorism fits into the Obama Administration's community outreach-driven strategy to quell terrorism-related radicalization in the United States. Congress may query the Administration on which brand of domestic terrorists it plans to focus on under the strategy and which local community groups it intends to engage regarding domestic terrorism issues.
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During the preceding two decades, Congress played an active and at times leading role in setting U.S. policy towards Burma. Since Burma's ruling military junta, the State Peace and Development Council (SPDC), transferred power to a quasi-civilian government in March 2011, Congress has been largely deferential to the decisions of the White House, the Department of State, and the Department of the Treasury on the conduct of U.S. policy towards Burma. With a few important exceptions, adjustments in U.S. policy towards Burma over the last two years have been done using executive authority granted by the U.S. Constitution or existing legislation. The Obama Administration has consulted regularly with the congressional committees with jurisdiction, as well as with key Members of Congress, as it made changes in bilateral relations. However, the Obama Administration has used much of its discretionary authority and may require direct congressional action to implement additional changes in U.S. policy towards Burma. In addition, Congress may determine it is time to reassess the situation in Burma and to resume its more active role in the determination of U.S. policy towards this politically dynamic country. The Obama Administration has ushered in a new approach to U.S. relations with Burma (Myanmar). On September 28, 2009, the State Department announced a change in U.S. policy towards Burma after seven months of review, discussion, and consultation. The existing sanctions regime would remain in place, but new elements of U.S. policy were added. First, the Administration announced its willingness to engage in direct dialogue with Burma's ruling military junta, the State Peace and Development Council (SPDC), on how to promote democracy and human rights in Burma. Second, it sought to cooperate to a greater extent with the SPDC on international security issues, such as nuclear nonproliferation and counternarcotics efforts. The Obama policy would also continue to pursue the same goals of the two preceding administrations—namely, to support "a unified, peaceful, prosperous, and democratic Burma that respects the human rights of its citizens." In order to achieve these goals, the Obama Administration would press Burma's military leaders to release all its political prisoners, end all its conflicts with ethnic minorities, cease its human rights violations, and initiate "a credible internal political dialogue with the democratic opposition and ethnic minority leaders on elements of reconciliation and reform." It would also call for Burma to sever its political and military ties to North Korea and abandon its alleged nuclear weapons program. In addition, the Obama Administration would continue to communicate with other nations and coordinate their respective policies towards Burma. The months following the announcement of a new U.S. policy towards Burma would see the nation undergo a dramatic political transformation. The SPDC called for and held parliamentary elections in November 2010, the first such elections in 20 years. A few days after the election, opposition leader Aung San Suu Kyi was released from house arrest. While the conduct of the elections was far from free and fair by international standards, the SPDC abided by the results of those elections. On March 30, 2011, the SPDC transferred power to a quasi-civilian government (most of the leaders are ex-generals and one-quarter of the members of the parliament are military officers) under the provisions of a new constitution largely written by the SPDC and purportedly approved by a public plebiscite in 2008. Since assuming power, Burma's quasi-civilian government, led by President Thein Sein—ex-general in the Burmese military and the SPDC's last prime minister—has undertaken a number of political and economic reforms that many see as encouraging signs. Hundreds of political prisoners have been released from detention and a few of Burma's more oppressive laws have been repealed or amended by Burma's Union Parliament. In April 2012, Burma held parliamentary by-elections in which Nobel Peace Prize recipient Aung San Suu Kyi and her political party, the National League for Democracy (NLD), won 43 of the 46 seats. While the conduct of the by-elections was still flawed, the acceptance of the results by the Thein Sein administration and the Burmese military was generally seen as a positive political development. Over the last two years, the Obama Administration has responded to such promising developments in Burma by enhancing and increasing high-level meetings with the Thein Sein government and selectively easing many of the existing sanctions on Burma. Since adopting the new Burma policy, the first U.S. ambassador to Burma in 20 years has been appointed, Hillary Clinton became the first Secretary of State in over 50 years to visit Burma, and President Obama subsequently became the first U.S. President to visit Burma while in office. Many of the specific sanctions on Burma—including the general ban on importing Burmese goods, the ban on new investments in Burma, and the restrictions on the provision of financial services to Burma—have been waived using presidential authority provided by the laws imposing sanctions on Burma. Plans are underway to increase U.S. assistance to Burma, including the reopening of the U.S. Agency for International Development (USAID) mission in Burma after a 23-year hiatus. Even with the various changes that have taken place in Burma since the quasi-civilian government took power, the political and economic situation in the country remains serious, and the reforms are generally viewed as fragile and reversible. Despite ongoing negotiations and the signing of 12 preliminary ceasefire agreements, fighting between the Burmese military, or Tatmadaw, and various ethnic-based militias continues across the country. Fighting is particularly serious in the Kachin State, with regular reports of the Tatmadaw committing serious human rights violations against civilians in conflict areas. Rioting in Rakhine State in western Burma has uncovered festering ethnic tensions in the country. While the Union Parliament has passed some laws providing better protection of civil liberties, many of the country's more oppressive laws (including a few dating back to British colonial rule) remain on the books. The NLD was able to register and compete in the April 2012 by-elections, but several other political parties have not been allowed to register or refuse to register because some of their members remain in detention for political reasons. In spite of multiple prisoner releases since May 2011, over 200 political prisoners are being held in Burma's prisons. The 113 th Congress may choose to consider a number of different issues raised by the Obama Administration's Burma policy, as well as Burma's political and economic development, including: Is President Thein Sein's government committed to democracy and the protection of human rights in Burma, and does it have the ability to continue to implement reforms? Will it be able to work with the Union Parliament and the Burmese military to promote political and economic reform? Is U.S. policy too closely tied to President Thein Sein's government, opposition leader Aung San Suu Kyi, and the NLD to the neglect of developing relations with Burma's ethnic minorities and their representative organizations? What can the United States do to encourage progress in the ongoing negotiations between the Burmese government and the various ethnic-based organizations? Has the Obama Administration moved too quickly or too slowly in its easing of sanctions? What would have to occur in Burma in order for the sanctions to be removed or the waivers reversed? Are the current sanctions on Burma being fully and properly enforced in accordance with the law? What types of aid or assistance should the United States provide to support Burma? How does U.S. policy towards Burma fit with the Obama Administration's rebalancing to the Asia-Pacific region and its objectives in Southeast Asia? What role does Burma play in the geopolitical dynamic between China and India and relations within Southeast Asia? Many observers trace the origins of the Obama Administration's Burma policy to a 2007 article in Foreign Affairs , co-authored by Michael Green and Derek Mitchell. In their article, Green and Mitchell stated that U.S. policy towards Burma at the time was "stuck," and wrote that a change in approach was necessary to press Burma's ruling military junta to undertake political and economic reforms. The changes recommended by Green and Mitchell in their article are very similar to those announced by the State Department in September 2009—direct engagement with the country's military regime and the continuation of sanctions. While the conceptual basis of Obama's Burma policy may have been set, the Obama Administration's attitude and approach towards Burma has seemingly evolved over time. Initially, the White House and the key figures in handling U.S. relations with Burma expressed some skepticism and reservations about the quasi-civilian Union Government, its leadership, and the prospects for significant political and economic reform. The Obama Administration also appeared to keep President Thein Sein's administration at arm's length, and made efforts to balance relations with the new government with contact with Aung San Suu Kyi, other opposition parties, and representatives of ethnic groups. Over time, and in response to various actions by the Burmese government, the Obama Administration's assessment of President Thein Sein and his government became more optimistic, and ties between the two governments became closer—possibly, in the view of some experts, at the expense of relations with Burma's opposition parties and ethnic groups. After the NLD agreed to participate in parliamentary by-elections in April 2012, U.S. policy shifted to a focus on promoting perceived progressive forces within the Thein Sein government and isolating individuals and organizations considered anti-reform. U.S. officials now speak of a partnership with President Thein Sein's government. For example, following his meeting with President Thein Sein in Rangoon, President Obama said, "we will continue to work with [you] as the partner with the United States." As a consequence, U.S. relations with the traditional opposition parties and ethnic organizations may have suffered. In addition to the apparent closer realignment of the United States towards President Thein Sein and the Union Government, the Obama Administration also switched from an approach of responding to positive developments in Burma with graduated relaxation of sanctions—often referred to as an "action for action" approach—to one that attempts to foster or promote further reforms. Whereas in the past senior U.S. officials spoke of the need for Burma to demonstrate that conditions have improved enough to warrant the waving of sanctions, more recent statements from the Obama Administration have focused on creating an environment in Burma where more reforms can occur. These two shifts in the Obama Administration's Burma policy—reliance on the Thein Sein government and trying to get out in front of Burma's reforms—have become a matter of some debate among Burma experts and various interest groups. Some observers are concerned that the Obama Administration has moved too fast and too far in rewarding comparatively modest progress towards the attainment of U.S. goals in Burma. Other observers think that the White House has been too slow and too cautious in its actions, and worry that the sanctions that remain in effect are hindering reforms in Burma, placing the United States at a disadvantage in influencing political and economic developments there. Following its announcement of a new Burma policy, the Obama Administration held several direct discussions with SPDC officials. On November 15, 2009, both President Obama and then Prime Minister General Thein Sein attended the first ASEAN-U.S. leaders meeting in Singapore. Although it held a series of high-level meetings with the SPDC, the Obama Administration made it clear that the existing U.S. sanctions on Burma would remain in place "until we see concrete progress towards reform." The Obama Administration also reserved the right to implement or recommend additional, targeted sanctions if warranted by circumstances inside Burma. Alternatively, the Obama Administration stated it might relax sanctions or call for the removal of sanctions if the political situation in Burma meets the specified criteria set in existing U.S. law. The comments by the Obama Administration may have been partially based on the tense political situation in Burma in 2010. The NLD and several other pro-democracy parties had decided not to participate in the November elections because of what they considered unfair and restrictive election laws; several ethnic parties either were prohibited from participating in the election or chose not to participate because some of their members were detained in prison. The SPDC, meanwhile, transformed the Union Solidarity and Development Association (USDA), a civil organization created by the SPDC in 1993 to support the policies and activities of the Burmese military, into a political party, the Union Solidarity and Development Party (USDP), with SPDC Prime Minister Thein Sein as its leader. In addition, the SPDC announced that in accord with the new constitution, all the ethnic militias would be transformed into Border Guard Forces (BGF) under the command of the Burmese military or face the possible abrogation of the existing ceasefire agreements and the resumption of hostilities. In August 2009, the refusal of the Myanmar National Democratic Alliance Army operating in the Kokang region of northern Shan State to join the BGF resulted in a military offensive which led to more than 30,000 refugees fleeing over the border to China. On November 11, 2010, fighting broke out between the Burmese military and the Shan State Army-North (SSA-N), which had also rejected its transformation into a BGF. Over the next few months, conflicts between the Burmese military and several other ethnic militias erupted across much of eastern Burma. Another potential source of the Obama Administration's cautious response to Burma's political transition may have been reports about Burma's alleged nuclear weapons program and arms trade with North Korea. In 2009, U.S. naval vessels monitored a cargo ship allegedly carrying arms and weapons materials from North Korea to Burma in violation of U.N. Security Council Resolution 1874. The Institute for Science and International Security (ISIS) released a report in January 2010 warning that sufficient evidence existed that Burma was exploring the development of nuclear weapons. In June 2010, Al Jazeera aired a special report, "Burma's Nuclear Ambitions," that claimed that the SPDC had an active program to develop nuclear weapons, and was receiving technical support from North Korea. Although many experts doubt Burma's technical ability to develop a nuclear weapons program, the apparent continuation of arms trade prohibited by U.N. Security Council Resolution 1874 was a major concern for the Obama Administration. The Obama Administration responded to the SPDC's transition to the installation of the quasi-civilian government with cautious encouragement and carefully worded criticism. For example, following the parliamentary elections in November 2010, President Obama issued the following statement: The November 7 elections in Burma were neither free nor fair, and failed to meet any of the internationally accepted standards associated with legitimate elections. The elections were based on a fundamentally flawed process and demonstrated the regime's continued preference for repression and restriction over inclusion and transparency. One of the starkest flaws of this exercise was the regime's continued detention of more than 2,100 political prisoners, including Aung San Suu Kyi, thereby denying them any opportunity to participate in the process. The unfair electoral laws and overtly partisan Election Commission ensured that Burma's leading pro-democracy party, the National League for Democracy, was silenced and sidelined. The regime denied the registration of certain ethnic parties, cancelled elections in numerous ethnic areas, and stage-managed the campaign process to ensure that pro-democracy and opposition candidates who did compete faced insurmountable obstacles. The United States will continue to implement a strategy of pressure and engagement in accordance with conditions on the ground in Burma and the actions of the Burmese authorities. We renew our calls for the authorities to: free Aung San Suu Kyi and all other political prisoners immediately and unconditionally, cease systematic violations of human rights, begin to hold human rights violators accountable, and welcome pro-democracy and ethnic minority groups into a long-overdue dialogue. Following the transfer of power on March 30, 2011, Acting Deputy Department Spokesman Mark C. Toner expressed similar reservations about the situation in Burma at the daily press briefing: [I]t was a fundamentally flawed electoral process that's now ensured the key military regime figures have continued to dominate the government and all decision making. The fact that they've taken off their uniforms and donned civilian clothes is immaterial.… We urge Burmese authorities to release all political prisoners, to recognize the legitimacy of the National League for Democracy and all democratic and ethnic opposition political parties, and to enter into a genuine and inclusive dialogue with these groups as a first step towards reconciliation to take place. The cautious approach to Burma continued for the first few months after the establishment of the Thein Sein administration and the convening of Burma's Union Parliament. As Burma underwent its political transition, steps were being taken in Washington to respond to any significant developments in Burma. Derek Mitchell, co-author of the 2007 Foreign Affairs article, was confirmed by the Senate on August 2, 2011, as the first Special Representative and Policy Coordinator for Burma. Mitchell was nominated for the position on April 15, 2011. The position, which holds an ambassadorial ranking, was created by the Tom Lantos Block Burmese JADE (Junta's Anti-Democratic Efforts) Act of 2008 (JADE Act) ( P.L. 110-286 ) and had remained unfilled for over three years. According to the JADE Act, the Special Representative is responsible for coordinating U.S. policy towards Burma, consulting with foreign governments on relations with Burma, and consulting with Congress on U.S. policy towards Burma. The first few months in power for Burma's new government saw a mixture of encouraging and discouraging developments. Presidential Order No. 28/2011, issued on May 16, 2011, commuted all death sentences to life in prison, and reduced all other sentences by one year in duration, resulting in the release of 14,578 people—including 55 political prisoners—from prison. President Thein Sein also made overtures to Aung San Suu Kyi, the NLD, and representatives of some of ethnic organizations about possible paths towards political reconciliation. However, 10 days later, USS McCampbell , a Navy destroyer, intercepted a Belize-flagged cargo ship reportedly in transit between North Korea and Burma under suspicion that its cargo contained banned weapons technology. The ship's North Korean crew reportedly refused to be boarded and the ship sailed back to North Korea. On June 9, 2011, the Burmese Army broke a 17-year-old ceasefire with the Kachin Independence Army (KIA), attacking a KIA position along the Taping River. As a result, fighting between the Tatmadaw and Burma's ethnic militias spread from eastern to northern Burma. In a speech given on May 31, 2011, at the Center for Strategic and International Studies, former Assistant Secretary Campbell succinctly summarized the Obama Administration's impressions of the new Burmese government at that time, saying, "I think it would be fair to say, to date we have been generally disappointed and underwhelmed by the progress that we have seen." In his testimony before the House Committee on Foreign Affairs on June 2, 2011, Deputy Assistant Secretary Yun provided a similar assessment of the new Burmese government: The convening of [Burma's] Parliament and the formation of a so-called "civilian" government marked the completion of what the [SPDC] regime refers to as its seven-step roadmap to a "disciplined and flourishing democracy." We strongly disagree with this assessment and believe many questions remain.… With former [SPDC] officials occupying most key positions in all branches of government, the United States is not optimistic that we will see any immediate change in policies or progress on our core concerns. On September 7, 2011, Ambassador Mitchell made his first trip to Burma as Special Representative, and held meetings with President Thein Sein, Aung San Suu Kyi, and NLD leaders, and representatives of Burma's ethnic groups. Just prior to Ambassador Mitchell's arrival, President Thein Sein announced his willingness to negotiate ceasefire agreements with Burma's various ethic militias. In a press conference following his trip, Ambassador Mitchell described his conversations in Burma as candid, and indicated that he had reiterated U.S. concerns about ongoing human rights abuses (including the continued detention of political prisoners), the continuing conflicts between the Burmese military and some of the ethnic militias, and Burma's relations with North Korea. The announcement by President Thein Sein and Ambassador Mitchell's visit were viewed by some observers as setting the stage for future developments in bilateral relations. They also facilitated the U.S. visit of Foreign Minister Wunna Maung Lwin in late September 2011. On October 11, 2011, President Thein Sein announced the second large-scale prisoner pardon, this time involving the release of 6,359 people, including 241 political prisoners. Ambassador Mitchell and Assistant Secretary for Democracy, Human Rights and Labor Michael Posner travelled to Burma on November 1-2, 2011, to discuss prospects for political reform, the ongoing fighting with the ethnic militias and the status of the ceasefire talks, and the human rights situation in general. President Thein Sein signed the Law Relating to Peaceful Assembly and Peaceful Procession on December 2, 2011, which allows Burmese residents to hold protests, subject to the approval of local authorities. While attending the East Asia Summit in Bali, Indonesia, President Obama released a statement on Burma on November 18, 2011, in which he reiterated U.S. concerns about "the denial of basic human rights for the Burmese people." He continued, however, by saying, "Yet after years of darkness, we've seen flickers of progress in these last several weeks." In response, and after consultation with Aung San Suu Kyi, President Obama went on to announce that he had asked Clinton to go to Burma to "explore whether the United States can empower a positive transition in Burma and begin a new chapter between our countries." Clinton traveled to Burma from November 30 to December 2, 2011—the first Secretary of State to visit Burma since John Foster Dulles visited in 1955. During her visit to Burma, she announced that the United States would consider the exchange of ambassadors and would introduce several new U.S. development programs including an English language program, aid to victims of Burma's internal conflict (especially land mine victims), and academic exchange programs. In a separate announcement, USAID said that it intended to expand an existing $24 million anti-malaria program into Burma. All of the initiatives announced by former Secretary Clinton during her visit were permissible under the U.S. sanction regime in force at that time. During the summer and autumn of 2011, the Burmese government made some headway in implementing political reforms and negotiating ceasefire agreements. The Union Parliament passed a few laws that improved the legal protection of civil liberties, most notably the Labour Organization Law (allowing the formation of labor unions and legalizing worker strikes) and the Law Relating to Peaceful Assembly and Peaceful Procession (allowing for public protests under certain conditions). In August, President Thein Sein ended pre-publication censorship for publications about entertainment, sports, technology, health and children's issues, but kept in place post-publication censorship and penalties. On September 5, 2011, President Thein Sein appointed the 15 members of the Myanmar National Human Rights Commission (MNHRC) with the purpose of "promoting and safeguarding fundamental rights of citizens described in the constitution of the Republic of the Union on Myanmar." Although the fighting between the Tatmadaw and the KIA in the Kachin State continued unabated, ceasefire talks headed by then Railway Minister Aung Min made some progress with the signing of preliminary agreements with several ethnic groups, including Democratic Karen Benevolent Army (DKBA), the Mongla (a.k.a. National Democratic Alliance Army, NDAA), the Restorative Council of Shan State (RCSS, a.k.a. the Shan State Army-South, or SSA-S), and the United States Wa Army (USWA). President Thein Sein also announced two more prisoner pardons—one on January 2, 2012, in which 6,656 prisoners, including 34 political prisoners, were released; and another on January 13, 2012, in which 651 prisoners, including 302 political prisoners, were freed from detention. On February 3, 2012, President Obama issued a presidential memorandum waiving Section 110(d)(1)(B) of the Trafficking Victims Protection Act (TVPA) with respect to Burma. The law requires the U.S. executive directors of international financial institutions to vote against "and use the Executive Director's best efforts" to deny non-trade, non-humanitarian loans or other use of funds to Burma through multilateral development banks (MDBs) and the International Monetary Fund (IMF). While Section 5 of the Burmese Freedom and Democracy Act of 2003 still required the U.S. executive directors of the IMF and MDBs "to oppose, and vote against the extension by such institution of any loan or financial or technical assistance to Burma," the Obama Administration maintained that the presidential waiver of the TVPA provision partially opened the door for the IMF and MDBs to provide additional technical support to Burma. On April 1, 2012, Burma held a parliamentary by-election to fill 45 vacant seats across much of the country. The by-election garnered national and international interest not because of its potential influence on the balance of power within the Union Parliament, but because of the decision by pro-democracy opposition leader Aung San Suu Kyi and other National League for Democracy (NLD) members to run as candidates. The NLD had refused to run in the November 2010 elections because it considered the election laws overly restrictive. Although an improvement over the November 2010 parliamentary elections, the April by-elections by most assessments did not achieve the four standards set forth by United Nations Special Rapporteur Tomás Quintana—free, fair, transparent, and inclusive. Nonetheless, according to the official results announced by the Union Election Commission, Aung San Suu Kyi and 42 of her fellow NLD candidates won, with the 2 remaining seats going to a candidate from the pro-military Union Solidarity and Development Party (USDP) and a candidate from the Shan Nationalities Democratic Party (SNDP). The Obama Administration issued a statement on April 1, congratulating "the people of Burma on their participation in the electoral process, and Aung San Suu Kyi and the National League for Democracy on their strong showing in the polls." Australia, Canada, and the European Union (EU) issued similar statements and a few weeks later removed most of their sanctions on Burma. A more detailed response from the Obama Administration came two days later, after the official results had been released. On April 4, 2012, former Secretary Clinton announced that the United States would undertake five steps to support and foster reforms in Burma "in light of the by-elections and other progress in recent months." All five steps were to be taken using existing executive authority granted by the U.S. constitution and relevant federal laws, including the major Burmese sanctions laws. According to former Secretary Clinton, these five steps were chosen following consultation with Congress, "as well as our allies and friends in Europe and Asia." In a separate background briefing organized by the State Department on the same day as former Secretary Clinton's announcement, two unnamed senior Administration officials provided additional information about the five steps. Regarding relaxing restrictions on private U.S. organizations providing nonprofit activities in Burma, the officials said that the State Department was working with the Department of Treasury's Office of Foreign Assets Control (OFAC) to create an "expanded general license" to facilitate the approval of such activities. OFAC approved this new general license on April 17, 2012, authorizing the exportation and reexportation of financial services to Burma for six types of not-for-profit projects. With respect to the easing of trade and investment restrictions, the officials indicated that the intent is to identify areas that will have an "immediate impact on the livelihood of the people in the country" and will reduce impediments to the reform process. When asked to identify economic areas that may be chosen for the easing of trade and investment restrictions, the officials specifically mentioned agriculture, banking, tourism, and possibly telecommunications. They also stated that the United States would have to be very careful regarding activities in "more regressive sectors," such as gems, timber, and activities in ethnic minority areas where there is a history of the Burmese government approving projects opposed by the local population. In terms of the method of implementing the five steps, the officials said that the plan is to use existing waiver authorities and/or to rescind executive orders, and that there was "no plan at the current time to ask [Congress] to get rid of anything legislative." Some of the announced steps—in particular, the establishment of a USAID mission in Burma, U.S. support for UNDP projects in Burma, the relaxation of restrictions on nonprofit activities in Burma by private entities, and the facilitation of travel by selected Burmese officials—require the explicit invoking of presidential waiver authority in existing sanction laws, as well as the delivery to Congress of a presidential determination and certification stipulating that the situation meets the waiver provisions in existing sanction laws. On May 16, 2012, Burma's Foreign Minister Wunna Maung Lwin arrived in Washington, DC, for a two-day visit at the invitation of former Secretary Clinton. During the foreign minister's visit, the Obama Administration announced three significant developments in U.S. policy towards Burma: 1. The White House released a Presidential Memorandum renewing for one year the national emergency with respect to Burma, and thereby extending the sanctions contained in E.O. 13047, E.O. 13310, E.O. 13448, and E.O. 13464 for another year; 2. President Obama formally nominated Derek Mitchell to be the U.S. ambassador to Burma; and 3. President Obama announced an easing of U.S. "bans on the exportation of financial services and new investment in Burma." Following her meeting with the foreign minister, former Secretary Clinton provided additional details of the easing of the investment and financial service bans. According to Clinton, steps were to be taken "to permit American investment in the country and export of U.S. financial services." She stated that the State Department intended to work with Congress, the U.S. Treasury, and other government agencies "to be sure we are promoting responsible investment and deterring abuses." She also called upon the U.S. business community to set a "good corporate example of doing business in a transparent, responsible manner." In a subsequent press briefing, unnamed senior Administration officials provided more details about the planned easing of the investment and financial services ban. U.S. investors in Burma would be allowed to invest in all sectors and export financial services to any Burmese entity, so long as the investment partner or entity in Burma is not on OFAC's Specially Designated Nationals (SDN) list. To ensure that "bad actors" will not receive benefits from the U.S. easing of sanctions, the SDN is to be regularly updated. The criteria for placing a person or company on the SDN list were to be determined, but would probably include evaluations of business practices and attitudes towards Burma's reforms. With regard to Clinton's call for U.S. businesses to be good examples in Burma, the State Department said it was consulting with Congress, U.S. companies, human rights organizations, non-governmental organizations active in Burma, and other interested parties to develop voluntary corporate governance standards for U.S companies doing business in Burma. On July 11, 2012, the Obama Administration released a series of documents to implement the easing of selected sanctions announced on May 17, 2012. In addition, Executive Order 13619 broadened the scope of sanctions targeted at specific Burmese nationals to include persons who "directly or indirectly threaten the peace, security or stability of Burma"; are responsible for or complicit in the commission of human rights abuses in Burma; have been involved in arms trade with North Korea; or have assisted in acts of these kinds. On July 11, 2012, the Obama Administration eased two of the existing sanctions on Burma—a general ban on new U.S. investments in Burma and a prohibition on the export or re-export of financial services to Burma. The general ban on new U.S. investments in Burma was imposed by Section 570 of the Foreign Operations, Export Financing, and Related Programs Appropriations Act of 1997 ( P.L. 104-208 ). The prohibition of the export or re-export of financial services to Burma was implemented by Section 2 of E.O. 13310 based on presidential authority granted by IEEPA. Via a presidential memorandum, President Obama delegated authority to waive the investment ban as granted by Section 570(e) of P.L. 104-208 to then Secretary Clinton. That authority was then exercised by Deputy Secretary of State Thomas R. Nides, who reportedly notified Congress of the waiver decision. The waiver paved the way for OFAC to release its decision to create General License No. 17, "Authorizing New Investment in Burma." General License No. 17 allows new investments in Burma by U.S. persons subject to certain limitations: no investments with Burma's Ministry of Defense or any armed group (state or non-state) in Burma; and no investments with Burmese nationals and companies subject to sanctions. In addition, all U.S. investors in Burma must comply with a new State Department reporting requirement for investments in Burma. New investments in Burma do not require pre-approval or notification, but the U.S. investor is liable if it is determined that an investment has been made with a sanctioned Burmese entity. The State Department's proposed reporting requirements have two parts. First, any investment involving the Myanmar Oil and Gas Enterprise (MOGE) must be reported to the State Department within 60 days of the investment. Second, all investments in Burma with an aggregate value of over $500,000 must be reported to the State Department by providing specific information about the investment each year by April 1. Certain portions of this information will be made public. An investment is considered to have occurred on the date the parties entered into a contract or the U.S. party purchased a share of ownership (including equity interest) in a resource located in Burma. OFAC also announced the creation of General License No. 16, "Authorizing the Exportation or Reexportation of Financial Services to Burma." The new license permits the export or reexport of financial services to Burma, subject to certain restrictions: no provision of financial services to Burma's Ministry of Defense or any armed group (state or non-state) in Burma, Burmese nationals or companies subject to sanctions, or debits to a blocked account. General License No. 16 supersedes General License No. 14-C and 15. The provision of financial services does not require pre-approval from or notification to OFAC. However, the provision of financial services to sanctioned Burmese entities is subject to the penalties prescribed by IEEPA. In addition to easing the two specific sanctions, President Obama imposed sanctions on certain Burmese nationals via E.O. 13619. The E.O. prohibits the issuance of a visa to, freezes the assets of, and bans the provision of financial services to any person who: has engaged in acts that directly or indirectly threaten the peace, security, or stability of Burma; is responsible for or complicit in the commission of human rights abuses in Burma; directly or indirectly imported, exported, reexported, sold, or supplied arms or related materiel from North Korea to Burma; is a senior official of an entity that has engaged in any of the preceding activities; has materially assisted or supported persons engaged in the preceding activities; or is owned or controlled by a person subject to these sanctions. While the Obama Administration was implementing the policy changes announced in May 2012, the political situation in Burma underwent a mix of positive and negative developments. On May 3, Vice President Tin Aung Myint Oo, widely viewed as being opposed to some of Burma's political reforms, resigned. Having concluded preliminary ceasefire agreements with 12 different ethnic groups, progress towards more general peace agreements largely stalled and sporadic skirmishes were reported in various parts of Burma. President Thein Sein reorganized his negotiating team, retaining Railway Minister Aung Min, but excluding Aung Thaung, who was unable to broker a ceasefire agreement with the KIO/KIA. In the previously peaceful Rakhine State, rioting broke out in June between the predominantly Muslim Rohingyas (officially referred to as "Bengalis" by the Thein Sein government) and the mostly Buddhist Rakhines (a.k.a. Arakans). Burma's censorship board, the Press Scrutiny and Registration Division (PSRD), warned publications about their coverage of the rioting and blocked reports of Tin Aung Myint Oo's resignation. Over the next four months, dozens of people were killed, thousands of homes and businesses destroyed, and over 100,000 people—mostly Rohingyas—displaced by the civil unrest. Despite the apparently worsening situation with respect to Burma's ethnic minorities, President Thein Sein made some progress with respect to political rights and economic reform. On July 2, 2012, he pardoned 80 more prisoners, including 25 political prisoners. In August 2012, Burma's censorship board, the Ministry of Information, formally ended pre-publication censorship for all printed materials, but continued to maintain post-publication penalties. Burma also undertook the replacement of its complex multiple exchange rate regime with a unified managed float system. The summer of 2012 was also a time for significant developments in the political dynamics of the Burmese government. On August 28, President Thein Sein reshuffled his cabinet, bringing some of his closest advisors (including Railways Minister Aung Min) into the President's Office. According to some observers, the cabinet reorganization was designed to purge the Union Government of resisters to reforms; to other observers, the move was an attempt to consolidate the President's political power at the expense of the Union Parliament. The latter interpretation was given more credence by the ongoing debate over the oversight authority of the Union Parliament. The debate centered around the constitutional authority of parliamentary committees, commissions, and other bodies to compel ministerial officials to appear before them. The issue was brought before Burma's Constitutional Tribunal, a nine-member body appointed by President Thein Sein and the speakers of the two houses of the Union Parliament. On March 28, 2012, the Tribunal ruled the bodies did not have the authority to compel testimony of ministerial officials. The Tribunal's decision, however, was not released until August 16, 2012, and was met by immediate protests by the Union Parliament, and the calling for the impeachment of the nine tribunal members. On September 7, 2012, the nine tribunal members resigned. The Obama Administration announced further easing of sanctions on Burma concurrent with the separate U.S. visits by Aung San Suu Kyi and President Thein Sein in September 2012. On September 19, 2012, the Office of Foreign Assets Control (OFAC) of the Treasury Department removed President Thein Sein and Lower House Speaker Shwe Mann from its list of Specially Designated Nationals (SDN), effectively eliminating any financial sanctions imposed on the two Burmese officials. On the same day, Representative Edward Royce, on behalf of the President, introduced H.R. 6431 , which would grant the President the authority to waive U.S. opposition to IFI assistance to Burma if the President determines that doing so is in the national interest of the United States. H.R. 6431 was passed the same day by voice vote in the House and on September 22 by unanimous consent in the Senate, and was signed into law ( P.L. 112-192 ) by the President on October 5, 2012. Prior to her meeting in New York City with President Thein Sein on September 26, 2012, then Secretary Clinton announced that steps were being taken to ease restrictions on the import of Burmese goods into the United States. According to Clinton, the easing of the import ban was being done "in recognition of the continued progress toward reform and in response to requests from both the government and the opposition [in Burma]." President Thein Sein addressed the U.N. General Assembly on September 27, 2012, and provided his own assessment of Burma's political reform process. In his speech, he presented his country as "leaving behind a system of authoritarian government wherein the executive, legislative and judicial powers were centralized," and replacing it with "a democratic government and a strong, viable parliament following a practice of check and balance." As evidence of this transition, he cited the granting of amnesties for prisoners; the return of political exiles; the "successful" April parliamentary by-elections; the "abolition of censorship of media, the fourth estate"; freedom of Internet access; "the establishment of workers' and employers' organizations"; and "the increased participation of the people in the political process." President Thein Sein also acknowledged that the nation faced several challenges, including "the cessation of all armed conflicts" and "the recent communal violence in Rakhine State." In fulfillment of Secretary Clinton's April 2012 announcement, Chris Milligan was sworn in as USAID's Mission Director to Burma on August 29, 2012, the first USAID Country Mission Director in 24 years (see text box, "USAID in Burma"). According to the mission's webpage ( http://www.usaid.gov/burma/our-work ), it is developing programs covering democracy, human rights, and the rule of law; transparent governance; peace and reconciliation; food security; and health. According to USAID, the mission has grown to about 20 people, including temporarily detailed staff. On October 10, 2012, President Obama delegated the authority to waive U.S. opposition to IFI assistance to Burma, granted by P.L. 112-192 , to Secretary Clinton via a presidential memorandum. On October 12, Clinton released a determination "that it is in the national interest of the United States" to support assistance for Burma, citing the authority granted by Section 1 of P.L. 112-192 and the presidential memorandum of October 10, 2012, effectively waiving the requirement in Section 5 of the 2003 BFDA that the United States oppose and vote against IFI assistance to Burma. The waiver specifically referred to a pending vote by the World Bank's board on October 30, 2012, to consider a $80 million grant to Burma for community-driven development. The World Bank subsequently approved the grant on November 2, 2013, presumably with the support of the United States. Following the IFI assistance ban waiver, Assistant Secretary of State for Democracy, Human Rights, and Labor Michael Posner led a diverse U.S. delegation to Burma for a two-day bilateral human rights dialogue in Naypyidaw. Included in the U.S. delegation was Lieutenant General Francis Wiercinski, commander of the U.S. Army Pacific. The dialogue's agenda covered a range of topics, such as rule of law, the protection of human rights, and military code of conduct. Following the dialogue, it was reported that Burma would be invited to attend Cobra Gold, the largest multilateral joint military training exercise in the Asia-Pacific. Pentagon Press Secretary George Little said on October 19, 2012, that the United States was willing to consider a request from Thailand "to allow a small contingent of Burmese military officers to attend the joint exercise Cobra Gold 2013 as observers." The White House announced on November 8, 2012, that President Obama would make a brief stopover in Burma as part of his trip to Southeast Asia to attend the East Asia Summit in Cambodia. The announcement indicated that President Obama would meet with President Thein Sein and Aung San Suu Kyi, as well as give a speech about political reform in Burma. The stopover in Burma—scheduled for November 19, 2012—would make President Obama the first U.S. President to visit Burma while in office. In her blog the day following the announcement, Special Assistant to the President and Senior Director for Multilateral Affairs and Human Rights at the National Security Council Samantha Power wrote: In the past year, since President Obama first noted "flickers of progress" in Burma—and since Secretary Clinton became the most senior U.S. official to visit since 1955—we have seen continued progress on the road to democracy.... Seeing these signs of progress, we have responded in kind, with specific steps to recognize the government's efforts and encourage further reform. At the same time, we have also updated sanctions authorities that allow us to target those who interfere with the peace process or the transition to democracy.… Senior Director Power recognized in her blog "the challenges that Burma faces," enumerating the recent ethnic unrest in Rakhine State, the ongoing ethnic conflicts, the need to develop the justice system, the cultivation of a free press, and formation of a "robust civil society." Later on, she listed out the main issues that she thought would likely feature prominently in President Obama's trip—prisoners of conscience, political reforms, rule of law, and peace and reconciliation. On November 15, 2012—two days before President Obama's departure for Asia—National Security Advisor Thomas E. Donilon spoke at the Center for Strategic and International Studies in Washington, DC. In his presentation, Donilon stated, "In becoming the first U.S. President to visit Burma, the President is endorsing and supporting the reforms underway, and giving momentum to reformers and promoting continued progress." On the same day as Donilon's speech, the State Department issued a determination that it was in the national interest of the United States to waive the ban on imports from Burma described in Section 3(a) of the 2003 BFDA. Section 3(a) banned the import of any products of Burmese origin, as well as products from companies owned or controlled by certain organizations and individuals. Based on this determination, OFAC authorized General License No. 18 on November 16, 2012, allowing the import of products of Burmese origin except those prohibited by Section 6 of the Tom Lantos Block Burmese JADE Act (jadeite and rubies from Burma, or items containing jadeite and rubies from Burma), as well as products blocked by E.O. 13310, E.O. 13448, E.O. 13464, and E.O. 13619. President Obama's unprecedented visit to Burma included meetings with President Thein Sein and Aung San Suu Kyi, as well as a speech from the University of Yangon open to the public and televised live. The choice of the University of Yangon as the venue for the President's speech was politically significant as the campus is widely seen as the birthplace of Burma's anti-colonial movement and the 1988 uprising against military rule. In his speech, President Obama focused on a number of similar social issues in Burma and the United States, and discussed how the United States has chosen to address those issues, as a means of commenting on Burma's incomplete reform process. He stated that the right of free expression, the freedom of assembly, and the freedom of the press are fundamental concepts for democracy in the United States. He also stated that the U.S. system of governance constrains the power of its leaders, granting the President authority over the military, but not over Congress and the judicial system. In addition, President Obama spoke about the "the right of all people to live free from fear," and how important national reconciliation and the end of ethnic discrimination will be for Burma's democratic reforms. He concluded by saying: The road ahead will be marked by huge challenges, and there will be those who resist the forces of change. But I stand here with confidence that something is happening in this country that cannot be reversed, and the will of the people can lift up this nation and set a great example for the world. And you will have in the United States of America a partner on that long journey. The meetings with President Thein Sein and Aung San Suu Kyi were reportedly both frank and constructive, but the post-meeting remarks reflect a different tone and assessment of the situation in Burma. President Obama described his meeting with President Thein Sein as a "very constructive conversation" and expressed his appreciation for Burma's "concrete cooperation" on non-proliferation issues. He noted, however, that the political reforms so far are "just the first steps on what will be a long journey." President Thein Sein, in his comments, alluded to agreements between the two countries on ways to develop democracy and promote human rights in Burma (see "Agreements with Burma" below). Following the meeting with Aung San Suu Kyi, President Obama provided a concise summary of the development of U.S. policy towards Burma since 2011. He went on to state, "In my discussions here in Yangon, our goal is to sustain the momentum for democratization." For her part, Aung San Suu Kyi said that the two had been able to "discuss our various concerns openly," but also cautioned that "we have to be very careful that we are not lured by a mirage of success." Concurrent with President Obama's visit, the Burmese government agreed to take several actions considered important by the Obama Administration, including its intention to: Reaffirm its commitment to comply with U.N. Security Council Resolution No. 1874, which imposes economic and commercial sanctions on North Korea; Sign the Additional Protocol to the IAEA Comprehensive Safeguards Agreements and give effect to Small Quantities Protocol; Allow the International Committee of the Red Cross (ICRC) to resume prisoner visits, in coordination with the Ministry of Home Affairs; Initiate a transparent process to review the cases of "prisoners of concern"; Agree to the U.S.-Myanmar Joint Plan on Trafficking in Persons; Implement the International Labor Organization's (ILO's) Action Plan on Forced Labor and the New Wards and Village Tracts Administration Act; Commit to becoming a full member of Open Government Partnership (OGP) by 2016; Continue to pursue a durable ceasefire in Kachin State, and sustainable political solutions with the nation's various ethnic armed groups; and Prevent violent attacks on civilians in Rakhine State, and hold accountable the perpetrators of such attacks. The weeks following President Obama's visit saw several political developments in the country that in some cases raised questions about the Burmese government's commitment to political reform and the agreements it had just made with the United States. Burmese police violently attacked a peaceful protest against a copper mine in Sagaing Region, resulting in the injury of dozens of Buddhist monks and civilians. The Burmese military launched a major assault against the Kachin Independence Army (KIA) in the Kachin State, despite the promises made to President Obama. However, President Thein Sein and the Union Parliament did take steps to protect the people's right to assembly and freedom of the media. Fighting between the Tatmadaw and the KIA had been sporadic since Burmese Army broke the 17-year-old ceasefire in June 2011. Repeated efforts to initiate ceasefire talks had proven unsuccessful, and in April 2012, the Burmese Army began a major build-up of forces in the Kachin State. Under the name, "Operation Thunderbolt," the Tatmadaw launched a major offense against the KIA in mid-December 2012, with the aim of taking over the KIA/KIO headquarters in the city of Laiza. Operation Thunderbolt was distinctive from previous Burmese military assaults on ethnic militias by the number of soldiers committed to the campaign (at least five battalions) and the use of aircraft (fighters and helicopters) to support the ground troops. The attack on the KIA drew international criticism in part because it violated instructions from President Thein Sein to not to attack the KIA, as well as reports of significant civilian casualties, human rights abuses by Burmese soldiers, and the impressment of child soldiers. Allegations that the KIA were using child soldiers also appeared in the press. The Burmese government and its newspaper, The New Light of Myanmar , maintained that the KIA have been the aggressors and that the Tatmadaw were responding in self-defense. On December 17 and 18, 2012, Ambassador Mitchell and acting Special Representative Murphy travelled to Kachin State to assess the situation. Following their visit, the U.S. Embassy in Rangoon issued a statement on December 20, 2012, urging "both sides of this conflict to take immediate steps to establish a dialogue process that will build trust, address the underlying causes of the conflict, and facilitate international assistance to IDPs [internally displaced persons] in Kachin State.…" A fragile ceasefire announced on January 19, 2013, quickly broke down as Tatmadaw forces reportedly attacked a KIA base a few kilometers from the city of Laiza in southeastern Kachin State. The U.S. Embassy in Rangoon released a statement on January 24, 2013, which was critical of Burmese Army's resumption of fighting: The United States is deeply concerned by ongoing violence in Burma's Kachin State. Despite the Burmese government's announcement that a ceasefire was to take effect on January 19, media and NGO reports indicate that the Burmese Army continues a military offensive in the vicinity of the Kachin Independence Army headquarters in Laiza. The United States strongly opposes the ongoing fighting, which has resulted in civilian casualties and undermined efforts to advance national reconciliation. The following day, Burma's Ministry of Foreign Affairs issued a press release stating that the KIA were responsible for the violation of the ceasefire, which the Ministry describes as "terrorist attacks," and that "the peace door remains open for the KIO/KIA." Initial negotiations between representatives of the Union Government and the KIO/KIA were held on February 4, 2013, in the town of Ruili, in China's Yunnan Province. Fighting reportedly continues in Kachin State despite the negotiations between the KIO/KIA and the Union Government. It is unclear if the Tatmadaw support the negotiations with the KIO/KIA, or if they will abide by any agreement reached. While the fighting in the Kachin State continued unabated in early 2013, the Union Government and the Union Parliament implemented some changes in policy that improved the protection of civil liberties. The Union Parliament formally dissolved the Press Scrutiny and Registration Division (PSRD) on January 24, eliminating the government agency responsible for media and press censorship. A Copyrights and Registration Division is to be established under the Information and Public Relations Department of Ministry of Information. On January 28, 2013, President Thein Sein issued Order No. 3/2013, abolishing Order No. 2/88, which was issued by Burma's military junta on September 18, 1988, banning the gathering of five or more people without official permission. According to the official statement, Order No. 2/88 was being repealed because it violated Article 447 of the 2008 Constitution. In a surprise move, Burma's Ministry of Information (MOI) forwarded a draft media legislation to the Union Parliament on March 4, 2013. The MOI bill, designed to replace the 1962 Printer and Publishers Registration Act, was sharply criticized by various media groups in Burma, who said that some of its provisions were more restrictive than the 1962 law. In addition, the MOI's decision to forward the draft law to the Union Parliament apparently violated an agreement with the Myanmar Press Council, an interim group organized by the MOI in August 2012 to review media affairs and help draft new legislation. The text of the draft legislation was published in the Burmese version of the New Light of Myanmar on February 27, 2013. Over the ensuing weekend, the Myanmar Journalist Association (MJA), Myanmar Journalist Network (MJN), and the Myanmar Journalist Union (MJU) issued statements condemning the draft bill. Among the most objectionable provisions in the draft bill is its prohibition of publishing articles reporting on ethnic conflicts, criticizing the 2008 constitution, or "disturbing the rule of law." The draft law also establishes a MOI-appointed "registration official" with the authority to issue or withdraw publishing licenses, which the three journalist organizations see as a mechanism to censor the media. In addition, the Burmese journalists say the law's proposed penalties—three to six months imprisonment and fines of up to $12,000—are more severe than the 1962 law. On February 22, 2013, OFAC issued general license No. 19, waiving restrictions on conducting financial transactions with four Burmese banks—Asia Green Development Bank, Ayeyarwady Bank, Myanma Economic Bank, and Myanma Investment and Commercial Bank—subject to certain limitations. On the same day, OFAC added Ayeyarwady Bank to the SDN list. General license No. 19 was reportedly issued to facilitate the financial activities of U.S. companies and non-governmental organizations operating in Burma, who had claimed that the U.S. sanctions were unduly causing difficulties. OFAC also indicated that allowing transactions with four of Burma's larger banks "supports the July 2012 easing of U.S. economic sanctions on Burma that authorized new investment in Burma by U.S. persons and encourages additional U.S. economic involvement in Burma." Critics of the OFAC decision noted that the banks are owned by "cronies" with close ties to the Burmese military and people considered opponents to Burma's political reforms. The Tom Lantos Human Rights Commission held a hearing on human rights in Burma on February 28, 2013, at which Assistant Secretary of State Michael H. Posner and Acting Special Representative and Policy Coordinator for Burma W. Patrick Murphy testified. The written statements of the two senior officials reflected the current attitude and approach of the Obama Administration to U.S. policy towards Burma. Special Representative Murphy stated early in his testimony, "[W]e have entered a new era of relations between the United States and Burma." As a result of President Thein Sein's "unexpected and ambitious agenda of reform," according to Special Representative Murphy, "[t]he U.S. Government, in partnership with Congress, has responded to these reforms to recognize and encourage further progress." Assistant Secretary Posner spoke in his testimony in a similar vein, stating, "[T]he United States seeks to support the government and people of Burma as they seize the opportunity of change.…" Also, in contrast to the cautious statements by Obama Administration officials soon after the appointment of President Thein Sein, Assistant Secretary Posner testified that "the United States should remain committed to serving as a long-term partner in the reform process as long as it continues to move forward." Much has happened—both positive and negative—since Burma's quasi-civilian government took power. The Obama Administration may understandably take some credit—and responsibility—for changes that have occurred in Burma since announcing its new policy towards Burma. However, the political situation in Burma remains fragile and complex, raising a number of important issues about the prospects for political reforms in the future. What follows is a brief examination of some of the more critical issues. General Khin Kyunt, then SPDC Prime Minister, announced on August 30, 2003, a seven-step roadmap to the creation of a "disciplined democracy" in Burma. According to the SPDC, the transferal of power to the Union Government and the Union Parliament on March 30, 2011, completed the sixth step and moved the nation into the seventh and final step of building a modern, developed, and democratic nation. Not all of Burma would agree with that assessment. President Thein Sein has spoken on a number of occasions about the development of democracy in Burma, indicating both that the democratization of Burma is a work in progress and his apparent willingness to continue that progress. However, his statements have not provided a clear image of what a "disciplined democracy" in Burma would look like and what measures need to be taken to create such a democracy. Several key elements of a future democratic Burma remain sources of serious political debate, including: Will the Burmese military be fully under civilian control, or will it retain some autonomy? Will the Tatmadaw continue to be given special powers with respect to the members of the Union Parliament and ministerial appointments? Is a democratic Burma to be a federal government consisting of relatively autonomous states (as many ethnic organizations seek), or will it feature a more powerful central government (as exists under the 2008 constitution)? What will be the balance of power between the three branches of government? Will the President and appointed Ministers retain more power than the Union Parliament? Will the President and Vice Presidents be selected by the Union Parliament or by some other means, such a popular vote? What will be the conditions for citizenship in Burma? Will the Rohingyas born in Burma be considered citizens and be granted the same rights as other Burmese citizens? Will the existing restrictions on civil liberties, such as post-publication censorship and the prohibitions on criticism of the Burmese military, be removed? The military remains one of most opaque and powerful institutions in Burma. The Tatmadaw and its leader, Commander-in-Chief Vice Senior General Min Aung Hlaing, have generally refrained from public comments or statements. Little is known about the attitudes of senior military officers toward Burma's political reforms or what role they think the military should have in Burma's "disciplined democracy." The relationship between the military and Union Government is another opaque aspect of Burmese politics. President Thein Sein's most recent ministerial changes in February 2013 saw the appointment of two more former generals to his Cabinet—Air Force Commander-in-Chief General Myat Hein was chosen as Minister for Telecommunications, and Lieutenant General Thet Niang Win was selected as Minister of Border Affairs, an office reserved for military officers under the 2008 Constitution. As of March 2013, no fewer than 18 of the 30 cabinet ministers were current or past military officers. The actions—or inactions—of the Tatmadaw seem to indicate that their support for the Union Government and political reform may be limited. Commander-in-Chief Min Aung Hliang has not publicly confirmed ordering his troops to cease military operations against the KIO/KIA despite President Thein Sein at least twice instructing him to give such an order. In addition, his reassignment of top military personnel, including regional commanders, has raised questions about General Min Aung Hlaing's political intentions. Similarly, the replacement of 59 of the military's 166 appointed members of the Union Parliament in April 2012, following the NLD's near sweep of the parliamentary by-elections, was interpreted by some observers as an effort to tighten discipline among the military's selected representatives. Relations between the military and the Union Parliament are another critical issue for the future of political reform in Burma. Although 25% of the members of each chamber are military officers, relations between the military and the Union Parliament have been strained from time to time. Two recent incidents demonstrate the tensions between the two institutions. During the February 2013 session, the Union Parliament questioned the overall size of the proposed military budget, nearly 21% of overall federal spending. In early March 2012, a parliamentary commission investigating land seizures by the military reported that between July 2012 and January 2013, the Tatmadaw had confiscated over 247,000 acres of land. The commission recommended that the military return most of the confiscated land to the owners or the state, and provide compensation for persons displaced by the land seizures. The military's pervasive presence in many corners of Burma's economy is another unresolved aspect of its role in a reformed Burma. Under the SPDC, regional commanders effectively served as the head of the local government. They expected and were able to secure extensive economic benefits from their political power. In addition, various major corporations in Burma's more lucrative sectors—mining, oil and gas, and timber—are allegedly owned by the military, senior officers in the military, or their family or trusted friends. One of the most prominent of these entities is the Union of Myanmar Economic Holdings Limited (UMEHL or UMEH), also known as Myanma Economic Holding, which is reportedly owned by Ministry of Defense and the Myanmar Economic Corporation (MEC), which in turn is operated by the Ministry of Defense on behalf of Burma's military officers. These companies are conglomerates, owning companies in a wide range of economic sectors, including ownership of two of Burma's larger banks—Myawaddy Bank (owned by UMEHL) and Innwa Bank (owned by MEC). The revenues of the Tatmadaw's corporate assets provides the military with a source of revenue independent of the federal budget, as well as some control over the nation's economy. Burma has been engaged in a low-level civil war of varying degrees of military intensity since its establishment in 1948. In the view of some of Burma's ethnic minorities, the Burmese government failed to abide by the terms of the Panglong Agreement that granted the ethnic states a degree of autonomy. According to the Tatmadaw, the inability of the democratic civilian government to suppress the ethnic militias and protect the national integrity of Burma led to the 1962 military coup. To this day, senior Burmese military officers maintain that the Tatmadaw is responsible for preserving Burma in its current form during the last 60 years. Article 20 of the 2008 Constitution explicitly designates the Burmese military as the main entity for "safeguarding the nondisintegration of the Union, the non-disintegration of National solidarity and the perpetuation of sovereignty." The Union Government has proposed a three-step peace process to negotiate an end to the civil war and achieve a reconciliation between the Burman majority and the various ethnic organizations opposed to the current configuration of the Burmese government. The first step is the negotiation of a preliminary ceasefire agreement with all the ethnic organizations that maintain a militia. The second step is to negotiate broader agreements with the ethnic organizations regarding the political and economic development of the States in which the ethnic organizations and their militias operate. The third step calls for the negotiation of a national agreement on how to amend or alter the 2008 Constitution in a manner consistent with the agreements achieved in the second stage. The Union Government's proposal assumes the preservation of the 2008 Constitution, with amendments, and the disbanding of the ethnic militias or their merger into the Tatmadaw. The Union Government has established a "peace committee" consisting of a 12-member central committee headed by President Thein Sein and a 52-member working committee headed by Vice-President Sai Mauk Kham. Former Railway Minister Aung Min, however, is widely seen as the Union Government's lead negotiator in talks with the ethnic organizations. The Union Government's three-step peace process has been rejected by several of the more prominent ethnic organizations. An alliance of 12 ethnic organizations, the United Nationalities Federal Council (UNFC), has proposed an alternative path to national reconciliation involving direct negotiations between the Union Government and the UNFC, followed by a national conference of ethnic organizations, and the convening of a national convention to negotiate the terms of a "national accord" for the establishment of a federal union of Burma. The UNFC proposal does not presume the preservation of the 2008 Constitution, or the disbanding or merger of the militias into the Tatmadaw. The UNFC has also appointed a negotiating team consisting of representatives of its member organizations. Talks between the Union Government and the various ethnic organizations, including the UNFC, have yielded mixed results. Preliminary ceasefire agreements have been reached with 13 of 21 different groups, with the critical exception of the KIO/KIA. Informal talks between the UNFC and the Union Government were held in Ruili, China, in February 2013, resulting in an agreement to hold future talks. None of the negotiations have resulted in the completion of the second step of the Union Government's three-step peace process. Several unresolved issues underlie the efforts to achieve national reconciliation in Burma. First, a consensus needs to be reached regarding the relative powers of the central government and the ethnic States, particularly with respect to the political and economic development of the States. Many ethnic organizations seek a comparative high degree of autonomy for their States, but the Union Government and the Burmese military seemingly prefer a stronger central government. Second, any agreement on national reconciliation will require the support and approval of the Tatmadaw. However, the Burmese military has generally not participated in the current negotiations. Also, widespread reports of Burmese Army attacks on ethnic militias with whom a preliminary ceasefire agreement has been reached raise doubts about the Tatmadaw's support of the peace process or the ability of the Union Government's peace committee to speak on behalf of the Burmese military. Third, the parties need to agree on the process for negotiating terms of national reconciliation. The Union Government is pressing for an approach the operates within the structure of the 2008 Constitution and would eventually incorporate the ethnic organizations into the current governance system as political parties contesting in parliamentary elections. The major ethnic groups prefer to hold talks with the Union Government as equals, and do not accept the implicit assumption of the legitimacy of the 2008 Constitution and the Union Government implied by the approach proposed by the Union Government. As a result, the future of the 2008 Constitution appears to be a critical element of any proposal for national reconciliation. The entire process by which the 2008 Constitution was drafted and adopted is politically problematic for Burma. Many of the opposition parties and the ethnic organizations did not participate in the drafting of the Constitution, which is generally viewed as having been written by the SPDC to protect and preserve the preferential status and power of the Burmese military. Public access to the written text of the Constitution was limited before the national referendum was held in 2008, and the official results of the plebiscite are widely seen as fraudulent. The parliamentary elections held in November 2010 under the provisions of the 2008 Constitution are similarly considered neither free nor fair, raising questions about the legitimacy of the Union Government and the Union Parliament. The Union Government and the Burmese military view the 2008 Constitution as a legitimate document governing the nation. President Thein Sein has indicated a willingness to consider limited amendments to the constitution. For example, it appears that President Thein Sein is open to modifications of the privileged status of the Tatmadaw under the constitution, including the size of its membership in the Union Parliament, but to an unspecified extent. The Tatmadaw reportedly is also open to limited changes to the constitution, but not ones that would fundamentally alter their special status. The opposition parties within the Union Parliament—led by Aung San Suu Kyi and her fellow NLD members—would also like to see amendments to the 2008 Constitution. For example, the NLD would like to change certain provisions that bar Aung San Suu Kyi from serving as President following the 2015 parliamentary elections. The NLD and other opposition party members of the Union Parliament seem willing to follow the amendment process in the constitution. However, many of the ethnic organizations do not accept the 2008 Constitution, and are unlikely to comply with its provisions for amending the constitution. The opposition groups prefer to negotiate directly with the Union Government and the Tatmadaw about changes in the national government and the adoption of a new constitution. They may, however, accept that the Union Government will want to follow the constitution's process to adopt amendments as part of a negotiated agreement. The requirements to amend the constitution may be too arduous to implement such a negotiated agreement. Chapter XII of the 2008 Constitution specifies how it can be amended. A bill to amend the Constitution must be submitted to the Union Parliament as a whole and obtain the support of at least 20% of members before it can be considered by the Union Parliament. To be adopted, the bill must receive the support of no less than 75% of the members, and for certain specified sections of the Constitution also receive "in a nation-wide referendum only with the votes of more than half of those who are eligible to vote." This latter provision would appear to require the approval of no less than 50% of the eligible voters regardless of the level of turnout for the national referendum. The specified sections include those setting the general structure of the government, providing for the special status of the military in the government (including the appointment of military personnel to the Union Parliament and that they constitute one quarter of the members of each chamber), establishing the conditions for the declaration of a state of emergency and the transfer of sovereign power to the Commander-in-Chief of the Burmese military, setting the requirements for eligibility to serve as President, and specifying the requirements to amend the Constitution. These requirements imply that any amendment to the Constitution must obtain the support of a portion of the military appointees to the Union Parliament, and thereby indirectly, the support of the Tatmadaw. It is uncertain if any amendment acceptable to the Burmese military will sufficiently alter the current government structure to satisfy the ethnic organizations. If such a compromise can be achieved, the amendment must still be approved by more than 50% of the eligible voters, which could be a challenge. Voter turnout for the April 2012 parliamentary by-elections in some districts was not much above 50%. The 113 th Congress may decide to take a more active role in the formulation of U.S. policy towards Burma during this time of potential political transition. Some critics of the Obama Administration's handling of Burma relations maintain that it has moved too fast and too far in relaxing sanctions and has become too close to President Thein Sein and the Union Government. Other critics say that the Obama Administration has moved too slowly and cautiously, and that the United States is losing what little influence it may have over the political dynamics and economic development of Burma. Congress may choose to make its own assessment of the recent conduct of U.S. policy towards Burma, and act as it deems appropriate based on that assessment. The 112 th Congress passed five laws, introduced 28 separate bills, and held six hearings related to Burma. Except for P.L. 112-192 , the five laws either extended or reiterated sanctions imposed on Burma in previous laws. Most of the 28 bills introduced were reported to their respective committees of jurisdiction and saw no further action. The six hearings included ambassadorial nomination hearings by the Senate Committee on Foreign Relations. Two of the six hearings were focused exclusively on U.S. policy in Burma, one by the Senate Committee on Foreign Relations and another by the House Committee on Foreign Affairs. Three of the five new laws— P.L. 112-33 , P.L. 112-36 , and P.L. 112-163 —extended the general import ban contained in Section 3 of the Burmese Freedom and Democracy Act of 2003 ( P.L. 108-61 ) which is subject to annual renewal. The two other laws, P.L. 112-74 and P.L. 112-192 , pertained to the use of appropriated funds and international financial institutions (IFIs) providing assistance to Burma, respectively. Section 8128 of Division A of P.L. 112-74 , the Consolidated Appropriations Act, 2012, prohibited the use of any funds appropriated for international military education and training (IMET), foreign military financing, excess defense articles, assistance under Section 1206 of the National Defense Authorization Act for Fiscal Year 2006 ( P.L. 109-163 ), issuance for direct commercial sales of military equipment, or peacekeeping operations in Burma (as well as other selected countries) if the funds "may be used to support any military training or operations that include child soldiers." Section 7014 of Division I of P.L. 112-74 banned the use fund appropriated for international assistance to Burma, and Section 7044(b) requires the Secretary of the Treasury to "instruct the United States executive directors of the appropriate international financial institutions to vote against any loan, agreement, or other financial support for Burma." P.L. 112-192 granted the Secretary of the Treasury the option of instructing the U.S. Executive Director at any international financial institution to "vote in favor of the provision of assistance for Burma by the institution, notwithstanding any other provision of law" if the President has determined to do so is in the national interest of the United States. Written notice of such a determination is to be provided to "the Committees on Foreign Relations, Banking, Housing, and Urban Affairs, and Appropriations of the Senate, and the Committees on Financial Services, Foreign Affairs, and Appropriations of the House of Representatives." In addition, prior to the President making such a determination, "the Secretary of State and the Secretary of the Treasury each shall consult with the appropriate congressional committees on assistance to be provided to Burma by an international financial institution, and the national interests served by such assistance." In addition to the five bills that became law, the 112 th Congress introduced over 20 bills pertaining to Burma to varying degrees. Most did not see further action after referral to the committees with jurisdiction. H.Con.Res. 135 was approved by both the House and the Senate, authorizing the use of the Capitol's rotunda for the presentation of the Congressional Gold Medal to Aung San Suu Kyi on September 19, 2012. The six congressional hearings on Burma held during the 112 th Congress were equally divided between the House Committee on Foreign Affairs (HFAC) and the Senate Committee on Foreign Relations (SFRC). HFAC held a full committee hearing entitled, "Religious Freedom, Democracy, Human Rights in Asia: Status of Implementation of the Tibetan Policy Act, Block Burmese JADE Act, and North Korean Human Rights Act," on June 2, 2011. Its Subcommittee on Asia and the Pacific held a hearing, "Piercing Burma's Veil of Secrecy: The Truth Behind the Sham Election and the Difficult Road Ahead," on June 22, 2011. The same subcommittee held a hearing entitled, "Oversight of U.S. Policy Toward Burma," on April 25, 2012. Two of the three Senate hearings related to Burma were nomination hearings, both for the same person, Derek J. Mitchell. SFRC held a hearing on Mitchell's nomination to serve as the first Special Representative and Policy Coordinator for Burma on June 29, 2011, and a hearing for Mitchell's nomination as Ambassador to Burma on June 27, 2012. The third SFRC hearing was held by the Subcommittee on East Asia and Pacific Affairs on April 26, 2012, with the title of "U.S. Policy on Burma." The 113 th Congress has several different aspects of U.S. policy towards Burma that it may choose to consider. In its oversight capacity, Congress may decide to investigate and assess the Obama Administration's general approach to relations with Burma, as well as consider the degree to which the Administration is fully and faithfully implementing the existing laws that delineate U.S. policy towards Burma. Congress may also take up legislation—either of its own volition or at the request of the Obama Administration—to adjust U.S. policy in light of the changing circumstances in Burma. In addition, Congress will have the opportunity to examine Administration requests for funding various assistance programs and initiatives in Burma, and appropriate what Congress determines is a suitable amount. Congressional oversight of the executive branch's administration and implementation of federal laws is long-standing authority implicit in the U.S. Constitution. The House Committee on Foreign Affairs and the Senate Committee on Foreign Relations utilized their oversight authority to request the testimony of senior Administration officials for separate hearings on U.S. policy towards Burma in April 2012 (see above). The 113 th Congress may choose to hold similar hearings or request information by other means and mechanisms given the developments in Burma since these two hearings were held. Such oversight activities may examine the Obama Administration's general approach to relations with Burma and/or the implementation of existing laws that specify details in U.S. policy towards Burma. The 113 th Congress may consider examining the reasoning behind the shift in the Administration's approach to Burma described in this report, and, if it chooses, convey its assessment of the conduct of U.S. policy in Burma. Among the key aspects of current U.S. policy Congress may decide to consider are: To what extent has the political situation in Burma changed over the last two years, and to what extent might it change over the next two years? Has the Obama Administration moved too quickly or too slowly in easing sanctions on Burma? Is the Obama Administration overly focused on President Thein Sein and other Burmese officials in the Union Government damaging relations with the Union Parliament, opposition political parties, and ethnic organizations? Does the Obama Administration formally accept the Union Government and the Union Parliament as the legitimate government in Burma? Does it accept the legitimacy of the 2008 Constitution? Should the U.S. government return to a reactive, "action for action" approach to Burma, or should it continue to be more proactive, and take steps to try to foster further reforms, as the Obama Administration appears to have done since April 2012? What is the Obama Administration's assessment of the attitudes of the Burmese military to political reform in Burma, and what does it consider the best approach to dealing with the Burmese military in the future? Under what circumstances should the U.S. Government consider reestablishing military-to-military relations? How does the Obama Administration view the various ethnic groups, and their associated militias? Should the U.S. Government establish closer and open relations with the ethnic organizations? Beyond the possibility of examining the general framework of U.S. policy towards Burma, Congress may also contemplate pursuing a number of specific issues related to U.S. policy, including the Obama Administration's implementation of the existing laws specifying aspects of U.S. policy. One issue is the Administration's intentions with respect to the Special Representative and Policy Coordinator for Burma. Another issue is the administration of the lists maintained by the Secretaries of State and the Treasury of Burmese nationals subject to political and economic sanctions. A third issue is the timely submission of legally required reports to Congress, and the accuracy and comprehensiveness of those reports. Section 7 of the Tom Lantos Block Burmese JADE (Junta's Anti-Democratic Efforts) Act of 2008, or 2008 JADE Act, requires that the President appoint a Special Representative and Policy Coordinator for Burma, "by and with the advice and consent of the Senate." It further stipulates that the Special Representative "shall have the rank of ambassador," and: Except for the position of United States Ambassador to the Association of Southeast Asian Nations [ASEAN], the Special Representative and Policy Coordinator may not simultaneously hold a separate position within the executive branch, including the Assistant Secretary of State, the Deputy Assistant Secretary of State, the United States Ambassador to Burma, or the Charge d'affairs to Burma. Ambassador Derek J. Mitchell was confirmed by the Senate as Special Representative and Policy Coordinator for Burma on August 2, 2011, but stood down from the position after his confirmation as U.S. Ambassador to Burma on June 29, 2012. Deputy Special Representative and Policy Coordinator for Burma W. Patrick Murphy was appointed as acting Special Representative and Policy Coordinator for Burma on July 23, 2012, according to the State Department's webpage. The Federal Vacancies Act of 1998 ( P.L. 105-277 ) allows for temporary appointments for positions requiring the advice and consent of the Senate no more than 210 days in most circumstances. The time restriction is suspended if a first or second nomination for the position is pending in the Senate. Given the date posted by the State Department, Murphy's temporary appointment has exceeded the 210 day limit. Congress may consider asking the Obama Administration about its intentions with respect to nominating someone to serve as Special Representative and Policy Coordinator for Burma. Another aspect of implementation that has drawn criticism is the compilation of lists of Burmese persons—people and legal entities—subject to sanctions as required by existing laws. Three laws—Section 570 of the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1997 (Section 570) ( P.L. 104-208 ) ; the Burmese Freedom and Democracy Act of 2003 (2003 BFDA) ( P.L. 108-61 ); and the Tom Lantos Block Burmese JADE (Junta's Anti-Democratic Efforts) Act of 2008 (Tom Lantos Block Burmese JADE Act) ( P.L. 110-286 )—prohibit the issuance of a entry visa to a variety of Burmese nationals based on differing criteria, unless the President determines that providing a visa is in the national interest of the United States. In addition, various presidential determinations and executive orders (EOs) (including EO 13169, issued by President Obama on Jul 11, 2012) include provisions blocking the issuance of visas to selected Burmese nationals. The Department of State has the responsibility to compile and maintain the list of Burmese nationals prohibited from receiving entry visas. In addition, the 2003 BFDA and the Tom Lantos Block Burmese JADE Act freeze the assets of certain Burmese persons held by a U.S. person or that enters the United States, and the Tom Lantos Block Burmese JADE Act bans the provision of financial services to individuals subject to a visa ban under this law. Both financial sanctions are to be administered by the Secretary of the Treasury, in accordance with the relevant laws and presidential EOs. Section 5(d)(4) of the Tom Lantos Block Burmese JADE Act requires the Secretaries of State and the Treasury to "devote sufficient resources to the identification of information concerning potential persons to be sanctions to carry out the purposes described in this Act." A number of human rights and Burmese solidarity organizations have criticized the Departments of State and the Treasury for failing to enforce the visa ban and financial sanctions to the full extent of the law. The State Department has not revealed publicly the names on its visa ban list, making it difficult to determine if it is fully compliant with the law. During the last two years, a number of Burmese government officials have visited the United States, including persons that would appear to be subject to the sanctions in Section 570, the 2003 BFDA, and/or the Tom Lantos Block Burmese JADE Act. It is not known if the required written presidential determination to Congress that the visit of these people was in the national interest of the United States was provided. The Treasury Department has delegated the responsibility of maintaining the list of Burmese persons subject to financial sanctions to its Office of Foreign Assets Control (OFAC), which posts the designated Burmese persons as part of its Specially Designated Nationals (SDN) list, which is a compilation of all individuals, groups, companies, or entities identified as being subject to sanctions administered by the Department of the Treasury. According to the human rights and Burmese solidarity organizations, the current SDN list does not include dozens of Burmese nationals and companies that meet the conditions specified in the relevant laws. A third aspect of implementation that has drawn some criticism is related to the delivery and quality of congressionally mandated reports to be provided by the executive branch to Congress or designated congressional committees. Appendix C presents in tabular form a list of required reports to Congress contained in Burmese sanction laws. Not all of the required reports have been delivered to Congress by the stipulated deadline. In some cases—particularly the reports on global sources of military assistance and intelligence to Burma, and a report on "all countries and foreign banking institutions that hold assets on behalf of senior Burmese officials"—the information provided to Congress reportedly was less than comprehensive and lacking in detail. With one important exception, the existing sanctions on Burma remain in effect either until certain conditions have been met or Congress acts to terminate or remove the sanctions. The general import ban specified in Section 3(a) of the 2003 BFDA is subject to annual renewal by Congress. To date, President Obama has used existing authority to waive or ease some of the sanctions on Burma, but the underlying authority to impose the sanctions remains in effect. As such, the imposition of the waived sanctions can be resumed at any time if the President decides to remove the waiver. The current extension of the general import ban in Section 3(a) of the 2003 BFDA ends on July 25, 2013. On November 15, 2012, the State Department released a determination that a waiver of the Section 3(a) import ban was in the national interest of the United States. The 113 th Congress may consider if it should extend the Section 3(a) import ban, given the current presidential waiver. In addition, either in response to a request from the White House or based on its own assessment, the 113 th Congress may consider legislation to alter or amend current U.S. policy towards Burma, including imposing or re-imposing existing sanctions on Burma (for example, by superseding a presidential waiver), or revoking or removing one of the sanctions. Congress may also contemplate altering, modifying, and/or clarifying the necessary conditions for the President to determine that selected sanctions can be terminated. In addition, Congress may choose to provide guidance or instruction over the manner in which to conduct U.S. policy towards Burma. Besides the possibility of taking up policy-related legislation, the 113 th Congress will have an opportunity to consider funding levels for the various assistance programs and other activities in Burma proposed by the Obama Administration. Both President Obama and then Secretary of State Clinton made a number of commitments to the Union Government to provide assistance in several different areas, including aid to landmine victims, funding for English language training and academic exchange programs, and programs to foster democracy and better governance. The Obama Administration also decided to reopen the USAID mission in Rangoon, and has plans to expand its staffing and operations. These activities will require additional federal funding to be carried out. The amount of funding available for the programs in Burma is likely to be affected by sequestration and other budget constraints. The Budget Control Act of 2011 ( P.L. 112-25 ), as amended by the American Taxpayer Relief Act of 2012 ( P.L. 112-240 ), requires an across-the-board reduction of about 5% of the annualized funding in the FY2013 continuing resolution ( P.L. 112-175 ), according to the Office of Management and Budget (OMB). After Congress passes FY2013 funding legislation for the remainder of the fiscal year, OMB will re-calculate the across-the-board cuts. Sequestration does allow the Department of State and USAID the authority to reprogram funds, subject to regular notification procedures. Given uncertainty over the country allocations that would be used as the baseline to calculate the sequestration, it is not possible to calculate post-sequestration funding levels for Burma. A possible rough estimate, however, might be determined by reducing FY2012 estimates by 5%. Once Congress passes final FY2013 funding legislation, the Department of State can then determine the country and program allocations including reprogramming in order to calculate sequestration at the country level. If the past two years are a reliable indicator, Burma will continue to undergo significant political and economic changes over the next three years leading up to its 2015 parliamentary elections. While domestic forces are most likely to be the major factors determining the path of Burma's future, U.S. policy may play a role in influencing the choices made by Burma's leaders and its people. The 113 th Congress may, if it so decides, take an active role in the determination and conduct of U.S. policy towards Burma during this potentially critical period in the nation's possible transition to a civilian democratic government based on the rule of law and the protection of basic human rights. Appendix A. Map of Burma (including Regions, States, and Major Cities) Appendix B. Chronology of Major Events in Burma and Developments in U.S. Policy The table below provides a chronological summary of the major events in Burma, as well as developments in U.S. policy towards Burma, since the Obama Administration announced a new approach to relations with Burma. Appendix C. Required Reports to Congress on Burma Various laws require or request the executive branch to submit reports to Congress or designated congressional committees on different topics related to Burma. The following table provides a list of these reports, the relevant law, which agency or agencies is/are responsible for submitting the report, to whom they are to be submitted, the frequency of the reporting requirement, the deadline for submission, and the mode of delivery.
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U.S. policy towards Burma has undergone a discernible shift in its approach since a quasi-civilian government was established in March 2011. While the overall objectives of U.S. policy towards the country remain in place—the establishment of civilian democratic government based on the rule of law and the protection of basic human rights—the Obama Administration has moved from a more reactive, "action-for-action" strategy and a skeptical and cautious attitude towards the newly created Union Government and Union Parliament to a more proactive mode. The new approach is designed to foster further reforms based on some form of partnership with the Union Government, headed by President Thein Sein. During the last two years, the Obama Administration has conducted much of its policy towards Burma using existing constitutional and legal authority, while regularly consulting with Congress about the actions taken. The 112th Congress passed five laws containing provisions related to U.S. policy in Burma. Three laws—P.L. 112-33, P.L. 112-36, and P.L. 112-163—extended the general import ban contained in Section 3 of the Burmese Freedom and Democracy Act of 2003 (2003 BFDA, P.L. 108-61) which is subject to annual renewal. P.L. 112-74 placed restrictions on the use in Burma of appropriated funds for certain Defense and State Department programs. P.L. 112-192 granted the Secretary of the Treasury the option of instructing the U.S. Executive Director at any international financial institution to "vote in favor of the provision of assistance for Burma by the institution, notwithstanding any other provision of law" if the President has determined that to do so is in the national interest of the United States. The 113th Congress will have the opportunity to decide what role it will play in the future course of U.S. policy in Burma. The Administration's Burma policy in 2011 and 2012 may be characterized as the combination of increasing engagement with Burma's Union Government, Union Parliament, and selected opposition groups, and the waiving or easing of many of the existing economic sanctions imposed on Burma by various laws, including the 2003 BFDA and the Tom Lantos Block Burmese JADE (Junta's Anti-Democratic Efforts) Act of 2008 (P.L. 110-286). However, the Administration may decide that it is approaching the limit of actions it can take with regard to easing of sanctions without Congress passing new legislation. Some critics of the Obama Administration say that it has moved too fast and too far in easing the existing sanctions, given the continued reports of serious human rights violations and significant restrictions on civil liberties. Other critics think the Administration has moved too slowly and cautiously in waiving sanctions, hindering the reform process in Burma and blocking greater U.S. participation in Burma's economic development. Certain key issues with regard to Burma's political situation may be important to the future course of U.S. policy in Burma. First, President Thein Sein's vision for Burma's "disciplined democracy" has not been clearly elaborated, and his commitment to further reforms remains untested. Second, the view of Burma's military leadership on political reforms is uncertain. Third, the path for possible reconciliation between the country's Burman majority and various ethnic minorities is unclear.
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This report discusses the U.S. wind turbine manufacturing industry, its supply chain, employment and international trade trends, major federal policy efforts aimed at supporting the industry, and issues affecting its future. The wind industry's national trade group, the American Wind Energy Association (AWEA), reported an estimated 30,000 Americans were employed directly and indirectly in wind turbine manufacturing in 2011, compared to 2,500 in 2004. Another 45,000 U.S. workers reportedly were employed in other parts of the wind industry in 2011, including construction and services. Wind turbine equipment and component manufacturing jobs range in pay from about $30,000 to around $90,000, according to the Bureau of Labor Statistics. Following an unprecedented period of growth in the U.S. wind power market between 2005 and 2009, about half as many new wind turbines were installed in 2011 (some 3,500) as in 2009. Aside from GE Energy and Clipper Windpower, most of the manufacturers that sell, assemble, or manufacture turbines and wind-related components in the U.S. market are headquartered outside the United States. Vestas, Gamesa, and Siemens are among the European manufacturers that have responded to government regulations that mandate the use of renewables, including wind power. Other firms manufacturing wind turbines for the U.S. wind market include Japanese and Indian companies such as Mitsubishi and Suzlon. Manufacturers from South Korea and China are also expanding production capacity and entering the U.S. market. Federal interest in the U.S. wind turbine manufacturing industry is based on (1) increasing the role of clean energy technology in energy production; (2) encouraging advanced manufacturing and the creation of skilled manufacturing jobs; and (3) enhancing the diversity of U.S. energy sources. Wind energy, like many energy technologies, benefits from government incentives. Without them, it does not appear likely that there would be a U.S. wind turbine industry. To a large extent, the federal government sets the framework and influences the pace of domestic wind power development. One of the main federal policy tools to encourage wind generation is a tax credit, known as the production tax credit (PTC), which is slated to expire at the end of 2013. Other policy drivers include state renewable portfolio standards, which have been adopted by more than half the states to mandate production of electricity from "clean" sources. No nationwide renewable electricity standard currently exists, but the Obama Administration and some Members of Congress have endorsed the concept. These policies do not directly address manufacturing, but greater wind power adoption supports the development of a U.S. wind energy manufacturing base. In addition, the federal government and some state governments have maintained programs that provide financial incentives for manufacturing of wind power equipment. Many international wind turbine manufacturers and component suppliers have opened manufacturing facilities in the United States since 2005. In 2011, there were more than 470 U.S.-based wind turbine manufacturing facilities—a 10-fold increase in five years—ranging from wind turbine assembly plants to factories producing various wind-related components including large bearings, castings, electrical wiring, fasteners, hydraulics, and power electronics. Only a small number of these factories are dedicated exclusively to building turbine parts (blades, towers, and nacelles); the others manufacture components for various industrial uses, including wind-specific products. Given the interest in wind power around the world, manufacturers with U.S. production facilities may be able to increase exports of advanced wind-energy components. Around $250 million in fully assembled wind turbines were exported from the United States in 2011. The industry's future in the absence of government support, however, is open to question. While the cost of electricity from land-based wind turbines is less than the cost of power from other alternative sources, such as concentrated solar plants and geothermal installations, it is still, in general, somewhat higher than the cost of power from new gas-fired generators. This means that without government support, electricity suppliers' demand for wind turbines would be relatively limited. It is possible that, if existing policy tools are allowed to expire, wind industry manufacturing will face a difficult future. On the other hand, it is imaginable that technological improvements in wind generation and higher costs for construction of fossil-fuel power plants could at some point make wind cost-competitive with coal and gas as a source of electricity, creating a brighter outlook for wind turbine manufacturing. Wind turbine manufacturing is at the core of the multifaceted wind power industry. Because of the use of castings, forgings, and machining, turbine manufacturing is a significant contributor to U.S. heavy manufacturing. By the end of 2011, more than 38,000 wind turbines were installed in the United States. Procurement of wind turbines accounts for an estimated 60% to 70% of overall expenses for wind energy developers. The market potential of offshore wind power is not covered in this report. No offshore projects have been installed in the United States to date, and the industry faces difficulties with permitting, financing, and infrastructure availability. So far, Cape Wind, off the coast of Nantucket in Massachusetts, is the only project that has a commercial wind energy development lease with the U.S. government. AWEA reports that at the end of 2011, there were 15 different proposed offshore wind projects in the United States, and a proposed offshore transmission line. To help spur offshore wind development, in December 2012, the Department of Energy (DOE) awarded $28 billion in grants to seven offshore wind projects in six states, with the aim of three to begin commercial operations by 2017. Also, this report does not cover small wind turbine manufacturing, which AWEA defines as turbines with rated capacities of 100 kilowatts (kW) or less. This segment of the wind turbine market appears to be growing. According to the World Wind Energy Association, worldwide more than 330 manufacturers offer small wind turbines. AWEA's most recent data indicate that 95 manufacturers of small wind turbines were based in the United States in 2009. The use of a wind turbine to generate electricity is an American invention of the late 19 th century. The development of U.S. commercial wind turbine manufacturing can be traced back to the 1970s, when the U.S. government advanced the technology in response to the oil crises of 1973 and 1979 as an alternative to power generation from fossil fuels. The first U.S. wind farms were developed in California, an early adopter of policies favorable to wind energy, and the state dominated worldwide wind development in the early 1980s. This created a market for wind turbine manufacturers. Enertech, U.S. Windpower (renamed Kenetech in 1988), and Zond were among the American suppliers. Other U.S. manufacturers included technology and aerospace firms such as Westinghouse and Boeing. In 1986, 60 U.S. firms produced turbines for the California market. Foreign suppliers from Denmark, Germany, Japan, and the Netherlands, among other countries, also sold their wind turbines in California. The California "wind rush" became the training ground for several firms, including the Danish manufacturer Vestas, now the world's largest manufacturer of utility-scale wind turbines. However, a drop in oil prices, along with reductions in government tax credits, caused a near total collapse of this market in the mid-1980s. By the end of the decade, many wind turbine manufacturers went bankrupt as the industry adjusted to a much smaller market. For the next two decades fuel prices were low and U.S. incentives spotty. In the United States, annual installed wind power capacity slowed from 1987 to 2000. The entire U.S. wind fleet exceeded 1,000 megawatts (MW) for the first time in 1986, but then took 13 years to reach approximately 2,400 MW. In the 1990s a more sustained market for wind power and wind turbine manufacturing evolved overseas. Strong, consistent government incentives and policies, which have included a policy mix of direct government investment, tax breaks, loans, regulations and laws that cap or tax emissions, supported the development of manufacturers abroad, particularly in Europe. This allowed wind turbine manufacturers to establish themselves in countries such as Denmark, Spain, and Germany, where many wind turbine manufacturers are now based. Demand for wind turbines and components is driven by growth in wind power capacity. More consistent U.S. policies have resulted in a substantial increase in cumulative utility-scale wind power capacity, from 9,000 MW in 2005 to more than 46,000 MW in 2011. The United States was second to China in cumulative and new installed wind power capacity in 2011. China and the United States accounted for more than 45% of total installed worldwide wind power capacity at the end of 2011. The size of the U.S. market has made the United States an attractive investment location for wind turbine and wind component manufacturers. However, the prospects for 2013 and beyond are clouded owing to several factors, including the fate of the PTC, low-cost natural gas, and manufacturing overcapacity in the wind turbine sector. Major customers for wind turbine manufacturers are large independent power producers (IPPs) and utilities such as Iberdrola Renewables, NextEra Energy Resources, Horizon-EDPR, Terra-Gen, Duke Energy, or Xcel Energy, which purchase wind turbines for commercial electricity generation. Other wind turbine customers include universities and military bases, but these customers account for a very small share of the market. Commercial utility-scale onshore wind turbines are installed at wind farms, which are clusters of wind turbines grouped together to produce large amounts of electricity. Currently, there are some 975 wind farms in the United States. The largest is located in California, and there are several huge wind farms in Texas (see Table 1 ), which is by far the leading state in wind energy output, with over 10,000 MW of installed capacity at year-end 2011. Other large wind-power projects are in Indiana, Oregon, and Iowa. Several large U.S. wind farms are owned and managed by overseas companies. For example, the Roscoe, TX, wind farm is owned and operated by Germany-based E.ON Climate and Renewables. It consists of more than 600 wind turbines purchased from three different manufacturers: Mitsubishi, General Electric (GE), and Siemens. In 2011, 10 wind turbine manufacturers accounted for 85% of the global market measured by newly installed capacity. The three largest manufacturers were: Vestas at 12.9% (Denmark); Goldwind at 9.4% (China); and GE at 8.8% (U.S.). Other leading manufacturers are listed in Appendix A . These firms are headquartered in Europe, the United States, India, and China. GE Energy and UTC/Clipper Windpower are the only U.S.-headquartered utility-scale wind turbine manufacturers. Some manufacturers, including Gamesa, Vestas, and Suzlon, focus exclusively on wind turbines. Others are part of larger diversified companies. All pursue a global business strategy, which means selling outside their home markets. Many operate manufacturing facilities throughout the world, including the United States, Europe, and China. Recently, several Chinese companies have begun producing wind turbines, selling mainly in the large and growing China market. China, which had virtually no wind turbine manufacturing capabilities in 2005, is now home to over 270 producers, some of them capable of producing complete wind turbine systems with locally made products. Four of the top 10 manufacturers worldwide in 2011 were headquartered in China (see Appendix A ), where, by some estimates, turbines can be manufactured for 30% less than in Europe, the United States, or Japan. Some Chinese firms apparently are looking for overseas markets, but concerns about the quality of Chinese turbines are one factor that might limit foreign sales since Chinese-made turbines are not yet seen as being as high in quality as European and American ones. South Korean companies are also making huge investments in wind turbine production. Two large South Korean shipbuilders, Hyundai Heavy Industries and Samsung Heavy Industries, have announced their intention to manufacture wind turbines. Other Korean firms undertaking wind turbine technology development include Daewoo, Hanjin, STX, Rotem, and Unisom. Additionally, South Korean wind turbine component manufacturers like Doosan, Hanjin, Taewoong, Hyosung, CS Wind, and Korea Tech are becoming important suppliers of towers, blades, generators, transformers, gearboxes, nacelle control systems, and cables. The leading manufacturers of utility-scale wind turbines in the United States are shown in Table 2 . In 2011, nearly two dozen wind turbine manufacturers—a five-fold increase in six years—installed nearly 3,500 new turbines nationwide, generating 6,800 MW of new capacity. This was down from the 2009 peak, when some 5,700 new wind turbines were installed, adding nearly 10,000 MW of new utility-scale wind capacity. Since the inception of utility-scale wind energy production, U.S. electric generators have installed more than 40,000 turbines with approximately 52,000 MW of capacity. In 2011, GE continued to lead in the number of new wind turbine installations, although its market share has declined over time. A wind turbine is a collection of operating systems that convert energy from wind to produce electricity. Utility-scale wind turbines are massive, complex pieces of machinery which come in many sizes and configurations. Wind turbine blades range in size from 34 to 55 meters, the hub can weigh 8 to 10 tons, and towers are usually 80-100 meters tall and weigh 55 to 70 tons. According to AWEA, the installation of over 5,700 turbines in the United States in 2009 required industrial manufacturers to supply 17,000 blades and tower sections, approximately 3.2 million bolts, 36,000 miles of rebar, and 1.7 million cubic yards of concrete. In simple terms, as shown in Figure 1 , the major components in a wind turbine consist of: a rotor comprising four principal components—the blade, the blade extender, the hub, and the pitch drive system; a nacelle, the external shell or structure resting atop the tower containing and housing the controller, gearbox, generator, large bearings, connecting shafts, and electronic components that allow the turbine to monitor changes in wind speed and direction; a tower, normally made of rolled steel tube sections that are bolted together to provide the support system for the blades and nacelle; and, other components, including transformers, circuit breakers, fiber optic cables, and ground-mounted electrical equipment. Beyond the major components, there are many subcomponents in a wind turbine. The percentages shown in Figure 2 indicate the costs of the components relative to the overall cost of a turbine. The tower, for example, is over 26% of the total cost of a wind turbine, rotor blades 22%, the gearbox 13%, and the other components 5% or less. Wind turbines vary greatly in size and are getting larger as technology advances. They have grown from dozens of kilowatts in the early 1980s to as large as 7 MW. Most land-based wind turbines are in the 1.5 MW to 3 MW range. Components also change as technology improves. European and U.S. wind turbine manufacturers have invested heavily over the decades in developing their respective turbine technologies, leading to improvements in the efficiency of wind blades and turbines and longer turbine life. New wind turbine manufacturers, especially from China, are not yet globally competitive. According to recent research, they generally lack state-of-the-art technology, focus mainly on producing smaller turbines, and experience significant quality control problems. Raw materials availability and changing commodity prices of raw materials used in wind turbines affect production costs. A typical wind turbine is made primarily of steel (about 90% by weight) (see Table 3 ). Aluminum and other light-weight composites are also important, particularly for blade manufacturing. Other core materials include pre-stressed concrete, copper, and fiberglass. Turbines also utilize permanent magnets, cast iron, carbon fiber, rubber, epoxy, ferrite, brass, ceramics, and Teflon. Wind turbines are manufactured by original equipment manufacturers, or OEMs, which design, assemble, and brand their products. Similar to automobile assemblers that make a car or truck, OEMs are mostly system integrators. Assemblers must bring together an estimated 8,000 precision parts and components to produce a wind turbine. One supplier might roll large plates of steel into the towers that support the turbine. A second company might make the turbine blades from special carbon fiber materials, and a third might manufacture the electronic computerized control systems. Each of these components might be produced domestically, might be assembled domestically from imported inputs, or might be imported as an assembled product. Many suppliers and specialty firms are part of this complex global supply chain. Tier 1 suppliers make large components such as towers, hubs, blades, or gearboxes. They include firms such as LM Wind (blades), SKF (bearings), and Winergy (gearboxes). Tier 2 suppliers produce subassemblies such as ladders, fiberglass, control systems, hydraulics, power electronics, fasteners, resin, machine parts, or motors. They include companies such as American Roller Bearings (power transmission bearings), Cardinal Fasteners (structural fasteners), and Timken (power transmission bearings). A wind turbine is a significant investment. Researchers at the Lawrence Berkeley National Laboratory reported that wind turbine transaction price quotes can range from as low as $900/kilowatt (kW) to a high of $1,400/kW, meaning that an average 2 MW turbine would cost between $1.8 million and $2.8 million, plus installation costs. Each wind turbine assembler uses different sourcing strategies and levels of vertical integration. Some produce almost all major components internally or through subsidiaries, while others outsource many of their critical components. For instance, some manufacturers produce blades, generators, or gearboxes in-house, while others opt for outside suppliers. Hundreds of smaller companies make specialized parts such as clutches, rotor bearings, fasteners, sensors, and gears for the wind industry. Illustrative examples of some of the thousands of components in a modern wind turbine are shown in Table 4 . Very high levels of expertise and specialization are required of wind turbine suppliers, with the level of precision similar to that of the aerospace industry. Turbine manufacturers often establish relationships with suppliers in the interest of quality, as a failure in a turbine part can be very expensive to fix. Wind turbines are expected to survive largely unattended in extreme climactic conditions for a design life of as much as 20 years. Product quality is also of concern to wind farm operators, as a malfunctioning turbine can reduce operating revenue. At the end of 2011, the American Wind Energy Association reported that more than 470 wind turbine manufacturing facilities were located in the United States, up substantially from the 30-40 wind-related manufacturing facilities nationwide in 2004. Over that period, the number of tower plants increased from 6 to 18; blade facilities rose from 4 to 12; and, nacelle assembly facilities grew from 3 to 14. Total investment in facilities to manufacture for the wind industry in the United States has exceeded $1.5 billion. Greater demand for wind turbines, cost savings related to transportation, and concern about the risks associated with currency fluctuations are among the reasons wind turbine and component manufacturers have opened new production facilities in the United States since 2005. Even with increased domestic production capacity, wind turbine assemblers source parts and components on a worldwide basis, reflecting the industry's global supply chain. Many wind manufacturers with production facilities in the United States also produce elsewhere, typically in Europe and Asia. Towers and blades were among the first wind products manufactured in the United States because they are large, expensive, and difficult to transport. Thus, manufacturers find it easier and less costly to fabricate near their installation point. Many tower manufacturers in the United States are American companies and include firms such as Ameron, Trinity Structural Towers, DMI Industries, and Broadwind Towers. Foreign manufacturers, such as Gamesa and Vestas, also have located tower manufacturing facilities in the United States. In 2012, several major tower producers, including Otter Tail Corporation, Katana Summit, and DMI Industries, exited the sector or announced plans to scale back production. Suppliers of blades have increased their U.S. manufacturing capacity, with three times as many facilities in 2011 as in 2005. For example, LM Wind Power, headquartered in Denmark, is the largest supplier of blades in the world; it now produces blades at two U.S. manufacturing facilities. Other blade manufacturers with U.S. production facilities include two American companies, TPI Composites and Molded Fiberglass. Both make blades for GE. European OEMs, including Gamesa, Nordex, Siemens, and Vestas, have opened nacelle assembly plants in the United States in recent years. Some started investing in the United States heavily after the American Recovery and Reinvestment Act ( P.L. 111-5 ) passed in 2009. Siemens and Nordex also opened their first U.S. nacelle assembly facilities in 2009. GE has three nacelle assembly facilities in the United States, all established prior to 2005, and also operates turbine component plants in China, Vietnam, and Europe. With the exception of DeWind, which was a German-owned manufacturer acquired by South Korea's Daewoo Shipbuilding & Marine Engineering Company in 2009, Asian manufacturers lag in establishing a U.S. nacelle manufacturing presence. Japanese-headquartered Mitsubishi had expected to open its first U.S. nacelle assembly plant in 2012, but has delayed the opening of that facility. Other manufacturers, such as Suzlon, which idled its turbine rotor blade plant in Minnesota, have reduced their U.S. manufacturing presence. Appendix B provides an overview of the varied investment strategies pursued by foreign-based wind turbine assemblers in the United States. A more robust domestic manufacturing base for wind turbine components such as bearings, gearboxes, and power transmissions is also being established in the United States, albeit more slowly than for towers, blades, and nacelle assembly. Gearboxes and bearings are among the most critical components for any wind turbine manufacturer because failures in either of these parts mean the wind turbine will fail. Bearings for wind turbines are made by a few manufacturers, such as German-headquartered FAG and U.S.-headquartered Timken. Both have production capacity in the United States and operate factories in Europe and Asia. Gearboxes are also made by a relatively small number of companies, such as Winergy (now part of Siemens), which established U.S. production capacity in Illinois in 2009. Winergy also makes gearboxes in Europe, China, and India. Manufacturers of power transmissions, power converters, composite coatings, and sensors have also located wind-related production facilities in the United States. Falling natural gas prices, and continued uncertainty over the long-term future of the PTC, may have diminished manufacturers' interest in establishing more wind-related production facilities in the United States. An analysis by the National Renewable Energy Laboratory (NREL) reported that in 2011, 16 new turbine and component manufacturing facilities opened across the nation, compared to 13 in 2010. In 2012, some manufacturers delayed implementing announced plans for new factories or expansion of existing ones, and several companies reduced their U.S. workforce. A concentration of tower, blade, and nacelle assembly plants is found in the central part of the United States, as shown in Figure 3 . Texas, Iowa, Colorado, Arkansas, and Kansas are positioned near sites that are favorable for wind power generation, enabling manufacturers there to minimize transportation challenges and costs. In addition, wind turbine assemblers and tower and blade manufacturers have been attracted to these states by incentive packages including property tax abatements, sales tax reductions, low-interest loans, and support for worker training. Other wind-related manufacturing facilities are located in Pennsylvania, Michigan, and Ohio, where the decline of automotive and heavy industrial manufacturing has left behind a workforce with prior experience with steel, assembly lines, robotics, and other aspects of heavy manufacturing. In 2011, the wind turbine manufacturing sector supported an estimated 30,000 manufacturing jobs nationwide. This was only about one-fourth of U.S. employment related to wind energy manufacturing. The majority (some 60%) of the 75,000 full-time workers employed directly and indirectly in the wind power industry at the end of 2011 worked in finance and consulting services, contracting and engineering services, project development, and transportation and logistics. About 4,200 jobs were in construction and 4,000 were in operations and maintenance. The number of manufacturing jobs has been relatively flat over the past three years, even as total employment in wind energy declined, according to figures from AWEA (see Figure 4 ). Wind turbine manufacturing is responsible for a very small share of the 11.7 million domestic manufacturing jobs in 2011, well under 1%. It seems unlikely, even if there were a substantial increase in U.S. manufacturing capacity, that wind turbine manufacturing will become a major source of manufacturing employment. In 2008, the U.S. Department of Energy forecast that if wind power were to provide 20% of the nation's electrical supply in 2030, U.S. turbine assembly and component plants could support roughly 32,000 full-time manufacturing workers in 2026. AWEA's more optimistic projection is that the wind industry could support three to four times as many manufacturing workers as it does now if a long-term stable policy environment were in place, which implies a total of 80,000 jobs. Further employment growth in the sector is likely to depend not only upon future demand for wind energy, but also on corporate decisions about where to produce towers, blades, nacelles, and their most sophisticated components, such as gearboxes, bearings, and generators. As part of their global business strategies, wind turbine manufacturers continue to source a significant share of components outside the United States. Imports of wind-powered generating sets, the main wind category covering fully assembled wind turbines and including other components such as blades and hubs when they are imported with the nacelle, grew from $482.5 million in 2005 to a peak of $2.5 billion in 2008. In 2009, imports of wind-powered generating sets dropped to $2.3 billion, then fell by another 46% to $1.2 billion, before rising by 1% in 2011 (see Figure 5 ). An analysis of U.S. wind equipment trade by the U.S. International Trade Commission identified several explanations for the recent decline in U.S. imports of wind-powered generating sets, which include fewer wind turbine installations; decreasing prices; and the opening of new production facilities in the United States. The overwhelming majority (95%) of imported wind-powered generating sets come from Europe. In 2011, Denmark was the leading source of wind-powered generating sets, making up more than half (55%) of all imports into the United States. Italy, Germany, and Spain combined accounted for another 40% (see Figure 5 ). China and India accounted for 2% and 1% of imports, respectively, in 2011. It appears that South Korean wind turbine manufacturers like Samsung, Hyosung, and Unison have ambitions to become leading exporters to the U.S. market and other global markets. Even though China is home to 60 wind energy manufacturers, including several ranked among the largest in the world, it has exported only a small number of wind turbines, $351 million by value worldwide in 2011. However, Chinese manufacturers such as Goldwind, Sinovel, United Power, and Mingyang are actively seeking to expand their foreign sales. Between 2008 and 2011, 11 Chinese OEMs exported 194 wind turbines, based on one estimate, with the United States accounting for 59% of the installations. Also, European turbine assemblers such as Vestas are now looking to open plants in China to supply the Chinese market, and possibly global markets. Concerns about the quality of Chinese-made turbines and parts have prevented more rapid adoption of Chinese components. This may change as Chinese wind turbine products improve and as more foreign manufacturers establish operations in China. China's efforts to foster wind turbine manufacturing have been an irritant in the bilateral relationship. The United Steelworkers (USW) filed a claim in September 2010 that China's green technology policies are direct violations of China's World Trade Organization (WTO) obligations. In June 2011, after the World Trade Organization panel upheld a U.S. complaint, the Office of the U.S. Trade Representative (USTR) announced that China will end a program of wind power equipment grants that required Chinese wind turbine manufacturers that received them to use domestic parts and components instead of foreign-made parts and components. Besides the USW complaint, the U.S. wind tower industry has been involved in an ongoing trade case. In December 2011, the Wind Tower Trade Coalition, representing four U.S. manufacturers of steel towers for wind turbines, filed anti-dumping and countervailing duty (CVD) petitions with the U.S. Department of Commerce (DOC) and the International Trade Commission (ITC), alleging that Chinese and Vietnamese makers of wind towers have injured U.S. producers by selling their products in the United States at below-market prices. In May 2012, DOC ruled that Chinese exporters of utility scale wind towers are being unfairly subsided and announced preliminary CVD rates ranging from 13.74% to 26%. In July 2012, DOC issued an affirmative preliminary anti-dumping ruling that could impose additional duties as high as 73% on Chinese towers imported into the United States. Final determinations are scheduled for early 2013. If the dumping and subsidy cases lead to significant tariffs, the rulings may impact the magnitude and source countries of tower imports from China to the United States in future years. U.S. imports of other wind-related equipment, such as towers and blades, followed a similar pattern to wind-powered generating sets, with increases from 2005 to 2008 followed by a drop in 2009, then again in 2010, with a rise in 2011. But although more of these large components are being produced domestically, imports remain significant. China, Mexico, Vietnam, and South Korea were the main sources of imported towers and lattice masts in 2011. China, Mexico, and Canada led in blade imports in 2011. Some turbine components, such as bearings and gearboxes, are relatively easier to transport, and wind turbine assemblers might be more likely to continue to use global sourcing strategies for these less bulky components. Estimates indicate that U.S. content in recent years has increased to nearly 70% of the value of the average wind turbine installed in the United States. In an August 2012 report, analysts at the Lawrence Berkeley National Laboratory calculated that the share of parts manufactured domestically nearly doubled from around 35% in 2005-2006 to 67% in 2011. Public statements by major wind turbine assemblers appear to support the view that U.S.-made turbines now contain a larger share of domestic content than in previous years. For example, Gamesa reports that its domestic content on U.S.-made wind turbines is upwards of 65% and it has a local supply goal of 75%. Vestas has stated domestic content in one class of its wind turbines has grown to 80%, and it expects to increase the overall percentage to 90%, including components and suppliers. The 2011 Wind Technologies Market Report notes "a growing amount of the equipment used in wind power projects has been sourced domestically in recent years. Whether that trend continues in the future may depend on the size and stability of the U.S. wind power market as well as the manufacturing strategies of emerging wind turbine manufacturers from Asia and elsewhere." Future growth of the U.S. wind turbine industry also depends on foreign markets. In 2010, the Obama Administration announced a goal to demonstrably increase renewable energy and energy efficiency exports like wind turbines. Exports of wind-powered generating sets from the United States to the world remain relatively small, especially in comparison to imports, at only $255 million in 2011, up from $3.6 million in 2005 (see Figure 6 ). U.S. producers may turn to foreign markets to offset falling domestic demand because of increasing market uncertainty and overcapacity in U.S. wind turbine equipment manufacturing. The Western Hemisphere may be especially attractive to U.S.-based exporters of wind turbine equipment. For instance, the expansion of the Canadian and Mexican wind turbine markets could increase export opportunities for companies with manufacturing operations in the United States, including GE, Siemens, Gamesa, and Vestas. Brazil is the largest market in Latin America for wind power, which could provide U.S.-producers of nacelles and wind subcomponents with fresh export opportunities. A counter-trend is that wind turbine assemblers also are localizing production in the large Brazilian market, including manufacturers like GE and Gamesa. Although considerably smaller, there are other growing markets in Central and South America that could buy more U.S. wind products, including Honduras, Uruguay, and Chile. If U.S. manufacturers begin to export more wind turbine equipment, they will have to contend with import tariffs, non-tariff barriers, and domestic industry subsidies. Tariff rates in some major markets are disproportionately higher than U.S. tariffs. For instance, the U.S. duty rate for wind-powered generating sets is 2.5%, compared to 14% in Brazil, 8% in China, 7.5% in India, and 2.7% in the European Union. Subsidies and non-tariff barriers in major overseas markets like China are another potential constraint on U.S. exports. Several U.S. government programs are designed to encourage the export of renewable energy products, such as direct loans provided to wind manufacturers by the Export-Import Bank of the United States. Owing to the Ex-Im Banks's environmental export financing program, for example, Clipper Windpower exported 27 wind turbines to Mexico in 2010 based on a direct loan from the Ex-Im Bank of $80.7 million. In 2011 and 2012, Ex-Im also extended loans of $22 million for 55 Northern Power wind turbines to Italy, $159 million for 51 Gamesa wind turbines to Honduras, and $32 million for 55 LM Wind Power wind blades to Brazil. Worldwide the wind power industry is driven by various types of government support, which range from tax credits to incentive policies like feed-in tariffs. These incentives have been much larger in several foreign countries than in the United States, which has helped to spur the manufacturing of wind turbines in Europe and Asia. More recently, however, many countries—especially in Europe—have begun to reduce subsidies for renewables, including wind. In Europe, feed-in tariffs are among the policy tools that have been used to promote wind power, and have been credited by industry advocates like the European Wind Energy Association with driving renewable energy growth, particularly in Denmark, Spain, and Germany. However, faced with a difficult fiscal and economic situation, some European countries have reduced their wind power feed-in tariffs and are taking a more critical look at their renewable energy policies. For instance, in 2010, Spain announced it would reduce its wind subsidies by 35% from January 1, 2011, to January 1, 2013. Some of the leading global wind turbine manufacturers, including Vestas and Gamesa, have downsized their operations to remain competitive, while others may place even more emphasis on exporting. China's Renewable Energy Law, which took effect in 2006, is one measure that has driven growth in the domestic market. China introduced a feed-in tariff for wind power generation in 2009. The Chinese government also implemented various policies to encourage the development of local manufacturing and technology development. In the United States, various federal policies also have been instrumental in the development of a domestically based wind power sector, including the production tax credit (PTC)/Investment Tax Credit (ITC), which will expire at the end of 2013; an advanced energy manufacturing tax credit (MTC), which reached its funding cap in 2010 (no additional funds were allocated to continue with the MTC); the Section 1603 Treasury Cash Grant Program, which required that wind projects begin construction by December 31, 2011, and be placed in service by December 31, 2012; and the Section 1705 Loan Guarantee Program for commercial projects, which includes manufacturing facilities that employ "new or significantly improved" technologies. The wind industry asserts that a national renewable electricity standard is needed to create long-term stability and to attract investment in new turbine production facilities. Table 5 provides an overview of selected federal programs affecting the U.S. wind power industry. The PTC, the main federal policy tool in the deployment of U.S. wind power, was first adopted during the Administration of President George H. W. Bush as part of the Energy Policy Act of 1992 ( P.L. 102-486 ). It has been a significant driver of the recent growth of the U.S. wind industry, but it is not a permanent part of the tax code and has lapsed on a number of occasions. In each of the years during which the PTC completely lapsed (1999, 2001, and 2003), meaning that it expired prior to being renewed, the level of additional deployed wind capacity slowed or collapsed when compared to the previous year's total: 93% in 2000, 73% in 2002, and 77% in 2004. Yet, when the PTC incentive was extended in 2000, 2002, 2004, 2005, 2007, 2008, 2009, and 2013, the industry responded positively, increasing wind power capacity compared to the previous year. 2010 was an exception to this trend with a drop in wind capacity of nearly 50% from 2009, even with the PTC in place. In 2011, at 6,816 MW, annual installed wind capacity increased by 30% over the previous year. The annual cost of the PTC is estimated at about $1 billion a year. Most recently, Congress provided a one-year extension of the PTC for wind through December 31, 2013, as part of the American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240 ). The PTC provides a per kilowatt-hour (kWh) income tax benefit over the first 10 years of a wind project's operations, which is 2.2 cents per kWh, and is a critical factor in financing new wind farms. In order to qualify, a wind farm must start construction while the credit is in place, which would be by the end of 2013. Wind project developers may elect to receive a 30% investment tax credit (IRC §48) in place of the PTC if the projects begin construction prior to the end of 2013. AWEA continues to advocate for a phase out of the PTC over six years, which it argues would encourage continued investment in the industry and would allow for extended growth of domestic turbine manufacturing. The Governors' Wind Energy Coalition has called for a multi-year extension of the PTC of at least four years. The Advanced Energy Manufacturing Tax Credit, also referred to as Section 48C of the Internal Revenue Code, was authorized in Section 1302 of the American Recovery and Reinvestment Act. The MTC provided a 30% credit for companies for investments in new, expanded, or reequipped clean energy domestic manufacturing facilities built in the United States. Wind, solar panels, and electric vehicle batteries were among the 183 projects funded through the MTC before reaching its cap of $2.3 billion in 2010. The Obama Administration requested another $5 billion for the 48C tax program. An extension of the MTC has been proposed through the Security in Energy and Manufacturing Act of 2011 ( S. 591 ), or SEAM Act. It includes one significant change from the original MTC; higher priority would be given to facilities that manufacture—rather than assemble—goods and components in the United States. Fifty-two wind manufacturing projects were awarded $364 million in tax credits under the MTC program. Beneficiaries included many manufacturers that were already active, or that had announced that they intend to open new facilities, in the United States. Selected manufacturers of wind turbines, blades, towers, and gears that received tax credits under the 48C program are listed in Appendix C . Tax benefits for wind projects include accelerated tax depreciation and bonus depreciation; the latter allowed wind farm owners to write off more than 50% of the capital costs of building a wind farm in 2008, 2009, and 2010. The 2010 Tax Act increased the first-year bonus depreciation to 100% for new qualified property acquired and placed in service between September 8, 2010, and December 31, 2011, rather than 50% for the qualifying property. Bonus depreciation dropped to the lower 50% rate in 2012. The American Taxpayer Relief Act provided a one-year extension to the end of 2013. Another ARRA incentive is a grant system administered by the U.S. Treasury Department. In lieu of tax credits, wind projects can receive a cash payment of up to 30% of the qualified capital costs. The Section 1603 Treasury cash grant program allows developers to opt for a cash payment instead of a tax break. To qualify, construction had to begin by December 31, 2011. Wind projects under construction by year-end 2011 must be placed in service by December 31, 2012. Many in the wind industry credited the grants for keeping the sector healthy during the 2008 and 2009 recession. A detailed discussion of the Section 1603 program can be found in CRS Report R41635, ARRA Section 1603 Grants in Lieu of Tax Credits for Renewable Energy: Overview, Analysis, and Policy Options , by [author name scrubbed] and [author name scrubbed]. The Section 1705 loan program, a temporary ARRA program administered by the Department of Energy, authorized loan guarantees for certain renewable energy projects, including wind projects. The program, which funded 26 projects, including four wind generation projects, expired on September 30, 2011. The combined wind commitments totaled $1.7 billion, or 9% of the $18.8 billion in 1705 program funding. The Caithness Shepherds Flat wind generation project, said to be one of the largest onshore wind farms in the world, received a $1.3 billion loan. GE manufactured the wind turbines. Loan guarantees were also extended to three other wind generation projects: Kahuku Wind Power, Granite Reliable, and Record Hill Wind. No wind turbine manufacturers were funded under the 1705 program. State renewable portfolio standards have encouraged the growth of the U.S. wind energy industry by requiring companies that sell electricity to retail customers to obtain a specified share of their electricity from renewable generation. As of June 2012, mandatory RPS programs existed in 29 states and the District of Columbia. The U.S. wind industry has long called for a national standard to increase investor confidence in the sector's long-term prospects. No such measure has passed Congress, although bills to establish national renewable standards have been passed by the Senate on three occasions and by the House of Representatives once. The expansion of the U.S. wind power manufacturing base will depend, at least in part, on government policy decisions. The production costs of U.S. plants that make turbine components appear to be competitive with those in other countries, and the difficulty and expense of transporting very bulky products over long distances serves as an obstacle to import competition. Nonetheless, there are several obstacles that may impede the expansion of wind energy manufacturing in the United States. One is the history of policy-induced boom-and-bust cycles in wind energy investment, which may lead wind turbine manufacturers and component suppliers to conclude that future U.S. demand for their products is too uncertain. Another significant challenge affecting the sector's future is the availability of adequate transmission for power generated by wind farms. Most wind farms are located at a distance from the urban areas where most electricity is consumed, and a shortage of transmission capacity could hamper wind farm creation or expansion. Congress may wish to evaluate the seriousness of transmission issues in the context of other federal efforts to support wind generation. The structure of the wind manufacturing industry is also likely to undergo significant change. As is typical in budding industries, a large number of companies now compete in wind manufacturing. Mergers and failures are likely to lead to consolidation as the sector matures. As this report describes, competition in the wind turbine sector from new Asian entrants will likely become more significant in future years, but it is still unclear whether many of these companies have the technological abilities and financial resources to become significant players in the U.S. market. Appendix A. Global Wind Turbine Manufacturers Appendix B. Selected Examples of U.S. Wind Turbine Production Facilities Appendix C. 48C Manufacturing Tax Credit
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Increasing U.S. energy supply diversity has been the goal of many Presidents and Congresses. This commitment has been prompted by concerns about national security, the environment, and the U.S. balance of payments. Investments in new energy sources also have been seen as a way to expand domestic manufacturing. For all of these reasons, the federal government has a variety of policies to promote wind power. Expanding the use of wind energy requires installation of wind turbines. These are complex machines composed of some 8,000 components, created from basic industrial materials such as steel, aluminum, concrete, and fiberglass. Major components in a wind turbine include the rotor blades, a nacelle and controls (the heart and brain of a wind turbine), a tower, and other parts such as large bearings, transformers, gearboxes, and generators. Turbine manufacturing involves an extensive supply chain. Until recently, Europe has been the hub for turbine production, supported by national renewable energy deployment policies in countries such as Denmark, Germany, and Spain. However, support for renewable energy including wind power has begun to wane across Europe as governments there reduce or remove some subsidies. Competitive wind turbine manufacturing sectors are also located in India and Japan and are emerging in China and South Korea. U.S. and foreign manufacturers have expanded their capacity in the United States to assemble and produce wind turbines and components. About 470 U.S. manufacturing facilities produced wind turbines and components in 2011, up from as few as 30 in 2004. An estimated 30,000 U.S. workers were employed in the manufacturing of wind turbines in 2011. Because turbine blades, towers, and certain other components are large and difficult to transport, manufacturing clusters have developed in certain states, notably Colorado, Iowa, and Texas, which offer proximity to the best locations for wind energy production. The U.S. wind turbine manufacturing industry also depends on imports, with the majority coming from European countries, where the technical ability to produce large wind turbines was developed. Although turbine manufacturers' supply chains are global, recent investments are estimated to have raised the share of parts manufactured in the United States to 67% in 2011, up from 35% in 2005-2006. The outlook for wind turbine manufacturing in the United States is more uncertain now than in recent years. For the past two decades, a variety of federal laws and state policies have encouraged both wind energy production and the use of U.S.-made equipment to generate that energy. A continuing challenge for the industry is uncertainty about one main federal policy tool in the deployment of wind power, the production tax credit (PTC), which Congress has extended eight times and let lapse on four occasions. Most recently, the PTC expired at the end of 2012, but a few days later, Congress extended it through year-end 2013. At least a dozen wind turbine manufacturers announced layoffs or hiring freezes at U.S. facilities in 2012, citing concern about the PTC's future as one reason. Other factors affecting the health of the U.S. wind industry are intense price competition from natural gas, an oversupply in wind turbines, and softening demand for renewable electricity.
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Congress is currently questioning whether existing policies are leading to the expanded use of domestic advanced biofuels—including algae-based biofuels (ABB), among other options. In the Energy Independence and Security Act of 2007 (EISA, P.L. 110-140 ), Congress expanded the Renewable Fuel Standard (RFS2) by mandating that increasing volumes of renewable biofuels be used in the nation's transportation fuel supply. The RFS2 identified four specific biofuel categories and established time-specific mandates for quantities of fuels, the fastest-growing and largest of which is the cellulosic biofuels category. Algae is not identified as a cellulosic biofuel feedstock type to meet the RFS2. According to RFS compliance data monitored by the U.S. Environmental Protection Agency (EPA), a steady production of small amounts of cellulosic biofuel began in mid-2013. As a result of the small amounts produced, EPA was compelled to lower the cellulosic biofuel mandate for the fourth successive year and has proposed to do so for a fifth year in 2014. Moreover, the long-term certainty of the tax incentives for which ABB is eligible is debatable. There is considerable concern about how the U.S. cellulosic biofuels industry will develop to meet the mandates in the absence of federal support and which, if any, other types of biomass could be used as a primary feedstock to meet the mandate. Thus far, legislation pertaining to algae-based biofuels has not been introduced in the 113 th Congress. Congress held hearings and Members introduced legislation during the 112 th Congress that supported the use of multiple biomass feedstocks as energy sources to meet transportation needs. Of particular interest are feedstocks that are sustainable and domestic in origin, could spur job creation, and would have few adverse environmental impacts. Some argue that algae—generally defined as simple photosynthetic organisms that live in water—is one biomass feedstock that could meet these criteria. Algae can be used to produce a variety of biofuels, but most production to date has focused on biodiesel and jet fuel, and it is unclear whether production of other biofuels would be feasible given resource requirements and other concerns. If successfully commercialized, ABB would have potential advantages and disadvantages compared to other biofuels. Among its advantages, algae has higher biomass yields per acre of cultivation than other feedstocks, leading to larger oil yields. It also may use water that is undesirable for other uses (e.g., wastewater or saline sources). In addition, ABB production could potentially use carbon dioxide from the flue gas of stationary sources (e.g., power plants), if ABB facilities are co-located with such facilities. Some ABB drawbacks concern the cost of running a commercial-scale facility, the volume and availability of resource inputs (e.g., water, land, and nutrients), the immaturity of technology to convert algae into biofuels, and the sensitivity of algae to minor changes in its environment. Substantial ABB research and development (R&D) has taken place since the 1950s, but for various reasons ABB has yet to gain a foothold in the transportation fuel market. The main reason is that ABB is not currently economical to produce at commercial scale. Also, it is not a major component of energy and agricultural statutes; as a result there is likely more inherent investment risk. The relevance of ABB to the U.S. transportation sector could potentially rise if technological advances are achieved, if oil prices rise, if certain fuels (e.g., cellulosic biofuels) prove incapable of meeting annual RFS2 mandates, or as federal agencies and corporations announce ventures involving ABB for both vehicle and aircraft use. This report discusses the status of ABB research and development, federal funding, and legislative concerns. While this report focuses on the use of algae as a biomass feedstock for transportation fuel, there are other applications for algae (e.g., nutraceuticals, cosmetics). However, congressional and public interest are currently focused on algae use for transportation. Many ABB discussions involve its limited eligibility for the RFS2—a mandate requiring that the national fuel supply contain a minimum amount of fuel produced from renewable biomass—compared to other biomass feedstocks. Although ABB is eligible to participate in the RFS2, it does not qualify as an eligible feedstock under the cellulosic biofuel subcategory because it is not defined as cellulosic in the RFS2 regulations. The RFS2 is composed of two biofuel categories: unspecified biofuel and advanced biofuels (or non-corn starch ethanol; see Figure 1 ). The advanced biofuel portion includes three subcategories: cellulosic and agricultural waste-based biofuels, biomass-based diesel, and "other" (see Figure 2 ). Each advanced biofuel subcategory has a specific volume mandate for each year of the RFS2 (currently 2006-2022) and must meet lifecycle greenhouse gas (GHG) emissions reduction thresholds. The cellulosic biofuels subcategory is ultimately the largest component of the RFS2. Its carve-out is set at 0.5 billion gallons for 2012 (roughly 3% of the RFS2) and ramps up to 16 billion gallons in 2022 (roughly 44% of the RFS2). The biomass-based diesel carve-out of the advanced biofuel category (the portion that algae-based biofuels do qualify for) had a 2013 mandate of 1.28 billion gallons, and EPA proposes a 2014 and 2015 mandate for the same amount. The biomass-based diesel volume for 2016 to 2022 has not been set and will be determined by the Environmental Protection Agency (EPA) in future rulemaking, but is to be no less than 1 billion gallons. In February 2013, EPA clarified that the RFS biomass-based diesel subcategory includes jet fuel. Assuming algae is converted to a diesel/jet fuel substitute, ABB would qualify for the biomass-based diesel subcategory, but to date it cannot compete cost-effectively with soy biodiesel in this subcategory. One study reports that the production of algae biodiesel could cost from $9.84 to $20.53 per gallon, compared to $2.60 per gallon for petroleum diesel production. In 2011, the U.S. Navy and the U.S. Department of Agriculture (USDA) announced the $12 million purchase of 450,000 gallons of advanced drop-in biofuel, from a blend of non-food waste and algae, to be mixed with aviation fuel or marine diesel fuel. It is unclear what impact ABB may have on the RFS biomass-based diesel carveout if it proves to be cost-effective to produce ABB as a jet fuel. Even with an RFS2 mandate and tax credits, cellulosic biofuels have yet to meet the required mandate. EPA reports that very few facilities are consistently producing cellulosic biofuels for commercial sale. As a result, the EPA lowered the 2010, 2011, 2012, and 2013 cellulosic biofuel mandates and proposes to lower the 2014 mandate. Congress may consider whether other biomass feedstock types, including algae, should play a larger role in meeting the overall RFS2 mandate. Some suggest that broadening the RFS2 to include algae as a cellulosic biofuel feedstock would boost production opportunities. Others contend that ABB will never be cost-competitive. Others could argue that the potential for higher prices of crude oil would be an incentive to produce fuels that may eventually be lower in cost. Technology exists to convert algae (like any organic matter) into multiple forms of energy, including liquid fuels (e.g., diesel or jet fuel), electric power, and biogas. However, there is no current technology to convert this biomass feedstock into a transportation biofuel economically and at commercial scale. While no technology is currently available to make this conversion commercially viable, microalgae, macroalgae, and cyanobacteria are each being considered for ABB production. Microalgae are microscopic photosynthetic organisms. Macroalgae, commonly referred to as seaweed, are fast-growing marine and freshwater plants that can grow to be quite large. Cyanobacteria are not technically algae, but bacteria that live in water and collect energy via photosynthesis. All three require light, nutrients, water, land, and carbon dioxide (CO2) or sugar to be successfully cultivated. Three primary components of algae—lipids, carbohydrates, and proteins—can be used to make energy. Different algae strains produce these components in different proportions. Depending on the biofuel to be produced, all or only one of these components may be used. Algae undergoes four major processes in its conversion to biofuel: cultivation, harvest, processing, and biofuel/bioproduct conversion (see Figure 3 ). Algae cultivation may be photoautotrophic (algae requiring light to grow) or heterotrophic (algae grown without light and requiring a carbon source such as sugar to grow). Photoautotrophic cultivation can occur in an open pond or in a closed system (e.g., a photobioreactor; see Figure 4 ). Each has advantages and challenges. Open pond cultivation is generally less expensive and simpler to build, but is subject to weather conditions, contamination, and more water consumption. Cultivation conditions may be better controlled in a closed system, but there are scalability concerns, and closed systems historically have been more expensive than open ponds. Heterotrophic cultivation occurs in a fermentation tank and can use inexpensive lignocellulosic sugars for algae growth, which could lead to competition for feedstocks with other biofuel technologies. After cultivation, a variety of methods can be used to harvest the algae, including flocculation, filtration, and centrifugation. While algae harvest cycles vary based on the strain, in general algae can be harvested numerous times throughout the year, compared to once a year for many conventional crops. The next step is to process the algae, usually by dewatering or drying, which separates the algae into the various components necessary for biofuel conversion. Afterward, certain components of the algae, such as lipids and oils, are extracted for biofuel conversion. The algal biomass is converted into biofuel through a chemical, biochemical, or thermochemical conversion process, or through a combination of these processes (see Figure 5 ). The primary challenge for ABB is that it has not yet been demonstrated to be economical at commercial scale. If economic production can be achieved, the potential impact on the national transportation fuel network would need to be assessed. Also, as mentioned above, algae cultivation requires significant amounts of CO 2 , and there are questions about where this CO 2 would come from. While the CO 2 could come from existing stationary sources, it may be incorrect to assume that all algae processing facilities would be located near existing sources of CO 2 or that enough CO 2 from existing sources would be available to meet demand for commercial levels of ABB production. It is likely that siting and permitting of these facilities would require involvement of local, state, and federal government agencies. It is unclear how use of CO 2 from a power plant for the production of algae would be treated under the Clean Air Act. There may be supply and demand concerns for ABB. The use of some feedstocks for biofuels has been controversial, as some report that rising demand for biofuels shifts biomass feedstocks and arable land away from use for other purposes (e.g., food). Some assert that significant quantities of resources (e.g., land, water, and CO 2 ) exist to support algae-based biodiesel production; however, it is not clear if existing resources can support biodiesel and bio-jet fuel, bioethanol, and more from algal feedstock. The National Research Council (NRC) reports that the quantity of water necessary for algae cultivation is a concern of high importance, among others, that has to be addressed for sustainable development of ABB. In general, biofuels derived from open-pond algae production consume more water for feedstock production and fuel processing than petroleum-derived fuels, although the water quality may not be comparable, since some algae is able to use waste- or brackish water. One reported possible technique to drastically curb water use is to site ABB facilities at optimized locations—locations where land with the lowest water use per liter of biofuel produced is available—but algae would still use significantly more water than petroleum. Another technique is to use water unsuitable for other purposes. Algae requires both water and nutrients (e.g., phosphorus) to grow, which may inadvertently put it in competition with other areas of agriculture, depending on water sources and land types selected for algae cultivation should ABB be produced at a large scale. Also, large-scale ABB production may involve the use of genetically modified algae, which some may oppose because of concerns that genetically modified algae may escape into the environment and become invasive, as algae that are non-native to that location. ABB could have some potential benefits relative to other biomass feedstocks used for biofuel production, primarily its ability to produce large oil yields using considerably less land than other biomass feedstocks (see Table 1 ). The DOE identified nearly 4 million acres of suitable land—mostly in the Southwest and Gulf Coast—for algae cultivation that minimizes water use and could support approximately 5 billion gallons per year of algal oil production. A further advantage is that algae cultivation does not have to compete for land or water traditionally used for food, feed, and fiber production, because algae may be cultivated using non-freshwater (e.g., saline, wastewater) and can be cultivated on non-productive, non-arable land. Certain ABB types also have the potential to be a "drop-in" fuel that could be used without having to modify existing vehicles or build new transportation and distribution networks. Algae cultivation requires CO 2 , a greenhouse gas that has been targeted for emission reductions. As a result, algae could potentially reuse CO 2 emitted as a waste product from stationary sources. Last, ABB companies could control their own feedstock, meaning they could grow the algae needed for conversion to biofuel and would not be dependent on external forces that could potentially affect feedstock supply and price, such as drought or an economic incentive to grow a traditional row crop as opposed to switchgrass for cellulosic ethanol. Since at least the late 1970s, Congress has appropriated funds for ABB, some of which were targeted for general agency programs and some for specific projects. Federal research and development funding for ABB has fluctuated over time. The Department of Energy (DOE) and the Department of Defense (DOD) are the two agencies that have spent the most money on ABB. ABB has been a minor component of the DOE biofuels program relative to other biofuels. DOE has funded algae through its Office of Biomass Program (OBP), the Advanced Research Projects Agency (ARPA-E), Office of Science, the Fossil Energy Program, the Bioenergy Technologies Office, and the Small Business Innovation Research Program (SBIR). DOE reports it spent approximately $43.0 million on ABB in 2012, and $52.8 million on ABB in 2013. As of December 2010, DOE cumulatively had invested about $236 million in algae R&D. The DOE OBP spent roughly $183 million on algae R&D from FY2009 to FY2011, of which roughly $146 million was from the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 ) and roughly $37 million was program funding. The ARRA funding was spent on three algae-related integrated biorefinery (IBR) projects cost-shared with industry, two of which are at pilot scale (Algenol, with DOE's cost-share of $25 million and nearly $34 million in non-federal funding to construct an integrated pilot-scale biorefinery with the capacity to produce more than 100,000 gallons of fuel ethanol per year; and Solazyme, with $22 million in DOE cost-share and close to $4 million in non-federal funding to build, operate, and optimize a pilot-scale integrated biorefinery with the capacity to produce 300,000 gallons of purified algal oil per year) and one at demo scale (Sapphire, with $50 million in DOE cost-share and roughly $85 million in non-federal funding to construct an integrated algal biorefinery with the capacity to produce 1,000,000 gallons of jet fuel and diesel per year). Additionally, $49 million from ARRA was spent on the National Alliance for Advanced Biofuels and Bio-products (NAABB) algae biofuels R&D consortium project, a cost-shared effort with industry, university, and national lab partners. OBP program funds were spent to support three other cost-shared algae R&D consortium projects and a number of additional algae-related projects with industry, universities, national labs, and the National Academy of Sciences. DOE also supported algae R&D through a nearly 20-year Aquatic Species Program (ASP) at a total cost of roughly $25 million from 1978 to 1996. The major focus of the ASP was to produce biodiesel from high lipid-content algae grown in ponds, using waste CO 2 from coal-fired power plants. Both the DOD Defense Advanced Research Projects Agency (DARPA) and the Defense Logistics Agency (DLA) have funded algae-related efforts. DLA is interested in algae oil-derived fuel for Navy ship engine testing. DARPA is interested in cost-effective, large-scale production of algae oil to be processed into a JP-8 jet fuel surrogate. In 2009, DARPA stated that algae research was in its early stages. DARPA provided funding for two algal fuel projects, run by Science Applications International Corporation (SAIC) and General Atomics. Reports indicate that in 2009 DARPA awarded SAIC $25 million to develop jet fuel from agricultural and aquacultural feedstock materials. General Atomics received a $43 million contract from DARPA in 2009 to develop a scalable process for cost-effective, large-scale production of algae oil and an algae-derived JP-8 jet fuel surrogate. DOD reports that the $12 million purchase of 450,000 gallons of cooking oil and algal fuel was the only algae-based biofuel expenditure for FY2012. With regard to specific congressionally directed projects, roughly $11 million was appropriated between FY2008 to FY2010, with the vast majority in 2010, for at least 13 projects. A CRS analysis of conference reports for appropriations bills suggests that one project was funded in FY2008 at a total cost of $0.98 million, three projects in FY2009 at $2.4 million, and nine projects in FY2010 at $7.7 million. In 2010, DOE issued an algal biofuels technology roadmap that detailed the challenges and opportunities associated with ABB production. The roadmap acknowledged that "many years of both basic and applied science and engineering will likely be needed to achieve affordable, scalable, and sustainable algal-based fuels." Furthermore, DOE noted that "[c]ost-effective methods of harvesting and dewatering algal biomass and lipid extraction, purification, and conversion to fuel are critical to successful commercialization of the technology." On the other hand, in 2011, industry sources indicated that the following two years could perhaps tell whether ABB production could be commercially viable, as various pilot projects were expected to come online. The Algal Biomass Organization reported that in 2011 algae projects were underway in research labs and pilot plants in 44 U.S. states. Some research and development challenges must be addressed before large-scale ABB production can take place. The largest challenge appears to be that there is no long-term history of comprehensive published algae research. For example, it has not yet been determined which algae species will be most cost-effective and produce the highest biomass yields. Furthermore, multiple processing techniques exist, using various components of the algae. It may be that no one algal species or processing method is identified as optimal. In addition, scaling up the algae cultivation process from small-scale research to commercial size has proven challenging, both technically and economically, and the current research has not yielded new solutions. Comprehensive studies of ABB's energy balance, life-cycle emissions, environmental impact, and water demand would also be needed for policymakers to understand the implications of policies that promote ABB commercialization. Certain ABB production steps, such as mixing the water during algae cultivation and dewatering algae to prepare it for biofuel processing, are energy-intensive and therefore costly. Research into processes that reduce the amount of energy needed and lower the cost could make ABB production more economical. Additionally, standards would need to be developed for ABB production to ensure uniformity and assist with potential regulatory compliance measures. If ABB is to be used nationwide, in addition to solving production problems, additional research would need to be conducted on major points of distribution and utilization, and availability of inputs including water sources and CO 2 sources (see Table 2 ). More analysis would be needed on the best locations to site ABB facilities. Some might consider locating ABB facilities in the Southwest, where there is plenty of sunlight and less agriculture than in other parts of the country, but this region faces water supply concerns. Some might consider locating ABB facilities in the Rice Belt (e.g., Louisiana, Mississippi), where there might be fewer water supply concerns. Consideration of stationary CO 2 sources will also likely have to be taken into account when siting an ABB facility. It is difficult to predict what ABB type might be most promising, and when it might be commercial. Federally funded research efforts are at a significantly lower level for algae than for other biofuels. While private companies periodically report their financial investment in ABB, for proprietary reasons they rarely report scientific or technological breakthroughs. This limits the ability of policymakers and analysts to assess and predict future ABB developments. Congress has debated whether algae-based biofuel could help diversify the U.S. transportation fuel portfolio. While Congress has created a policy that mandates the use of alternative fuels for transportation (e.g., RFS2) and set up tax credits that support alternative fuel production, much of the legislation and tax provisions for alternative transportation fuel is constrained to a set of feedstock types (e.g., cellulosic) and fuel types as defined in the statute (e.g., ethanol, biodiesel). Going forward, Congress may choose to reevaluate how it supports alternative fuels by possibly expanding the feedstock and fuel types that qualify for transportation and energy mandates. For example, in the past the American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240 ) amended both the cellulosic biofuel production tax credit and the cellulosic biofuel depreciation allowance to include algae-based biofuels. Both tax incentives expired at the end of 2013 and it is not known if the incentives will be extended. Additionally, algae is eligible for one part of the Biomass Crop Assistance Program (BCAP). Some in Congress have expressed interest in ABB because it could have significantly lower greenhouse gas emissions on a life-cycle basis than conventional fuels. If ABB is to become an alternative to help reduce U.S. dependence on petroleum and reduce greenhouse gas emissions, some stakeholders contend that consistent, comprehensive, long-term (for the duration of multiple congressional sessions) policy support, as well as further research and development, would be required. Options that have been proposed for policies to encourage ABB include modifying the RFS2, creating a federal low-carbon fuel standard, or placing a tax on carbon. ABB advocates also assert that Congress could encourage the growth of the U.S. algae industry by providing tax parity with other biofuels, appropriating additional federal funds for algae-related programs, and modifying the RFS2 to be feedstock-neutral so that algae-based biofuels can be more broadly included. Tax incentives may accelerate ABB research, development, and demonstration testing, thus possibly shortening the timeline for commercial ABB production. However, some might argue that it is premature to issue tax breaks to an industry that has very few commercial production facilities. Furthermore, it may be that tax breaks for renewable energy in general will phase out under the emerging policy environment of fiscal discipline and budget restraint. Opponents of such support argue that Congress should not be involved in selecting biomass feedstock types for biofuels before commercial success has been proven, or more broadly, that Congress should not be selecting the technology at any point. Congress did select certain feedstock types for biofuel production under the RFS2. At the time, industry assertions and government data supported the argument that certain levels of cellulosic biofuel production capacity would be achievable within the given time frame, although these have not come to pass. Given the federal budget situation, Congress could decide to expand the cellulosic biofuel definition for the RFS to include algae and let industry take the research funding lead. This could give the ABB industry a long-term goal and guaranteed market as part of the RFS2 (for roughly 10 years). At a later time, perhaps after the ABB pilot projects that have come online yield data on the feasibility of ABB production, Congress could have a legislative discussion about what federal funding or other types of support, if any, would be appropriate. Legislation introduced in the 112 th Congress would have incorporated some of these ideas. In general, proposed legislation either would have expanded the cellulosic biofuels definition for the RFS2 to include algae by amending the Clean Air Act (codified as 42 U.S.C. 7401 et seq . ), and/or would have expanded the definition in the tax code for select tax incentives to incorporate algae—which Congress did with ATRA. H.R. 1149 (112 th Congress) also would have amended the Clean Air Act to include algae-based biofuel in the renewable fuel standard program. Algae-based biofuel is a potential domestic transportation fuel option that could help to smooth fluctuations in petroleum supply, and it could potentially diversify the biomass feedstock supply needed to meet renewable liquid transportation fuel mandates. The potential benefits of ABB include per-acre yields reported to be significantly larger than those for other biofuel feedstocks (e.g., soybean, jatropha), and the potential for algae to grow in water not traditionally used for other purposes. The potential concerns of ABB include limited information about the costs of large-scale ABB production, the amount of energy required, and life-cycle emissions analysis. The need for large amounts of the greenhouse gas CO 2 to grow algae may be a benefit or a concern: algae cultivation could potentially contribute to emissions neutrality by reusing CO 2 from stationary sources, but there are concerns about whether enough CO 2 from existing sources is available to support commercial levels of ABB production. The use of genetically engineered algae could also be a benefit or concern: genetically engineered algae could lead to higher yields, but also could have unintended consequences such as threatening aquatic ecosystems. While the DOE has studied algae for at least 35 years, much of that research has focused on using algae to produce biodiesel. Current research efforts examine the use of algae for jet fuel, power, bioproducts, and more. Federal support for ABB has occurred through general agency programs and specific projects. Currently, there are no commercial-scale ABB plants, although a commercial demonstration facility was completed in 2012 and ABB was offered for sale at retail pumps in late 2012 in California for a limited time. ABB pilot facilities that came online over the last year may give a better indication of ABB's productivity potential and cost effectiveness. Even if ABB is demonstrated to work at a commercial level at one or two facilities, it may not produce a significant portion of the U.S. transportation fuel supply in the near term. Multiple commercial-scale facilities that could possibly produce ABB in significant quantities will require financing, a labor force, and distribution and supply infrastructure that may take some time to devise. Because no ABB facilities are operating at commercial scale, it is not yet known what regulatory issues might arise. As with many new technologies, regulatory issues and perception by the general public are likely to be a concern. ABB currently faces many of the same questions as were posed about biofuel industries that preceded it (e.g., corn-starch ethanol). ABB is less developed than established biofuels industries such as corn-starch ethanol. However, its development and deployment at commercial scale may be informed by lessons learned from these industries. For instance, mastering the technology to convert a certain feedstock to a biofuel may not happen in the timeframe predicted, regardless of the amount of financial and technical assistance granted. Additionally, the development of corn-based ethanol showed that long-term contracts for feedstock supply and associated resource requirements are vital to gauging the economic standing of biofuel production. Last, uncertainties about policy support (e.g., inclusion in the RFS2, lowering RFS2 mandates, and expiring tax provisions) and unforeseen competition from other fuels internal and external to the biofuel industry could all have an impact on the bottom line and the aggressiveness put toward ABB production.
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Congress continues to debate the federal role in biofuel research, biofuel tax incentives, and renewable fuel mandates. The debate touches on topics such as fuel imports and security, job creation, and environmental benefits, and is particularly significant for advanced biofuels, such as those produced by algae. Congress established the Renewable Fuel Standard (RFS2), a mandate requiring that the national fuel supply contain a minimum amount of fuel produced from renewable biomass. The RFS2 is essentially composed of two biofuel mandates—one for unspecified biofuel, which is being met largely with corn-starch ethanol, and one for advanced biofuels (or non-corn starch ethanol), which may not be met in coming years due to a lack of production. Within the advanced biofuels category, the RFS2 requirements for the cellulosic biofuels subcategory (e.g., ethanol from switchgrass) have not been met for the last few years, which could cause alarm among those required to purchase fuel or credits to satisfy the mandate, as this subcategory is slated to ramp up from roughly 3% of the requirement in the standard in 2012 to roughly 44% of the standard in 2022. Limited cellulosic biofuel production has occurred to date. As a result, as allowed under the RFS2, the Environmental Protection Agency (EPA) has lowered the required cellulosic biofuels volume for 2010, 2011, 2012, and 2013 and has proposed to do the same for 2014. Currently, algae-based biofuel qualifies as an advanced biofuel under the RFS2, but not as a cellulosic biofuel. If algae were added as an eligible feedstock type under the RFS2 cellulosic biofuels mandate, and if an increase in production resulted, then a larger portion of the requirement might be achieved, although current production is minimal. Algae does qualify as a feedstock for the biomass-based diesel subcategory of the RFS2 advanced biofuel mandate. The RFS2 does not mandate rapid growth of biomass-based diesel, as it does for cellulosic biofuels. Algae can be converted into various types of energy for transportation, including biodiesel, jet fuel, electric power, and ethanol. The potential advantages of algae-based biofuel over other biofuel pathways include higher biomass yields per acre of cultivation, little to no competition for arable land, use of a wide variety of water sources, the opportunity to use carbon dioxide from stationary sources, and the potential to produce "drop-in" ready-to-use fuels. Potential drawbacks include the anticipated cost of production, the amount of resources (e.g., water and land) required to produce the biofuel, and the lack of commercial-scale production facilities. Algae-based biofuel research and development are in their infancy, although work has been conducted in this area for decades. At present, published research efforts offer policymakers little guidance on what algae types or conversion methods could be the front-runner for commercial production, or on when and for which biofuel. Congressional support for algae-based biofuel has consisted of congressionally directed projects and funding of programs and studies by the Departments of Energy (DOE) and Defense (DOD). Some algae industry advocates contend that Congress should encourage advances in algae-based biofuel production by extending the expiration date for eligible tax credits, appropriating additional federal funds for algae-related programs, and modifying the RFS2 to include algae in the cellulosic biofuels mandate, as was done recently for the cellulosic biofuels production tax credit. In contrast, some argue that Congress should reconsider its investment in biofuels because of the current federal budget crisis and the lack of any measurable progress in cellulosic biofuels production. Thus far in the 113th Congress, legislation pertaining to algae-based biofuels has not been introduced. Proposed legislation in the 112th Congress would have either expanded the cellulosic biofuels definition for the RFS2 to include algae by amending the Clean Air Act, and/or expanded the definition in the tax code for select tax credits to incorporate algae (e.g., H.R. 1149, S. 1185). The American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240) amended both the cellulosic biofuel production tax credit and the cellulosic biofuel depreciation allowance to include algae-based biofuels. Both tax incentives expired at the end of 2013, and it is not known if they will be extended.
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Since 1971, the U.S. Postal Service (USPS) has been a self-supporting, wholly governmental entity. Prior to that time, the federal government provided postal services via the U.S. Post Office Department (USPOD), a government agency that received annual appropriations from Congress. Members of Congress were involved in many aspects of the USPOD's operations, including the selection of managers (e.g., postmasters) and the pricing of postal services. In 1971, Congress enacted the Postal Reorganization Act (PRA; P.L. 91-375; 84 Stat. 725), which replaced USPOD with the USPS, an "independent establishment of the executive branch" (39 U.S.C. 201). The USPS is a marketized government agency that was designed to cover its operating costs with revenues generated through the sales of postage and related products and services. Although the USPS does receive an annual appropriation, the agency does not rely on appropriations. Its appropriation is about $100 million per year, about 0.1% of the USPS's $75 billion operating budget. Congress provides this appropriation to compensate the USPS for the revenue it forgoes in providing, at congressional direction, free mailing privileges to blind persons and overseas voters. The Postal Service Fund, which the USPS uses for most of its financial transactions, is off-budget, and therefore not subject to the congressional controls of the Congressional Budget and Impoundment Control Act of 1974 ( P.L. 93-344 ; 88 Stat. 297; 2 U.S.C. 621). However, the Postal Service Retiree Health Benefits Fund (RHBF), which was established by the Postal Accountability and Enhancement Act of 2006 (PAEA; P.L. 109-435 , §803; 120 Stat. 3251), is on-budget. (The RHBF is addressed further below.) The USPS can and does borrow money from the U.S. Treasury via the Federal Financing Bank. Federal statute limits the USPS's annual debt increases to $3 billion, and the USPS's total debt to $15 billion (39 U.S.C. 2005(a)). After running modest profits from FY2004 through FY2006, the USPS lost $25.4 billion between FY2007 and FY2011. Were it not for congressional action to reduce a statutorily required payment to the RHBF, the USPS would have lost an additional $9.5 billion. (On congressional actions to reduce and delay RHBF payments, see below.) As the USPS's finances have deteriorated, its ability to absorb operating losses has been diminished. Between FY2005 and FY2011, the USPS's debt rose from $0 to $13 billion. (The agency's statutory debt limit is $15 billion (39 U.S.C. 2005(a)(2)(C)).) In July 2009, the GAO added the USPS's financial condition "to the list of high-risk areas needing attention by the Congress and the executive branch." Many media headlines have characterized the USPS's recent deficits as the result of a drop in mail volume and attendant postage purchase revenue. This is not entirely accurate. Mail volumes slid from a peak of 213.1 billion mail pieces in FY2006 to 212.2 billion in FY2007, and dropped to 202.7 billion in FY2008. Despite the drop in mail pieces, the USPS's revenues actually held steady during those years—$72.7 billion, $74.8 billion, and $74.9 billion—largely due to postage increases. However, between FY2009 and FY2011 mail volume declined further. Since FY2008, mail volume has fallen 17.7%, from 202.7 billion to 167.9 billion mail pieces ( Figure 1 ), and operating revenues have declined 12.3%, from $74.9 billion to $65.7 billion ( Figure 2 ). During this same period, the USPS has significantly increased operating expenses. A great deal of the rise in costs is attributable in part to the Postal Accountability and Enhancement Act (PAEA). The PAEA established the RHBF and requires the USPS to prefund its future retirees' health benefits at a cost of approximately $5.6 billion per year ( Table 1 ) for 10 years. (Any remaining obligation is to be amortized over the subsequent 40-year period.) In doing this, the PAEA moved the USPS from funding its retirees' health care costs out-of-pocket annually to prefunding these obligations. Using the Office of Personnel Management's (OPM's) valuation methodology, the USPS reported that the unfunded obligation was $46.2 billion as of the end of FY2011. (As noted later in this report, there has been disagreement as to the size of the USPS's unfunded obligation.) As Figure 3 shows, the USPS's operating expenses spiked after the USPS began paying into the RHBF in FY2007. Initially, the effects of the PAEA's mandatory payments to the Postal Service Health Benefits Fund on the USPS's profitability were considerable. This may be illustrated with a hypothetical—if the USPS did not have to pay into this fund each year, it would have experienced no operating losses until FY2009. Figure 4 reproduces Figure 3 with the annual PAEA payments subtracted from the annual operating expenses. However, despite Congress's reduction of the RHBF payment owed in FY2009 and its delay of the RHBF payment owed in FY2011, the USPS's expenses exceeded its revenues these years. At the conclusion of FY2011, the USPS had $1.5 billion in cash, which is a low level for an agency with an average weekly operating expense of nearly $1.4 billion. To conserve cash, the USPS suspended its biweekly $114 million contribution to the Federal Employee Retirement System (FERS) on June 24, 2011. After seeking an opinion from the Department of Justice on the legality of this action, the USPS reported on November 15, 2011, that it "expected" to resume paying the bi-weekly FERS payment, and that it owed $911 million as of September 30, 2011. One positive development was that the USPS was able to make its $1.3 billion payment to the Department of Labor for worker's compensation in October 2011. In its FY2011, third quarter financial statement, the USPS had expressed concern that it might not be able to do so, a default that would have had significant negative impact on the worker's compensation fund. In the first three quarters of FY2012, the USPS had an operating loss of $11.5 billion, which included an $11.1 billion charge for payments due to the RHBF in FY2012. The agency had $12.6 billion in debt, and a relatively weak cash position of $893 million. By law, the USPS's total debt may not exceed $15 billion—so, the USPS may borrow only $2.0 billion more from the Federal Financing Bank (FFB). The USPS did not have sufficient cash to make a $5.5 billion payment to its Retiree Health Benefits Fund (RHBF) that was due on August 1, 2012. The USPS is unlikely to have sufficient liquidity to make a $5.6 billion RHBF payment due on September 30, 2012. The USPS reports that current projections indicate that the Postal Service will have a low level of cash and liquidity at September 30, 2012. This position will worsen in October of 2012, when the Postal Service is required to make its annual reimbursement payment of approximately $1.4 billion to the Department of Labor ... for worker's compensation, in addition to paying its normal operating expenses. The USPS may suffer a liquidity shortfall in October, meaning it temporarily would not have sufficient cash in hand to cover its operating costs. However, the USPS has not suggested that a short-term, zero-cash scenario would produce a suspension of operations this autumn. Postmaster General Patrick Donahoe stated in an interview that the USPS could preserve sufficient cash to maintain operations until "late next year," although he did not clarify whether he was referring to calendar or fiscal year 2013. The USPS will report its FY2012 year-end financial results in early November 2012. On September 30, 2009, the last day of FY2009, Congress alleviated the USPS's cash shortage when it enacted H.R. 2918 , the Legislative Branch Appropriations Act [of] 2010. President Barack Obama signed the bill into law the next day ( P.L. 111-68 ). Section 164 of the law provided the USPS with an immediate reduction of $4 billion in operating expenses by reducing the USPS's FY2009 payment to the Postal Retiree Health Benefits Fund from $5.4 billion to $1.4 billion. The legislation did not relieve the USPS of this $4 billion obligation; rather, it deferred the USPS's payment. Come FY2017, the $4 billion will be added to whatever remaining outstanding health care obligation may exist, and amortized over a 40-year period. In autumn 2011, Congress again aided the USPS. Congress delayed the due date of the FY2011 payment ($5.5 billion) to October 4, 2011 ( P.L. 112-33 , §124), November 18, 2011 ( P.L. 112-36 , §124), to December 16, 2011 ( P.L. 112-55 , §101), and then August 1, 2012 ( H.Rept. 112-331 ). The USPS's financial challenges raise difficult questions: Did the USPS simply suffer from a "perfect storm" of high retiree health benefits payments and declining revenue? Or is the USPS, as currently constituted, incapable of responding to a shifting, and possibly declining, market for its products and services? Answering these questions goes beyond the scope of this report. Nevertheless, a number of ideas for incremental reforms have been put forth that would improve the USPS's financial condition so that it might continue as a self-funding, government agency. In its annual study of the USPS's compliance with federal laws, the Postal Regulatory Commission (PRC) reported that USPS carries 10 types of mail at postage rates that are below their costs. For example, the USPS's costs for processing and delivering periodicals exceeded the postage it received by $609 million in FY2011. Currently, federal law forbids the USPS from increasing postage rates annually higher than the Consumer Price Index (39 U.S.C. 3622(d)(1)(A)) absent "exceptional or extraordinary circumstances." Congress may wish to further examine these disparities and provide the USPS with additional pricing flexibilities that would enable it to recover more revenue. In a July 6, 2010, filing with the PRC, the USPS stated that a recent sharp decline in mail volume constituted an exceptional or extraordinary circumstance. It asked the PRC to permit it to increase postage rates 5.6%, an amount much higher than the CPI. The PRC denied the USPS's request on September 30, 2010, essentially arguing that the USPS failed to demonstrate that its professed need to raise rates was produced by "an exceptional or extraordinary circumstance." Instead, the PRC stated "Postal Service's cash flow problem is not a result of the recession and would have occurred whether or not the recession took place. It is the result of other, unrelated structural problems and the proposed exigent rate adjustments would neither solve nor delay those problems." After the USPS filed suit, a federal court of appeals remanded the matter to the PRC in July 2011, asking the PRC to clarify a technical matter related to the size of permissible exigent rate increases. The USPS has said it will again pursue an exigent rate increase, and it raised its prices an amount within the rate cap on January 22, 2012. Federal postal law limits the USPS to selling postage stamps, stamped paper, cards, envelopes, philatelic services, and ancillary items (39 U.S.C. 102(5); 39 U.S.C. 404(a)(4-5)). The USPS has said that it would like to increase its revenues by offering a broader range of nonpostal products and services, although it has not specified which ones. Congress may wish to consider whether the USPS ought to enter into nonpostal business lines, and whether it could be expected to reap immediate financial gains from doing so. At the end of FY2011, the USPS's Retiree Health Benefits Fund had a balance of $44.1 billion, and an unfunded obligation of $46.2 billion. The USPS has to make six more PAEA-mandated future retiree health benefits payments for the years of FY2011 through FY2016. These remaining payments average more than $5.6 billion per year and amount to $33.9 billion. These payments will make up a significant portion (more than 7%) of the USPS's approximately $75 billion annual operating expenses. The U.S. Postal Service Office Inspector General (USPSOIG) and the PRC have disagreed on the size of the USPS's future retiree health benefits obligation. The USPSOIG argued that the current PAEA-mandated payment schedule was too aggressive, and that the USPS should pay $1.6 billion per year through 2016 to fund its obligations. The OPM questioned the assumptions used by the USPSOIG. The PRC reviewed both the USPSOIG's and the OPM's assessments, and found merit in both approaches. The PRC suggested that the USPSOIG understated the USPS's liability because it underestimated the inflation rate for health care. The PRC argued that the OPM significantly overstated the USPS's liability because it overestimated both the inflation rate for health care and the future USPS workforce size. The PRC said that the USPS could pay $3.4 billion per year and fully fund the RHBF by FY2016. To a degree, these disputes over the amount the USPS should pay each year into the RHBF have been eclipsed by the question of what the USPS can pay. As noted above, the Postal Service is due to pay $11.1 billion in RHBF payments by September 30, 2012, and the agency does not have sufficient funds to do so. Congress may wish to reassess the PAEA's payment schedule and the differing calculations of the USPS's obligation. It also may wish to consider reducing the USPS's annual payment to levels that the agency may reasonably be expected to be capable of paying. Like other federal employees, most current USPS employees participate in the Federal Employee Retirement System. The OPM Inspector General (OPMIG) explains: [The] FERS is designed to be fully funded by employee and agency contributions. Each year, as required by law, the OPM calculates the Federal Government's and the USPS's liabilities under [the] FERS to see if there is a surplus or a supplemental liability. If there is a supplemental liability, the OPM establishes an amortization schedule so that the liability is paid off completely in 30 years. The statute does not contemplate what would happen should a surplus exist. The USPS has contended that it has paid at least $10.9 billion more into its FERS pensions than is required. It has asked for the funds to be returned to it. The USPS also justified its temporary decision to suspend FERS contributions in 2010 on the basis that it had overpaid and needed to conserve cash. The OPMIG has found merit in the USPS's contention but noted that a statute would need to be enacted to authorize the OPM the refund the money. Congress could either temporarily reduce the USPS's current payment schedule, or it could direct the OPM to refund any overpayment. On January 20, 2010, the U.S. Postal Service Office of Inspector General published a report on the USPS's funding of pension costs for postal workers who were employed by both the U.S. Post Office Department (prior to 1971) and its successor, the U.S. Postal Service. The report criticized the allocation of the pension costs between the USPS and the federal government for employees who had service both as employees of the Post Office Department and later as employees of the Postal Service. The USPSOIG report noted that the Postal Service is currently responsible for meeting all pension costs under the Civil Service Retirement System (CSRS) for employees hired after 1971. For employees with service both before and after 1971, the federal government and the Postal Service share responsibility for CSRS pensions. The federal government pays for service through 1971, and the USPS pays for service after 1971. The USPSOIG report contended that the allocation of CSRS costs between the USPS and the federal government is unfair because the Postal Service is fully responsible for increases in pension costs that result from pay raises granted after 1971. Because CSRS pensions are based on both an employee's years of service and the average of an employee's highest three consecutive years of pay, pension costs rise as employee pay rises. As a consequence, the percentage of CSRS pension costs allocated to the USPS for an employee who worked for both the Post Office Department and the USPS is greater than the proportion of the worker's career that he or she spent as an employee of the USPS. The USPSOIG report notes, for example, that for a person who worked for the Post Office Department for 20 years prior to 1971 and for the USPS for 10 years thereafter, the USPS is obliged to fund about half of this person's pension costs. (The other half is paid for by the U.S. government.) The USPSOIG report suggested that the USPS's share of CSRS pension costs should be proportional to employees' length of service as USPS employees relative to their total length of service with the Post Office Department and the USPS. If an employee had spent 15 years as an employee of the Post Office Department and 15 years as an employee of the USPS, for example, the federal government and the USPS each would be responsible for half of the cost of that individual's CSRS pension. The USPSOIG's report estimated that under the current method of allocating the costs of CSRS pensions, the Postal Service has paid $75 billion more into the Civil Service Retirement and Disability Trust Fund than it would have paid if costs were allocated between the federal government and the USPS strictly in proportion to length of service. In 2004, the Postal Service requested that the OPM, which administers the Civil Service Retirement System, reconsider the method by which it allocates CSRS pension expenses between the Postal Service and the U.S. Treasury. The OPM denied the request on the ground that the allocation method it had developed was consistent with federal law. The OPM cited P.L. 93-349 (July 12, 1974), which required the USPS to finance all increases in retirement liabilities that are attributable to salary increases granted by the USPS. The House committee report accompanying the bill that was enacted as P.L. 93-349 ( H.R. 29 , 93 rd Congress) states that the "purpose of this legislation is to clearly establish the responsibility of the U.S. Postal Service to finance increases in the liability of the Civil Service Retirement and Disability Fund, caused by administrative action of the Postal Service, as apart from increases in unfunded liabilities which are incurred by act of Congress." The committee report further states that with respect to any increase in CSRS pension expense that results from future pay raises received by USPS employees, "the cost of this liability should properly and equitably be borne by the Postal Service." A reduction in the proportion of CSRS pension expenses allocated to the Postal Service would increase the unfunded liability of the Civil Service Retirement and Disability Fund. Absent a reduction in the cost of financing CSRS pensions, changing the allocation of CSRS pension expenses between the Postal Service and general fund of the U.S. Treasury is a zero-sum game. A reduction in the amount of CSRS pension expenses allocated to the USPS would result in an equal increase in CSRS pension expenses borne by the U.S. Treasury. In March 2010, the PRC said that it would examine the USPS's pension liability in response to the USPS's request. The agency hired a private auditor, the Segal Group Inc., to produce a report, which the PRC released publicly on June 30, 2010. The report largely agreed with the conclusion of USPSOIG's January 2010 report; and the PRC has stated that "an adjustment of $50-$55 billion in favor of the Postal Service would be equitable." The OPMIG has contested the USPSOIG's claims. It has said that the current apportionment of the CSRS pension costs is in line with both congressional intent and federal law. Additionally, the OPMIG warned that allowing the USPS to draw back any CSRS pension funds would "create a dangerous precedent" by permitting pension funds to be used for purposes other than the payment of benefits owed. Similarly, the GAO has stated the USPS has not "overpaid" its CSRS obligation, finding, "The current methodology used by OPM for allocating responsibility for CSRS benefits between USPS and the federal government is consistent with applicable law." In his initial FY2010 budget, President Barack Obama proposed requiring USPS employees to pay the same percentage towards their health premiums and life insurance as other federal workers. (USPS employees pay approximately 21% of their health care premium costs and 0% of their life insurance premiums, while other federal employees pay 28% and 67%, respectively.) The Administration estimated this new policy would save the USPS $752 million in FY2010 and $9.5 billion in the period of FY2010 to FY2019. A study released by the USPSOIG in September 2010 suggested the USPS could save $700 million per year were its employees required to contribute at the same rate as other federal employees. In recent years, the USPS has moved to close some of its facilities: between 2006 and 2011, the USPS reduced the number of its area and district offices from 89 to 74; in late July 2011 USPS began an initiative to consider the closure of 3,652 retail postal facilities; and, in May 2012, the USPS announced it would close 48 mail processing facilities before September, and an additional 98 facilities between January and February 2013. The agency has said it will not close any mail processing facilities during the autumn due to "the volume of high-priority mail predicted for the election and holiday mailing seasons." GAO repeatedly has contended that the USPS has not reduced its number of retail postal facilities (post offices) and mail processing plants sufficiently: Approximately 80 percent of its retail facilities do not generate sufficient revenue to cover their costs. Moreover, the number of USPS-operated retail facilities, about 32,000, has remained largely unchanged over the past 5 years even as visits to, and transactions at, postal retail facilities have decreased by about 16 percent and 18 percent, respectively. The USPS processing and transportation networks were developed during a time of growing mail volume, largely to achieve service standards for First-Class Mail and Periodicals, particularly the overnight service standards.... [The] USPS and other stakeholders have long recognized the need for USPS to reduce excess capacity in its mail processing network. Over the past five years, the USPS has reduced its facility footprint a modest 3.1%, from 34,318 to 33,260 ( Figure 5 ). One factor affecting the pace of USPS closures is stakeholder resistance. In response to criticism, the USPS has slowed or scaled back both its plans for proposed post office and mail processing facility closures. Congress may wish to consider providing the USPS with additional authority to reduce its facilities. As a related matter, both houses of Congress also may wish to consider enacting rules to prevent congressional intervention in proposed mail facility closures. Alternatively, Congress might enact a law to authorize appropriations to reimburse the USPS for cost-savings lost because of congressionally imposed delays in facilities closures. GAO has suggested that Congress consider permitting the USPS to reduce its delivery schedule from six to five days, a policy with which the USPS concurs. Nothing in Title 39 of the U.S. Code (which holds most federal postal law) requires the USPS to deliver mail six days per week. However, since 1984 Congress has included a provision in its annual appropriation to the USPS stating that "6-day delivery and rural delivery of mail shall continue at not less than the 1983 level" (e.g., P.L. 111-117 ; 123 Stat. 3200). The PRC has observed that the precise meaning of this mandate "could be subject to a number of interpretations, including requiring 6-day delivery in all areas which had it in 1983, or requiring the same percentage of recipients of 6-day delivery as in 1983." To date, the USPS has treated the language to mean that it lacks the authority to move to five-day mail until Congress ceases including the six-day mail provision in annual appropriations. Since 2008, four studies (two by the USPS and two by the PRC) have examined the possible financial effects of a switch from six-day to five-day delivery. The studies all estimate that the USPS would save money by reducing the days of delivery from six to five, as the cost savings (largely due to reduced labor expenses) will exceed any decline in revenues due to lower demand for mail prompted by a reduced delivery schedule. The studies suggest an annual improvement to the USPS's financial condition that would be between $1.7 billion to $3.5 billion. (No studies have argued the contrary—that moving to five-day delivery would increase costs.) The USPS's five-day delivery plan does not say how long it would take to implement five-day delivery and begin reaping any savings. The USPS did note that it would provide at least six months' notice prior to switching to five-day delivery. On March 30, 2010, the USPS asked the PRC for an advisory opinion on reducing delivery to five days. By law, the USPS must ask the PRC for an opinion when the USPS "determines that there should be a change in the nature of postal services which will generally affect service on a nationwide or substantially nationwide basis ... within a reasonable time prior to the effective date of such proposal" (39 U.S.C. 3661). Under PRC rules, a "reasonable time" is defined at "not less than 90 days" (39 CFR 3001.72). PRC Chairman Ruth Goldway suggested in a March 2010 hearing that the PRC may require six to nine months to issue its opinion. The PRC issued its advisory opinion in March 2011, which suggested cutting Saturday delivery would reduce the USPS's annual operating costs $1.7 billion. Critics have long argued that the USPS is required to be self-supporting but that federal law provides it with very few authorities to control its employment costs—which make up approximately 80% of its total operating costs. For example, in 2003 the President's Commission on the United States Postal Service noted that "postal workers enjoy special status within the federal workforce. They are granted the right to negotiate wages, hours, and workplace conditions through collective bargaining." By law, the USPS is required 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" (39 U.S.C. 1003(a)). The commission further argued that the current statutory process for resolving disputes between management and labor frequently results in arbitrators being empowered to make binding decisions that favor employees (e.g., postal workers pay lower premiums for their health insurance and are protected from layoffs). The USPS utilized attrition to reduce its workforce from 696,138 to about 544,000 since FY2006. The USPS also has used early retirement incentives and buy-outs to lower its employment cohort. For example, approximately 21,000 postmasters recently were offered incentives to retire. Nevertheless, the USPS also has asked Congress to enact a statute to authorize it to override collective bargaining prohibitions on layoffs so as to enable the USPS to eliminate an additional 120,000 positions by FY2015. According to the USPSOIG, "over 189,000 Postal Service employees will meet the age and service eligibility requirements for retiring with an immediate annuity" in 2012. Congress may wish to consider measures that would provide the USPS with increased means to control its long-term labor costs, perhaps by encouraging retirement-eligible employees to conclude their employment.
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This report provides an overview of the U.S. Postal Service's (USPS's) financial condition, legislation enacted to alleviate the USPS's financial challenges, and possible issues for the 112th Congress. Since 1971, the USPS has been a self-supporting government agency that covers its operating costs with revenues generated through the sales of postage and related products and services. In recent years, the USPS has experienced significant financial challenges. After running modest profits from FY2004 through FY2006, the USPS lost $25.4 billion between FY2007 and FY2011. Were it not for congressional action, the USPS would have lost an additional $9.5 billion. In the first three quarters of FY2012, the USPS had an $11.5 billion operational loss. The USPS did not have sufficient cash to make a $5.5 billion payment to its Retiree Health Benefits Fund (RHBF) that was due on August 1, 2012. The USPS is unlikely to have sufficient liquidity to make a $5.6 billion RHBF payment due on September 30, 2012. A number of ideas have been advanced that would attempt to improve the USPS's financial condition in the short term so that it might continue as a self-funding government agency. All of these reforms would require Congress to amend current postal law. The ideas include (1) increasing the USPS's revenues by altering postage rates and increasing its offering of nonpostal rates and services; and (2) reducing the USPS's expenses by a number of means, such as recalculating the USPS's retiree health care and pension obligations and payments, closing postal facilities, and reducing mail delivery to less than six days per week. This report will be updated after the USPS releases its quarterly financial results in early November 2012, and in the interim should there be any significant developments.
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On September 20, 2010, GMAC Mortgage, a mortgage servicer affiliate of Ally Bank (formerly GMAC Bank) formally announced "a potential issue that was raised in a number of existing foreclosures challenging the internal procedure we used for executing one or more judicially required forms." As a result, "[t]he company temporarily suspended evictions and post-foreclosure closing in the 23 states while [Ally Bank] conduct[s] a review" of the procedure. The "internal procedure" problems that GMAC Mortgage referenced have become popularly characterized as "robo-signing"—the practice of having a small number of individuals sign a large number of affidavits and other legal documents submitted to courts and other public authorities by mortgage companies to execute foreclosures. Several employees and individuals with power-of-attorney signing authority for major servicers, including GMAC Mortgage, J.P. Morgan Chase, and Wells Fargo, have been deposed as part of foreclosure contests. Some of these depositions raised concerns as to whether individuals who claimed in sworn affidavits to have personal knowledge of facts necessary to legally foreclose on a property actually had that knowledge; assignments and sales of interests in mortgages were properly executed; legal documents were properly notarized in accordance with state law; and, as a result, mortgage companies had met the necessary requisites to foreclose on certain properties. Following GMAC Mortgage's lead, three other major mortgage servicers owned by J.P. Morgan Chase & Co., Bank of America Corp., and PNC Financial Services Group Inc. temporarily halted foreclosure sales of their own in the same 23 states. The states affected by these voluntary stays on foreclosure sales and evictions are referred to as "judicial foreclosure states" because their laws either require the use of the courts to complete a foreclosure, or if not absolutely required, a significant portion of foreclosures in the states utilize the court systems in practice. Just a few days later, on October 8, 2010, Bank of America Home Loans announced an expansion of the temporary foreclosure sale freeze to all 50 states, including the so-called nonjudicial foreclosure states which have state laws that allow for foreclosures to be completed without the use of the courts. The Bank of America freeze is to last until its "assessment [of foreclosure documents] has been satisfactorily completed." Additionally, Fannie Mae and Freddie Mac have directed all servicers of mortgages held or guaranteed by the government sponsored enterprises (GSEs) to review their procedures for handling mortgage defaults, but the GSEs did not require servicers to halt foreclosure sales or evictions. On October 18, 2010, Bank of America announced that it would be resuming all foreclosures in the 23 judicial foreclosure states, and "will continue to delay foreclosure sales in the remaining 27 states until our review is complete on a state by state basis." A GMAC Mortgage spokeswoman announced that it would resume foreclosures as files are reviewed and remediated on an individual basis. The regulatory response to these alleged problems has begun, and likely will continue for some time. The Ohio Attorney General filed suit against GMAC Mortgage, Ally Financial, Inc., and one of its employees, alleging violations of the state Consumer Sales Practices Act and common law fraud. The Attorney General of Florida is conducting investigations of several law firms allegedly involved in submitting inaccurate or incomplete documentation to Florida courts in foreclosure cases. The Attorneys General of all 50 states are conducting investigations into the matter, and the Obama Administration's Financial Fraud Enforcement Task Force also is investigating whether federal laws were violated. At least two states' courts, Florida and New York, have augmented their evidentiary standards for residential foreclosure actions in response to deficiencies in foreclosure proceedings. Each of the servicers that voluntarily stayed foreclosure sales and evictions seem to stress that any problems that have come to their attention have been problems of process, not of substance. In other words, they do not believe anyone has been wrongfully foreclosed upon or evicted, but that some of the paperwork that must be filed to complete a foreclosure in certain states may not have been properly reviewed or notarized by their employees. In actuality, these procedural defects have the potential to undermine the legitimacy of the foreclosure process in both judicial and nonjudicial states and create a cloud over the legal title of homes and, depending on the facts and circumstances of each case, could result in judicial sanctions, civil penalties, and even criminal prosecutions. It is unclear whether or not the procedural problems masked substantive problems, such as a failure to transfer interests in a mortgage properly, thus calling into question true ownership of mortgages, in certain instances. Even if substantive problems do exist, it may be possible to rectify deficiencies in many, if not the vast majority, of cases to allow for the completion of a foreclosure. Correcting these problems would come at a cost by potentially causing significant delays in the completion of the foreclosure process, even for properties in which foreclosure is inevitable. There is a great deal of uncertainty in exactly what transpired in the run-up to the housing market crash and what continues to occur as financial institutions and homeowners deal with the crash's aftermath. What is clear is that there will be legal disputes arising in virtually every corner of the market, and it likely will take many years for these disputes to be settled by the parties and the courts. This report seeks to shed light on some of these uncertainties by explaining the mortgage market process and some of the legal agreements entered into between market participants; explaining the legal procedures of typical judicial and nonjudicial foreclosure statutes; explaining some of the procedural problems that have surfaced during the implementation of foreclosure proceedings that drove some mortgage servicers to pause foreclosure sales and evictions; analyzing how the increasing complexity of the secondary mortgage market over the last 10 to 15 years may have led to or exacerbated these procedural problems; and addressing some of the potential substantive errors that could have been hidden by the procedural problems and the legal effect these problems could have on homeowners, lenders, and other mortgage market participants. This report primarily focuses on sections of the mortgage market that directly affect homeowners. Of course, there are many agreements and legal relationships that are linked to mortgages that do not directly involve homeowners. Many of the same documentation and proper transfer of ownership problems that may affect homeowners directly through the foreclosure process have the potential to cause even more significant legal and economic problems for the financial institutions involved. These problems include violations of securities laws for failing to accurately describe the mortgages underlying mortgage-backed securities (MBS) and violations of representations and warranties (e.g., regarding the quality of underwriting standards and other mortgage characteristics) provided for in the contracts that executed the sale of mortgage interests in the secondary market. These problems have the potential to cost financial institutions billions of dollars in legal claims while also increasing market uncertainty, which comes with its own costs. Another interesting wrinkle is that the federal government is an active participant in multiple, and sometimes conflicting aspects, of the mortgage market. For instance, the Department of the Treasury (Treasury) has used Troubled Asset Relief Program (TARP) funds to acquire stock and warrants to purchase stock in banks with significant mortgage-related assets (e.g., CitiGroup) and to implement the Making Home Affordable Program; the Treasury also has used funds from the Housing and Economic Recovery Act (HERA, P.L. 110-343 ) to purchase millions of dollars' worth of mortgage-backed securities from Fannie Mae and Freddie Mac; the Federal Housing Finance Agency (FHFA) is acting as conservator of Fannie Mae and Freddie Mac; and the Federal Deposit Insurance Corporation (FDIC) holds interests in mortgage assets as conservator and receiver over failed commercial banks and thrifts. As a result, the government will be directly impacted by, and at times, will be actively involved in, mortgage-related legal disputes. Many of these problems are outside of the scope of this particular report, but at times they are alluded to here. When individuals purchase residential real property with borrowed funds, they usually enter a contractual agreement, typically called a promissory note, to, among other things, make principal and interest payments to the originating lender for a period of time. Lenders obtain a security interest in the underlying property as security against borrower default. In other words, what is commonly referred to as a "mortgage" consists of both a promissory note evidencing the debt to be paid by borrower and the security interest in the underlying property, which generally is provided for in a deed of trust or a mortgage. (To avoid confusion, this report refers to a note as the evidence of a borrower's obligation, a deed of trust as evidence of a security interest in the real property, and a mortgage as the interest in the note and the deed combined.) Every state has a land recordation and title system with laws governing how security interests in real property (i.e., land) should be recorded to establish the priority of secured lien holders in the same property. These land recordation systems put subsequent purchasers on notice of existing interests in the property and can protect subsequent purchasers from mortgagees (and their successors or assigns) that fail to properly record their interest in the property. These systems date back to colonial times. They generally require that each time a company acquires a security interest in a piece of real property—either through the assignment or sale of an existing interest or the creation of a new one, such as through a home equity line of credit—it physically records the existence of that interest with the register of the deeds office in the county in which the property is located, while also paying recordation fees. Failure to record an interest in property properly does not invalidate the homeowner's obligations under the mortgage. Sometimes the originating lender retains its interest in the mortgage for the life of the loan. In recent years, however, it has become far more common for the originating lender to sell or assign its interest in both the note and the deed to another financial institution. Sometimes the sale or assignment of the mortgage was merely to a larger bank with a more diversified portfolio, but more often the sale or assignment was for the purpose of securitizing the mortgage. Ownership of the mortgage could change hands multiple times throughout the life of the loan. Eventually, more than half of all mortgages either are sold to one of the GSEs or assigned to special purpose vehicles (SPVs)—companies formed for the sole purpose of owning mortgages. These SPVs usually are formed as passive real estate investment trusts, such as Real Estate Mortgage Investment Conduits (REMICs), which receive favorable tax treatment. The trusts, thus, become the holder of both the note and the security interest. The mortgage payments for the mortgages held in trust are distributed to investors as mortgage-backed securities (MBS) based on a pre-arranged formula. The trust hires a trustee to administer the trust on behalf of the investors (i.e., certificate holders or bondholders) in the MBS. Whether a mortgage is securitized or not, a mortgage holder hires a mortgage servicer to interact with the homeowners. In some instances, originating lenders retain servicing rights over loans even when they sell their security interest in the mortgages to unaffiliated parties. In other cases, originating lenders assign the servicing rights to their mortgage servicer affiliates or subsidiaries. Figure 1 illustrates how mortgages typically are originated, assigned, securitized, and recorded along with the various interests that are exchanged at each step of the process. During the housing boom, the sale of millions of mortgages to other banks, GSEs, and securitizers made it costly and time-consuming for financial institutions to comply with local land recordation laws. One way the industry attempted to alleviate these difficulties was by creating a mortgage servicing system, the Mortgage Electronic Registration Systems, Inc. (MERS). To help alleviate the costs and procedural burdens of recording each change in ownership with the local register of the deeds office, some mortgage market participants work with MERS—a corporation created in the late 1990s by other mortgage companies and industry groups to chronicle the assignment of mortgages electronically. Mortgage holders name MERS as "mortgagee of record in nominee capacity" or as nominee assignee so that MERS is recorded as the nominee (i.e., agent) of a security interest in the local register of deeds office, even though MERS does not actually hold a beneficial interest in the deed, nor does it claim any interest in the note. Instead, MERS, acting as an agent of the actual mortgagee and/or its successors and assigns, acquires possession of the physical deed of trust, files its name once with the local register of deeds office, and then tracks (and actively engages in the execution of) every subsequent change of ownership or assignment of the mortgage to a MERS participant during the life of the loan in its electronic database instead of at the local register of deeds office. As nominee, MERS must be actively involved in the execution of mortgage documents. As described in detail below, the question of who is the actual holder of the mortgage is very important to the foreclosure process. With millions of mortgages in the MERS electronic system, the effectiveness of MERS' documentation and processes plays a critical role in the determination of mortgage ownership in the country. The use of MERS raises a number of legal questions, such as whether MERS has the legal standing to initiate foreclosures in its own name and to what extent recording MERS as mortgagee or assignee provides sufficient notice to subsequent purchasers under state recording statutes, which are currently being litigated in many jurisdictions. Neither trustees nor servicers hold a beneficial interest in the mortgage. Rather, they perform their duties as agents for the actual mortgage holders. Although servicers of securitized mortgages are supposed to act as agents on behalf of the MBS investors, one of the servicer's affiliates may have an interest in the underlying mortgages, which some have argued creates a conflict of interest. For example, it is relatively common for affiliates of the four largest servicers (Bank of America, Wells Fargo, JPMorgan Chase, and Citigroup) to own second liens on primary-lien mortgages held in trusts they service. The rights of investors and the duties of trustees and servicers are spelled out in a contract called a pooling and servicing agreement (PSA). Trustees serve primarily clerical duties on behalf of the investors by, for example, verifying that the documentation for each mortgage acquired by the trust is in order and divvying the proceeds of homeowner payments to the investors of the various tranches or classes of securities based on the pre-arranged formula established by the PSA. Servicers mainly are charged with interacting with individual homeowners, which most frequently consists of acquiring borrower payments. Mortgage servicers' primary source of revenue is through a fixed percentage of the mortgage principal amount. When borrowers become delinquent or default on their monthly payments, servicers (of both securitized and non-securitized mortgages) may engage in loss mitigation and/or initiate foreclosure proceedings on behalf of mortgage holders (e.g., the trusts). PSAs govern under what circumstances and in what ways servicers may engage in loss mitigation efforts. In fact, loss mitigation actions and foreclosure proceedings often are performed simultaneously. Foreclosure proceedings are more streamlined than loss mitigation efforts, which are more tailored to the individual characteristics of borrowers and their underlying homes. Servicers also tend to be able to recoup a greater amount of fees and expenses through a foreclosure. As a result, engaging in loss mitigation efforts usually is more expensive and time consuming for servicers than initiating foreclosure. The process that mortgage holders must follow in order to foreclose upon a residential property is governed by state law. The details of these procedures vary considerably from state to state. However, there are some guiding principles that generally apply across the board. In about half of the states, courts usually, if not always are part of a foreclosure process. The laws of the remaining states allow for the use of a nonjudicial foreclosure process under certain circumstances. In most of these states, a judicial foreclosure process is allowed under the law, but the nonjudicial process is used more often. As will be explained below, it is possible for homeowners to get courts involved in a foreclosure that is initiated pursuant to a nonjudicial process; however, there are some procedural hurdles homeowners must pass to do so. An analysis of the typical judicial and nonjudicial processes follows. In order to foreclose on a residential property utilizing a judicial foreclosure process, a foreclosing party must file an action with a court (usually a local court in the county in which the property is located) and receive judicial approval of the foreclosure. The plaintiff (i.e., the foreclosing party) seeking approval from the court for the foreclosure generally must prove 1. that there is a valid mortgage between the borrower/homeowner and the mortgage holder; and 2. that the borrower/homeowner is in default or has otherwise breached the mortgage contract. To prove that there is a valid mortgage, a foreclosing entity can submit to the court the original promissory note and the deed of trust. Some state laws allow foreclosing entities to submit other evidence that there is a valid mortgage in lieu of producing the original note. For instance, most states allow for the submission of affidavits, that is, sworn statements attesting to the fact that the entity holds the note, but that the original note is lost, destroyed, or otherwise cannot be produced for the court. In other instances, mortgage holders may produce copies of the original note and deed of trust accompanied by a sworn affidavit attesting to the fact that the holder has physical possession of the originals. These affidavits often require a testament that the signer has personal knowledge of the facts to which she is swearing or that she has personally examined the attested facts. Affidavits usually must be signed in the presence of a notary and/or other witnesses. Similarly, mortgage holders often are able to show the amount of the borrower's outstanding obligation and that the borrower is in default of his obligation through sworn affidavits. Courts rely upon the accuracy and authenticity of statements made under oath in affidavits. Where the foreclosing entity is able to meet its burden of proof on the two criteria (i.e., there is a valid mortgage between the borrower and mortgage holder; and the borrower is in default or breach of contract) and the borrower fails to or is unable to raise any valid defenses, then the foreclosure is confirmed by the court and a sale date is set. The mortgage holder must meet the state's notice of sale requirements, if applicable. Then the home will be put up for sale, usually at a public auction conducted by a public entity, such as a representative from the local sheriff's office. Mortgage holders often establish a minimum bid. If no one makes a bid that exceeds the minimum, then the property reverts to "real estate owned" property held by the mortgage holder. Although most judicial foreclosures are uncontested, a homeowner has the right to contest a judicial foreclosure by raising defenses. Among other things, the homeowner may produce evidence to show that the mortgage holder has not proved that it meets the general requirements for a foreclosure. For instance, a homeowner could produce evidence that the plaintiff lacks legal standing to raise a foreclosure action because the plaintiff is not the mortgage holder or because the assignment of the mortgage interest was improperly executed. Legal standing is a requirement for seeking any claim, not just a foreclosure action, but whether the plaintiff in a foreclosure action has legal standing to raise the claim has become a common challenge in contested foreclosures in recent years because of the frequency by which interests in mortgages have been sold and assigned in the secondary market. The more times that an interest is sold or assigned, the more opportunities there are for mistakes to occur in the execution. State laws vary on who has standing to bring a foreclosure action, but in all cases the legal holder of the mortgage (and generally its legal representatives, acting in the name of the mortgage holder) has the right to foreclose on the property. Many challenges over standing in a foreclosure action center on whether the plaintiff is the actual mortgage holder. This may come into question where the paperwork documenting a sale or assignment of interest in a mortgage is missing or deficient in some way, such as if it is not properly endorsed by the parties or the assignment occurred after the foreclosure complaint was filed. If a homeowner is able to show deficiencies in the chain of title that puts ownership of the mortgage subject to a foreclosure action in doubt, then a court either may dismiss the action outright or give the plaintiff a period of time to submit evidence to show the plaintiff's standing. In some instances, a plaintiff would be able to simply submit new evidence into the record and continue the process where it ended. When a case is dismissed, a plaintiff may need to start the judicial process from the beginning. Starting again can result in significant delays, especially in states where there is a backlog of foreclosure cases in the court system. A homeowner also could produce evidence showing that the foreclosing plaintiff has failed to meet all notice and other procedural requirements imposed under state laws. Generally, state laws require notice that the borrower is in default and/or a notice of the pending foreclosure sale. The method of service in which the notice must be delivered (e.g., by certified mail; by publication in a local newspaper), the timing in which it must be served (e.g., within three months of default; within 15 days of the foreclosure sale date), and the information that must be provided in the notice (e.g., discussion of a right to cure; outstanding balance on the debt) vary considerably state-to-state. A homeowner also may contest the mortgage holder's calculation of the outstanding balance by arguing that the holder's tally includes a late fee that is not permissible under state or federal law. These types of defenses are not likely to prevent a foreclosure altogether, but may result in a reduction in a homeowner's outstanding balance or a delay of the foreclosure sale until the mortgage holder can correct the deficiency in the notice process—potentially providing more time for a homeowner to produce the means to redeem the obligation, to cure a default, to seek some form of loss mitigation, or to find new housing. It also may reduce a homeowner's obligations under a deficiency judgment, if such a judgment is allowed under state law and is pursued by the mortgage holder. To foreclose on a property utilizing a nonjudicial process, such a process must be permissible under state law. Notice of a mortgage holder's ability to utilize a nonjudicial foreclosure process typically is provided for in a "power of sale" clause within the deed of trust. For this reason, nonjudicial foreclosures are referred to as power of sale foreclosures. Mortgage holders must meet the same two criteria as are required in a judicial foreclosure process. The major difference between the two processes is that, because the mortgage holders do not need the court's involvement, a homeowner must affirmatively raise actions with a court to contest the foreclosure. In many states, this requires affirmatively seeking a court injunction to at least temporarily stop the foreclosure sale. State laws often require the posting of a bond for an injunction to be granted, although the law may give courts some leeway to waive the bond under certain circumstances. Courts also require individuals seeking an injunction to provide sufficient evidence to show that irreparable harm likely will occur in absence of the injunction and that the movant likely will win on the merits of his claim. In sum, a mortgage servicer (or any other entity) that initiates a foreclosure pursuant to a power of sale still must meet the two foreclosure criteria—that there is a valid mortgage and that the borrower is in default—and must adhere to all of the procedural and notice requirements established by state law. However, a homeowner faces substantial procedural obstacles to contest that these criteria have been met. Because courts usually are not involved in the process, power of sale foreclosures tend to be less expensive and completed faster than judicial foreclosures. Historically, the vast majority of power of sale foreclosures are uncontested. Figure 2 compares the average amount of time it takes to complete the liquidation process in judicial and power of sale foreclosure states from February 2006 to October 2010. As previously mentioned, the foreclosure process in judicial foreclosure states often requires the submission of sworn affidavits to a court as evidentiary support for the foreclosure. These affidavits are signed by an employee of a mortgage servicer who usually attests to have personal knowledge of the facts underlying the foreclosure, such as the existence of a valid mortgage between the holder and the borrower and that the borrower is in default. As an added layer of accountability, many state and local court rules require affidavits to be notarized, that is, certified by a notary public. Notary publics generally do not certify to the accuracy of the underlying facts of an affidavit, but merely certify that the person signing the affidavit is who she says she is and signed at the time she said she did. Most state laws require affidavits to be signed in the presence of the notary in order for the notary to legally notarize the document. The courts rely on the accuracy of these sworn affidavits because courts do not have the capacity to investigate the books of mortgage servicers to ensure the accuracy of each statement made in an affidavit. It also is rare for inaccuracies to be evident on the face of affidavits. Depositions of employees and attorneys for several major mortgage servicers have called into question the authenticity of some of affidavits submitted to courts as evidence to support foreclosure actions. For example, Jeffrey Stephan, a "limited signing officer" and leader of the document execution team in GMAC Mortgage, Inc.'s foreclosure department, stated under oath during a deposition that thousands (6,000-8,000) of foreclosure files would go through his team per month. Stephan stated that he signed affidavits for many of those files and, in some cases, he relied upon outside attorneys who prepared the documents to verify the accuracy of parts of the affidavits. Stephan stated that the process he followed for the signing of affidavits adhered to GMAC Mortgage's policies and procedures. Stephan also indicated that some affidavits were notarized by notary publics who had not witnessed his signature on the affidavits. Similar statements were made by Beth Cottrell, operation supervisor for Chase Home Finance, a subsidiary of JP Morgan Chase & Co. Cottrell stated that she and seven other managers signed, on average, 18,000 documents per month. These documents include "affidavits, deeds, assignments ... [a]llonges, lost note affidavits, [and] lost mortgage affidavits." Cottrell stated that she relied on outside attorneys to draft the affidavits and her staff to fill in the numbers (i.e., outstanding balance, amount in escrow, etc.) on the affidavits and to raise any questions or concerns regarding those numbers to her. If a member of her staff raised issues with a particular file, Cottrell would review the firm's electronic systems herself to ensure the accuracy of the information on the affidavits. When no issues were raised by staff, Cottrell would spend less time reviewing the accuracy of the information provided in the affidavits of the files. Cottrell also stated in the deposition that notaries were in the room with her when she signed affidavits. These and several other depositions call into question whether employees and attorneys for major mortgage servicers who signed affidavits attesting to have personally researched or to have personal knowledge of the underlying facts set out in the affidavits actually had done so. At least one of these depositions also raised questions about whether the affidavits were properly notarized, and thus whether they met the technical evidentiary standards to be properly filed with the court. If these procedural issues existed in a few large mortgage servicers, concern is raised that other large mortgage servicers with comparable foreclosure workloads may suffer from similar procedural deficiencies. There is little doubt that state laws requiring individuals who sign affidavits to have personal knowledge of the information to which they are attesting, notaries witness the signatures of documents they notarize, and similar evidentiary standards serve important functions, such as fraud prevention. There also is little doubt that mortgage servicers should follow proper legal procedures when foreclosing on a borrower's home. If affidavits with improper signatures or notarizations were submitted to courts, the signers could face perjury charges, among others, and courts could force the signer, his employer, or the attorneys representing them to pay sanctions. Parties could face a number of other civil or administrative penalties, as well, depending on the facts and circumstances of each case. For example, notary publics who fail to follow state notary laws could have their licenses revoked and be forced to pay fines, and attorneys who submitted faulty documents to a court could be reprimanded by their state bars' disciplinary entities. While these issues are serious, even if they are proven true, they, in and of themselves, do not mean that the facts in the affidavit were untrue or that the foreclosing entity does not have the legal basis to foreclose on properties. In judicial foreclosure proceedings where affidavits that are improperly signed or notarized have been submitted as evidence, new affidavits can be submitted that are not defective. Charges could be more serious if it were shown that the affidavits were purposefully forged or affiants knowingly lied for the purpose of covering up defects in the prerequisites to instituting a valid foreclosure. If evidence did surface of this type of behavior, then it would raise the possibility that individuals had committed civil or criminal fraud. There are various types of criminal fraud established under state and federal law, including mail and wire fraud and financial institutions fraud. Each type of fraud requires proof of slightly different jurisdictional elements. However, the basic elements of all criminal frauds are (1) a material misstatement (or omission or misrepresentation); (2) with the intent to defraud someone of something of value. In other words, for an employee of a mortgage servicer to be found guilty of criminal fraud for the affidavit issues raised by the depositions cited above, the misstatements would have to be material, which may not be the case if all of the statements of fact contained in the affidavits are true (even if the signer did not have personal knowledge of those facts), and the signer would have to have had the requisite mental state, that is, an intent to defraud, which may not be the case if she believed the statements of fact were true, even if they turned out not to be. What is unclear is the extent to which there are substantive problems that are not easily rectifiable. Substantive problems could include multiple entities claiming to be the mortgage holders; properties foreclosed upon where the homeowners actually own the title free and clear of encumbrances; and entities claiming to have had valid title to properties that were foreclosed upon and sold by a company that did not have legal title to the property. Anecdotal evidence of these types of substantive problems has been reported. Substantive defects could have been hidden by defective documentation and internal protocols even for homes foreclosed upon through a nonjudicial process. If mortgage servicers are having paperwork problems in their foreclosure departments, it is not difficult to imagine paperwork problems in the departments that deal with mortgage assignments and sales, especially considering the number and speed with which securitized mortgages tend to be assigned and sold. Problems in the execution of assignments, for example, could equally affect properties in judicial and nonjudicial foreclosure states. The use of the judicial system and the requirement that affidavits be submitted into evidence in judicial foreclosure states arguably made it easier for potential documentation and internal review to come to light. Another potential cause for concern is the extent to which substantive problems did not surface during uncontested foreclosure actions, in both judicial and nonjudicial foreclosure proceedings. This also has the potential to raise uncertainty about the legal chain of title, which could stifle the market for foreclosed properties. Substantive defects, if they do exist in significant numbers, could have a much more long lasting impact on housing markets. If a foreclosing entity cannot establish clear title to the mortgage, then the foreclosure process may be significantly delayed until proper title can be shown. Demonstrating proper title may require the holder to redo the paperwork for each assignment or sale throughout the line of title until all gaps are filled. This may prove difficult where certain entities within the chain of title have gone out of business or were acquired by other companies. It may be even more difficult where multiple parties believe they are the rightful owners. If widespread mortgage assignment/sale problems among commercial banks, investment banks, and other finance companies exist, then title problems could haunt even subsequent bona fide purchasers of foreclosed properties who thought they purchased the property free and clear of encumbrances on the property. Homeowners of properties may have difficulty selling their properties if they are unable to show that they hold valid mortgages, and potential buyers may fear that others have valid security interests in the properties. These fears could be allayed to some degree if buyers are able to secure title insurance on the property, but some title insurers seem to be concerned about the potential problems. For instance, one major title insurer at least temporarily stopped extending new policies on properties foreclosed upon by GMAC Mortgage, Ally Bank, or Ally Financial. Inadequate mortgage documentation and internal controls also make financial institutions more vulnerable to Ponzi schemes and similar frauds committed against them. In sum, alleged documentation and procedural problems will result in varying degrees of delay in the ability to complete the foreclosure process. In some cases, problems may be easily remedied. In other cases, delays may be more significant. All delays will come at an administrative cost to mortgage holders and servicers, and in some instances, these entities and their representatives could be subject to civil or criminal penalties. Some individual borrowers may benefit from these delays because in some instances they may be able to continue to reside in the property until the foreclosure process is complete. However, based on the information that has surfaced thus far, it appears that the majority of these individuals will eventually lose their homes. Documentation and procedural deficiencies also create a cloud of uncertainty over the title to properties, thus discouraging investment in foreclosed properties and potentially subjecting purchasers and title insurers to conflicting claims on the titles. Loan servicers could be significantly affected if the documentation issue lengthens the time it takes to foreclose, on average. The potential cost to servicers of lengthening the time that it takes to finally resolve a delinquent mortgage has been estimated at over $1,300 per month on a $200,000 loan. Recognizing the potential exposure of loan servicers to delayed foreclosure proceedings, Moody's recently put the bond ratings of six major servicers (Bank of America, Wells Fargo, IndyMac Mortgage Services, Bayview Loan Servicing, MetLife Home Loans, and Litton Loan Servicing) under review. However, the Federal Deposit Insurance Corporation's (FDIC's) description of its loan modification programs suggests that if housing markets recover and prices begin rising again, then delayed loan resolutions will not have a net negative impact on banks. The country continues to deal with historically high foreclosure rates, which are placing a strain on the judicial system and the financial standing of many individuals and financial institutions. The uncertainty created by mortgage market participants' allegedly deficient documentation and internal protocols in their origination, assignment, securitization, and foreclosure processes likely will exacerbate these problems. The economic and legal repercussions of the alleged deficiencies likely will reverberate for years to come.
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During the summer of 2010, several employees and individuals with power-of-attorney signing authority for major servicers, including GMAC Mortgage, J.P. Morgan Chase, and Wells Fargo, were deposed as part of foreclosure contests. These depositions raised concerns about what has been characterized as "robo-signing"—the practice of having a small number of individuals sign a large number of affidavits and other legal documents submitted to courts and other public authorities by mortgage companies to execute foreclosures. As a result of these depositions, many have questioned whether individuals who claimed in sworn affidavits to have personal knowledge of facts necessary to legally foreclose on a property actually had that knowledge; whether assignments and sales of interests in mortgages were properly executed; whether legal documents were properly notarized in accordance with state law; and, as a result, whether mortgage companies had met the necessary requisites to legally foreclose on certain properties. In response, several major mortgage servicers temporarily halted foreclosure sales to review their internal foreclosure procedures. These procedural defects have the potential to undermine the legitimacy of the foreclosure process and could result in judicial sanctions, civil penalties, and even criminal prosecutions. The servicers in question do not believe they have wrongfully foreclosed upon or evicted anyone, but that some of the paperwork that must be filed to complete a foreclosure in certain states may not have been properly reviewed or notarized by their employees. Whether or not homes have been wrongfully foreclosed upon is unknown at this time. It also is unclear whether or not the procedural problems masked substantive problems, such as a failure to properly transfer interests in a mortgage, thus calling into question true ownership of mortgages, in certain instances. Even if substantive problems do exist, it may be possible to rectify deficiencies in many, if not the vast majority, of cases to allow for the completion of a foreclosure. Correcting these problems would come at a cost by potentially causing significant delays in the completion of the foreclosure process. This report seeks to shed light on some of these issues by explaining the mortgage market process and some of the legal agreements entered into between market participants; explaining the legal procedures of typical judicial and nonjudicial foreclosure statutes; explaining some of the procedural problems that have surfaced during the implementation of foreclosure proceedings that drove some mortgage servicers to briefly halt foreclosure sales and evictions; analyzing how the increasing complexity of the secondary mortgage market over the last 10 to 15 years may have led to or exacerbated these procedural problems; and addressing some of the potential substantive errors that could have been hidden by the procedural problems and the legal effect these problems could have on homeowners, lenders, and other mortgage market participants.
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Over the past several years, the number of aliens who unlawfully reside in the United States has grown significantly, from an estimated 3.2 million in 1986 to more than 11 million in 2005. Although the federal government is responsible for regulating the entry and removal of aliens from the United States, the impact of unauthorized immigration has arguably been felt most directly in the communities where aliens settle. The response of states and localities to the influx of illegal immigrants has varied. On one end of the spectrum, some jurisdictions have actively sought to deter the presence of illegal immigrants within their territory. Some jurisdictions have assisted federal authorities in apprehending and detaining unauthorized aliens, including pursuant to agreements (287(g) agreements) with federal immigration authorities enabling respective state or local law enforcement agencies to carry out various immigration enforcement functions. More controversially, some jurisdictions have sought to deter illegal immigration by imposing their own restrictions upon unauthorized aliens' access to housing, employment, or municipal services. Moving toward the middle of the spectrum, some states and localities communicate with federal immigration enforcement officers under limited circumstances (e.g., after arresting an unauthorized alien for a criminal offense), but for various reasons do not take a more active role in deterring illegal immigration. At the other end of the spectrum, some jurisdictions have been unwilling to assist the federal government in enforcing measures that distinguish between legal and non-legal residents of the community. Some of these jurisdictions have adopted formal or informal policies limiting cooperation with federal immigration authorities. This latter category of jurisdictions is sometimes referred to as "sanctuary cities." Although this term is not defined by federal statute or regulation, it has been used by some in reference to "jurisdictions that may have state laws, local ordinances, or departmental policies limiting the role of local law enforcement agencies and officers in the enforcement of immigration laws." The very existence of "sanctuary cities" has been the subject of considerable controversy. Supporters argue that immigration enforcement is the responsibility of the federal government, and that local efforts to deter the presence of unauthorized aliens would undermine community relations, disrupt municipal services, interfere with local enforcement, or violate humanitarian principles. Opponents of sanctuary policies argue that they encourage illegal immigration and undermine federal enforcement efforts. The primary federal restrictions on state and local sanctuary policies are § 434 of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA, P.L. 104 - 193 ) and § 642 of the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (IIRIRA, P.L. 104 - 208 ). PRWORA § 434 proscribes any prohibition or restriction placed on state or local governments to send or receive information regarding immigration status of an individual to or from federal immigration authorities. IIRIRA § 642 is broader in scope. It bars any prohibition on a federal, state, or local governmental entity or official's ability to send or receive information regarding immigration or citizenship status to or from federal immigration authorities. The statute also provides that no person or agency may prohibit a federal, state, or local government entity from (1) sending information regarding immigration status to, or requesting information from, federal immigration authorities; (2) maintaining information regarding immigration status; or (3) exchanging such information with any other federal, state, or local government entity. The constitutionality of the foregoing provisions was challenged by the City of New York. The mayor of the City of New York had issued an Executive Order prohibiting any city officer or employee, in most circumstances, from transmitting information regarding immigration status to federal immigration authorities. This Executive Order was in direct conflict with both PRWORA § 434 and IIRIRA § 642. The United States Court of Appeals for the Second Circuit held in New York v. United States ( City of New York ) that PRWORA § 434 and IIRIRA § 642, on their face, do not violate the anti-commandeering doctrine under the Tenth Amendment. The anti-commandeering doctrine prohibits the federal government from commandeering either a state's legislature (e.g., by requiring that a state enact particular regulatory standards ) or its executive officers (e.g., by requiring that state officers directly participate in enforcing federal law ) to achieve federal goals. While this might mean that Congress cannot directly compel states to collect and share information regarding immigration status with federal immigration authorities, merely prohibiting states and localities from blocking their agents from sharing with the federal government information already in their possession may be permissible, according to the Second Circuit, absent specific proof of greater interference with state and local functions. Although several localities reportedly have adopted formal or informal policies limiting cooperation with federal immigration authorities, the precise number is unclear. In 2006, Congress required the Office of the Inspector General (OIG) for the Department of Justice to study and report on whether states and localities receiving federal compensation for incarcerating criminal aliens were cooperating with federal immigration enforcement efforts. Among other things, the OIG was required to determine whether any states or localities receiving compensation were in violation of the information-sharing requirements of IIRIRA § 642. In a January 2007 report, the OIG stated that auditors were able to locate an official "sanctuary" policy for only two jurisdictions that received at least $1 million in SCAAP [State Criminal Alien Assistance Program] funding, the State of Oregon, which received $3.4 million, and the City and County of San Francisco, which received $1.1 million and has designated itself as a "City and County of Refuge." We also located an Executive Order issued by the Mayor of the City of New York limiting the activities of local law enforcement agencies and officers in the enforcement of immigration law. However, in each instance the local policy either did not preclude cooperation with ICE [Immigration and Customs Enforcement] or else included a statement to the effect that those agencies and officers will assist ICE or share information with ICE as required by federal law. The OIG report identified two jurisdictions receiving at least $1 million in SCAAP funding that had official sanctuary policies, but it concluded that neither violated federal law. The OIG estimate of jurisdictions with policies in direct violation of IIRIRA § 642, however, is not comprehensive. While the OIG report indicated that few, if any, jurisdictions that received at least $1 million in SCAAP funding during FY2005 had formal policies violating IIRIRA § 642, the report did not identify, for example, whether any jurisdictions receiving less the $1 million were in violation of federal law. Although IIRIRA § 642 prohibits states and localities from barring the transfer or maintenance of information regarding immigration status, it does not require entities to collect such information in the first place. Reportedly, some states and localities seeking to limit assistance to federal immigration authorities have barred agencies or officers from inquiring about persons' immigration status, a practice sometimes described as a "don't ask, don't tell" approach. Though this method does not directly conflict with federal requirements that states and localities permit the free exchange of information regarding persons' immigration status, it results in specified agencies or officers lacking any information about persons' immigration status that they could share with federal authorities. In the 110 th Congress, several bills were introduced that attempted to limit formal or informal sanctuary policies and induce greater sharing of immigration information by state and local authorities. Some proposals would have mandated that directors of state and local law enforcement agencies report any immigration information collected in the course of the directors' normal duties to the Secretary of Homeland Security, and would have made compliance with this requirement a condition for continued funding under the State Criminal Alien Assistance Program (SCAAP). Other proposals would have required state and local law enforcement officers to provide information to the Secretary of Homeland Security concerning apprehended aliens who are believed to have committed a violation of U.S. immigration laws, and would have provided grants to those agencies that had policies for assisting in the enforcement of U.S. immigration laws. Some proposals would have made compliance with IIRIRA § 642 a requisite for a state or locality to receive specified federal grants or funding. These proposals were not enacted into law. Bills have been introduced in the 111 th Congress to modify requirements on states and localities concerning the sharing of immigration-related information with the federal government. H.R. 150 , the Illegal Alien Crime Reporting Act of 2009, introduced by Representative Walter B. Jones, would bar any state or subdivision thereof from receiving funds under any program or activity administered by the Department of Homeland Security, unless the state reports to the Federal Bureau of Investigation certain immigration-related information regarding persons who have been arrested, charged with, or convicted of a crime by the state. S. 95 , introduced by Senator David Vitter, would prohibit any funds appropriated for the Community Oriented Policing Services Program from being used in contravention of IIRIRA § 642. H.R. 264 , the Save America Comprehensive Immigration Act of 2009, introduced by Representative Sheila Jackson-Lee, would repeal IIRIRA § 642 and PRWORA § 434, thereby permitting states and localities to restrict the sharing of immigration-related information with federal authorities.
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Controversy has arisen over the existence of so-called "sanctuary cities." The term "sanctuary city" is not defined by federal law, but it is often used to refer to those localities which, as a result of a state or local act, ordinance, policy, or fiscal constraints, place limits on their assistance to federal immigration authorities seeking to apprehend and remove unauthorized aliens. Supporters of such policies argue that many cities have higher priorities, and that local efforts to deter the presence of unauthorized aliens would undermine community relations, disrupt municipal services, interfere with local law enforcement, or violate humanitarian principles. Opponents argue that sanctuary policies encourage illegal immigration and undermine federal enforcement efforts. Pursuant to § 434 of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA, P.L. 104-193) and § 642 of the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (IIRIRA, P.L. 104-208), states and localities may not limit their governmental entities or officers from maintaining records regarding a person's immigration status, or bar the exchange of such information with any federal, state, or local entity. Reportedly, some jurisdictions with sanctuary policies take a "don't ask, don't tell" approach, where officials are barred from inquiring about a person's immigration status in certain circumstances. Though this method does not directly conflict with federal requirements that states and localities permit the free exchange of information regarding persons' immigration status, it results in specified agencies or officers lacking information that they could potentially share with federal immigration authorities. In the 110th Congress, several bills were introduced that attempted to limit formal or informal sanctuary policies and induce greater sharing of immigration information by state and local authorities. Bills have also been introduced in the 111th Congress to restrict or expand states and localities' information-sharing requirements.
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Half the nation's electricity comes from coal, and most of that coal is delivered to power plants by railroads. The reliable supply of coal by rail is therefore important to the electric power system. Concern over reliable deliveries of coal and other commodities, limited rail system capacity, and related issues such as rail rates, sparked several congressional hearings in 2006. This report provides background information and analysis on coal transportation by rail to power plants. The report discusses: Problems since 1990 with the rail delivery of coal. Implications of rail capacity limits on service reliability. The role of coal inventories as a backstop to reliable coal deliveries. Proposed legislation intended, in part, to improve the quality of rail service to coal-fired plants and other shippers. The report also identifies data and analysis gaps that complicate measuring the scope of rail service and capacity issues, determining the need for federal action, and evaluating the possible efficacy of proposed legislation. CRS research finds that there have been nine episodes since 1990 in which coal supply to power plants has been disrupted by rail transportation problems ( Appendix A ). The causes of these problems vary, including severe weather; surges in demand; difficulties with rail system integration consequent to railroad mergers; and major, unplanned maintenance programs. The most significant events were probably in 1997 and 1999 (merger-related), and in 2005 (related to unplanned maintenance to western coal lines). Research indicates that each of these events involved major, widespread congestion and concomitant delivery delays. However, the cost consequences of these events appear to be ill defined. We are unaware of any comprehensive cost estimates by the electric power industry, government agencies, or other entities. CRS identified, from scattered electric power industry sources, estimates totaling $228 million in costs from the rail service delays that began in 2005 ( Appendix B ). In addition to these major events, other more persistent indicators of service issues have appeared. The average speed of coal unit trains on the major coal-carrying railroads has generally declined since the early part of this decade. The electric power industry and other industrial shippers claim that the railroads are increasingly unwilling to offer strong service quality guarantees. This may indicate the reluctance, or inability, of the railroads to guarantee service quality when their systems are capacity constrained. Capacity limits on the rail system appear to have contributed to coal transportation service problems. The rail industry has historically been plagued with uneconomic excess capacity. Since passage of the Staggers Rail Act in 1980, the railroads have brought capacity and the demand for rail services into alignment by increasing traffic, shedding assets and staff, and by generally not building new capacity far ahead of near-term demand expectations. It appears that the railroads believe it would be uneconomic to build more buffer capacity to handle service contingencies, and question whether customers would be willing to pay for it. Wall Street has at times encouraged the rail industry to pursue a conservative approach to capital spending. However, without more buffer capacity, the rail network may lose resiliency. Unexpected events, such as bad weather or surges in demand, may be more likely to cause persistent congestion, and delays in deliveries of coal and other commodities. A final aspect of tight rail system capacity is that it seems to have been an important factor in allowing the railroad industry—which has never been found revenue adequate by the Surface Transportation Board (STB)—to significantly increase coal and other rates, and boost profits since 2004. Other factors contributing to the ability of the railroads to raise rates include demand growth and muted competition from trucks (due to cost and capacity issues in that sector). Some parties have also suggested that the increase in rates is indicative of the ability of the rail industry to exercise pricing power, at least in some markets. The Government Accountability Office has performed a limited study of this issue, with inconclusive results. The STB is planning a study of this issue, due to be completed in late 2008. The coal stockpiles stored at power plants are in some respects a backstop to rail system capacity. Power plant coal stocks cannot replace reliable rail service—even large stocks will eventually be depleted by a major transportation disruption, and not all plants have the space to store large amounts of coal—but stocks can act as a "shock absorber," postponing the need for plant operators to find expensive alternative fuel or electricity supplies in the event of delivery delays. Power plant coal stockpiles, measured in days of burn, have generally been declining since the 1970s (stocks dropped by 40% by the latter half of the 1990s). Coal transportation problems likely contributed somewhat to this decline, but a primary factor seems to have been efforts by the power industry to cut costs to improve financial results. In the case of regulated electric utilities, the impetus to cut costs was sometimes at the behest of regulators. The unregulated independent power producers (IPPs), who entered the coal generation market in the 1990s with the advent of power market restructuring, have generally maintained lower stocks then regulated utilities. This may reflect the greater exposure of IPPs to market forces and investor demands. The electric power industry cut stocks even as more coal was shipped long distances from western mines. The decisions made to cut stocks presumably reflected, in part, the service guarantees included in rail transportation contracts, and the receding risk of coal miner strikes as more production came from non-union western mines. Nonetheless, it appears the power industry reduced stocks even as its supply lines lengthened and arguably became more vulnerable. Since 2006, as rail service improved, the power industry has increased coal stocks. In addition to rebuilding western coal stocks depleted due to the rail service problems beginning in 2005, this trend probably reflects recognition of the risk of being caught short on coal supplies given the capacity constraints on the rail network. The stock build also may reflect the difficulty, noted above, the power industry (and other industries) claims to have had securing strong service quality guarantees from the railroads. Several legislative proposals before the 110 th Congress address rail service and other rail issues such as rate levels. These proposals fall into two categories: tax incentives to encourage the expansion of rail system capacity, and regulatory restructuring proposals aimed at changing the rail regulatory regime that has been in effect since the 1980s. The tax incentives are intended to encourage investments in rail system capacity, particularly for investments that expand system capacity. Our understanding is that the incentives would be available to any party making rail-related investments, including, in addition to railroads, power plants and coal mines that make such capital expenditures. The objective of increasing system capacity appears to be broadly consistent with the interests of coal and other shippers who want a more robust and reliable rail network, and of transportation planners who believe the market should have more options for moving some freight traffic off of highways. By effectively reducing the cost of capital expansion, the tax incentives also seem to address the reluctance of the rail industry to take on the additional financial risks inherent in greater capital spending. Issues that may be of interest in evaluating the tax incentive proposals include: Scope of the Problem and Information : There is limited public information on rail system capacity or service for coal shipments and other traffic. This makes it difficult to quantify the current rail capacity and service situation, and would make it difficult to measure any benefits that flow from rail tax incentives. If there is interest in having the government collect and publish additional service and capacity data, a potential issue is data confidentiality. The rail industry may consider detailed capacity and service data to be business sensitive and proprietary. If data confidentiality is a concern, steps can be considered to prevent disclosure of confidential information, such as by aggregating or otherwise masking carrier-specific data. Expected Outcomes : Coal shippers appear to want a fluid, resilient rail network able to operate reliably even under adverse conditions. However, this may imply a level of investment in buffer capacity that the rail industry would find undesirable and unaffordable, even with tax incentives. As noted earlier, excess capacity has historically been a financial burden on the railroad industry; more recently, the close balance between rail capacity and demand appears to have contributed to the ability of the industry to raise rates and increase profits. Because of these factors, the response of the railroad industry to tax incentives may be cautious and yield limited, not system-wide, improvements in capacity and service quality. Control : Some groups have argued that the public should have more control over how the rail tax incentives would be used. The rail industry believes that the direction of rail system investments should be left to private managers who have the best information on railroad capacity constraints and traffic patterns. Another consideration is that it may be difficult to implement some proposals for limiting the tax incentives to certain categories of traffic, such as coal shipments to power plants captive to a single railroad. As pointed out by transportation system analysts, railroads are networks, so an investment in one location can have wide effects. It may therefore be difficult to determine if a specific investment will primarily benefit any one category of traffic. The regulatory restructuring proposals include bills that would remove certain antitrust law exemptions that apply to the rail industry, and bills that would more generally revise the current regulatory scheme. The intent of the bills appears to be to use new regulatory rules to introduce more competition into the rail industry. The concept is that more competition will lead to innovation and cost reductions that will improve coal and other service, decrease rates, and help the rail industry win new business. The railroad industry characterizes these proposals as "re-regulation." It argues that the proposals would inhibit the pricing and operational freedom that has been important to the revival of the rail industry, and would cause the industry's finances and service quality to regress. The emphasis in the regulatory restructuring proposals on enhanced competition appears consistent with an underlying principal of the current regulatory regime, which is "to allow, to the maximum extent possible, competition and the demand for services to establish reasonable rates for transportation by rail" (49 U.S.C. § 10101). However, the proposals would accomplish this goal through new rules and government oversight, so depending on how the goals outlined in the proposed legislation are actually implemented there is a risk that the outcome could be, at least to some extent, more regulatory control instead of more reliance on the market. In general, the outcomes from the regulatory restructuring bills may depend heavily on the details of implementation. Other factors that may be of interest in evaluating the regulatory restructuring proposals include: Scope of the Problem and Information : Are the coal and other rail service reliability and related issues (such as rates) of sufficient severity to justify major revisions to the current regulatory framework? This is arguably an open question because of the limited available data on rail service, rates, and the degree to which coal and other shippers are subject to market power. Financial Condition : A central objective of the Staggers Rail Act of 1980 was to restore the long-term financial health of the railroad industry. An evaluation of regulatory restructuring may turn in part on whether the rail industry has achieved this goal of "revenue adequacy." However, the reliability of the STB's annual revenue adequacy determinations is uncertain. Some parties contend that various aspects of the STB's methodology are flawed. Based on a review of financial literature, one technical criticism seems to have particular significance. This criticism is that the STB, by using a specific computational approach (a "single-stage discounted cash flow" model) in combination with the recent high rates of earnings growth in the railroad industry, has overstated the railroad industry's threshold for achieving revenue adequacy. A more general concern is also suggested by a review of financial literature. This is whether the STB's reliance on one financial ratio to determine if a railroad has achieved revenue adequacy may put too much weight on a single metric. A contrast can be drawn to typical electric power rate cases, where an evaluation of multiple factors by the regulatory body is used to determine a utility's rate of return. Service Focus : as an alternative to extensive revision of the current regulatory regime, could more limited changes result in material improvements in coal rail service? If otherwise desirable, a more limited agenda might include elements of current proposals, including giving rail service problems and their resolution greater public visibility; creation of a rail public advocate; and new requirements in the law for reliable rail service. The remaining sections of this report include: Background: Coal and Rail in the U.S. Power System. Background: The Railroad Industry. Railroad Capacity. Railroad Service and Disruptions in Coal Transportation. Rail Rate Trends. Analysis of Legislative Proposals: Tax Incentives. Analysis of Legislative Proposals: Regulatory Restructuring. Coal has historically fueled about half the electricity generated in the United States. The federal Energy Information Administration (EIA) projects annual coal burn by power plants to increase 21% between 2005 and 2020 (by 223 million tons per year). The great majority of this coal would move to power plants by rail. Railroads accounted for over 70% of coal shipments to power plants in 2005. The balance moved by truck, barge, and conveyor. Most coal moved by rail because coal mines are often distant from power plants, and rail is usually the most economical means for moving bulk commodities long distances. Truck shipments of coal are generally uneconomic over about 50 miles; barge is practical only for mines or power plants near navigable water; and conveyors can be used only if a power plant is adjacent to a coal mine. For most power plants the only feasible means of shipping coal is by railroad. The importance of rail transportation of coal has grown as more western coal is shipped long distances to Midwestern, southern and eastern markets. In 2005, 52% of coal production (585 million tons) came from mines located in western states, compared to 29% in 1983. EIA projections show the western share increasing to 58% by 2020. The growing use of western coal means greater national dependence on long rail hauls of coal to fuel power plants. The Powder River Basin (PRB) in Wyoming and Montana (see Figures 1 and 2 ) is the nation's most important source of coal. In 2005 the PRB accounted for 38% of all coal produced in the United States (430 million tons), making it not only the largest source of coal, but the nation's largest single source of any fuel for electricity. PRB coal is in high demand due to its environmental and cost advantages. PRB coal emits fewer air pollutants when burned than most coal. The coal is found in seams dozens of feet thick located near the surface, so it can be strip-mined at low cost. Economical transportation, primarily by rail, has made it practical for PRB coal mined in Wyoming to fuel power plants in Georgia. The PRB is in the lightly-populated northern plains. To reach the nation's population and power generation centers the coal must be transported by railroad. Although some PRB coal is transferred from rail to water for final delivery to power plants, almost all shipments originate on railroads. The large volume of production in the PRB means that the nation's largest single source of fuel for electricity rests on one concentration of infrastructure located in a limited geographic area. All of this coal comes from 18 mines, most in northeastern Wyoming. PRB shipments are originated by one of two railroads, the Union Pacific Railroad (UP) or the Burlington Northern Santa Fe Railway (BNSF), and most PRB traffic begins the journey to consumers by traveling over a single rail corridor, the 103 mile "Joint Line" in Wyoming ( Figure 2 ). Handling over 60 loaded coal trains a day, each train more than a mile long, the Joint Line is the busiest stretch of railroad in the world. Once out of the PRB, most of the coal travels over a handful of major rail corridors to consumers. PRB rail capacity and routing options may increase if a long-planned project to build a new rail line into the PRB comes to fruition. The Dakota, Minnesota & Eastern Railroad (DM&E), a regional ("Class II") carrier that currently serves grain markets in the northern plains, proposed in 1997 a multi-billion dollar project to open a new route into the PRB. The project would involve upgrading 600 miles of existing rail lines and building about 250 miles of new track. If completed, the DM&E project would open a new outlet for PRB coal into the Midwest, bypassing the Joint Line and the existing BNSF and UP main line rail corridors (see Figures 3, 4, and 5 ). Although the DM&E project has been in development for many years and received regulatory approvals, it has never begun construction and there is no firm initial operating date. The backers have been unable to secure the financing needed to launch the project. In February 2007 the Federal Railroad Administration (FRA) rejected the project's application for a $2.3 billion loan guarantee, concluding that the project was too risky to commit public funds. The project has also been opposed, at least without changes to the routing, by some landowners and communities on the project's route, in particular by the city of Rochester, Minnesota, and the Mayo Clinic. In September 2007 the Canadian Pacific Railway, a large ("Class I") carrier with operations in the United States and Canada, announced a plan to purchase the DM&E, fold it into the CP system, and possibly pursue the PRB project. Although CP expects to close the acquisition before the end of 2007, it would not actually take control of the DM&E until and if control is approved by the STB. CP expects the STB to complete its review by the end of 2008. Based on statements by CP, there is no assurance as to if or when it will commit to building the PRB project. CP stated that it is buying the DM&E based on the DM&E's access to U.S. agricultural and ethanol markets, and it characterized the PRB project as potential "icing on the cake," not as the centerpiece of the deal. Other information indicates that CP's horizon for starting construction could extend as far as 2025, although CP has said that it may make a launch decision within three years. Other observers reportedly claim that "CP would not have paid so much for the deal if it did not intend to pursue the PRB plan...." If CP decides to proceed and is able to do so, the expected construction time is reportedly two to three years. The DM&E's PRB line would be one of the largest rail construction project in the U.S. in more than a century. If the project is ultimately built, it would add a large amount of capacity to the biggest U.S. coal transportation market. The project could reportedly access, mainly through connecting railroads, up to 101 coal-fired plants. The U.S. rail industry consists of two broad categories of companies: seven Class I carriers that move the vast majority of rail traffic, and about 553 regional and short lines that either feed traffic to the Class I railroads or make final delivery of freight shipped on the big carriers. These railroads play an important role in freight transportation. As described by the American Association of State Highway and Transportation Officials (AASHTO), "in the 'freight transportation service spectrum,' rail occupies a place between and overlapping water transport and trucking. It competes with water transport for heavier, lower-value, less time-sensitive commodities. It competes with trucking for higher-value, often containerized, shipments moving over longer distances. And it is the preferred mode for a number of economically important, but heavy and bulky commodity groups, such as coal, farm products, and minerals." Within the group of seven Class I railroads, most rail traffic is carried by four dominant carriers: In the western states, the UP and BNSF ( Figures 3 and 4 , above), and in the eastern states, the Norfolk Southern Railway (NS) and CSX Transportation (CSX; Figures 6 and 7 , below). These four carriers are the industry giants, accounting in 2005 for 92% of Class I railroad operating revenues. The rail industry is sometimes characterized as consisting of two duopolies, one in the east and one in the west. The actual situation may be more complex. The degree to which the railroads have market leverage appears to vary by commodity, individual customer, geography, and other factors. For example, in general the railroads face more competition from trucks for general merchandise shipments than for coal and other heavy bulk goods. A coal-fired plant with access to barge shipments of coal has more competitive leverage in the transportation market than a plant remote from navigable waterways served by a single railroad. The competitive environment also changes over time. As discussed in the report's section on rates, coal rates declined for many years but have more recently increased sharply. The extent to which the rail industry is able to exercise market power appears to vary across markets and time. Since 2004 the freight market has been especially favorable for railroads. For reasons discussed later in this report, the rail industry has been able to significantly increase rates, which have translated to strong financial results. In May 2007, UBS Investment Research concluded that "the North American railroads are in their best financial shape in decades as the so-called rail renaissance enters its fourth year in 2007." According to Standard and Poor's, Class I railroad industry profits grew by 46% in 2005 and 32% in 2006, and return on investment also improved substantially. (Note that these results are not necessarily equivalent to the railroad industry achieving the regulatory goal of revenue adequacy, as discussed elsewhere in this report.) Today's highly concentrated and increasingly profitable rail industry contrasts with the situation in the 1970s. Prior to 1980 the rail industry included 39 Class I railroads, many in poor financial and physical condition. Current policy debates are colored by the history of the railroads, in particular by concerns, expressed by some parties, that changing the existing regulatory system could cause the rail industry to regress, financially and operationally. Until the mid-1970s, the rail industry labored under tight federal regulation. The Interstate Commerce Commission (ICC) controlled rail rates, conditions of service, and construction and abandonment of rail lines, and had authority over proposed railroad mergers. This regulatory system was designed for a 19 th and early 20 th Century transportation market dominated by railroads and characterized by "indiscriminate construction, market manipulation, rate abuses, and discriminatory practices against certain types of freight customers and passengers." But by the 1920s the railroads faced increasing competition from trucks and barge shipments. While trucks and barge companies had significant freedom to adjust rates and terms of service to meet market needs, regulation handicapped the ability of the railroads to respond to competition and changing market conditions (regulation did not insulate the industry from periodic booms and busts related to overall economic trends). Between 1950 and 1975 the railroad share of domestic surface freight shipments declined from 63% to 50%, with most of the market share lost to trucks (see Figure 8 ). The loss of market share was accompanied by financial and physical decay. In 1970 the Penn Central, the major northeastern railroad, collapsed in what was then the largest bankruptcy in the nation's history. Other large carriers also failed, and for the industry as a whole returns on investment dropped to low levels (just over 1% in 1975). The railroad industry was in "serious economic decline." By 1976, 15% of the route miles of the entire Class I rail system were owned by bankrupt carriers. Most of the northeastern rail system had been absorbed within a government-owned corporation, Conrail. In part because of the reluctance of the ICC to allow railroads to abandon lightly-used rail lines, the railroad industry was operating thousands of miles of uneconomic railroad. According to a 1978 U.S. Department of Transportation (DOT) report, "the railroad industry finds itself in the worst economic condition of any privately operated mode of transportation," with very low return on investment, deteriorating physical plant, and, if trends continued, the likelihood of more railroads falling under government control. As difficult as the picture appeared, the extent and depth of the rail industry's troubles in the 1970s and early 1980s should not be overstated. The financial and physical condition of the rail industry in the 1970s was mixed, not uniform. The 1978 report by DOT cited above, in addition to cataloging the rail industry's troubles, also concluded that the weakness of the rail industry was to a degree a regional problem centered in the Northeast and Midwest, where problems were most severe, and that other parts of the industry were in reasonably good financial and physical condition. The investment analysis firm Standard and Poor's, writing in 1979, found that "the financially strong and profitable carriers should be able to fund their sizable [capital] requirements from internally generated monies, and excellent credit standings will provide access to the debt and equity markets....the negative industry picture masks sectors of acute weakness and relative strength." As DOT concluded in 1978, "parts of the [rail] system are sick, but the system as a whole is far from dead." Congress decided to address the ills of the rail industry with deregulation. In October 1980, Congress passed the Staggers Rail Act ( P.L. 96-448 ). This legislation, and its implementation by the ICC and the successor STB, created the current railroad regulatory regime. The Staggers Act established a 15-point national Rail Transportation Policy, including: (1) to allow, to the maximum extent possible, competition and the demand for services to establish reasonable rates for transportation by rail; (2) to minimize the need for Federal regulatory control over the rail transportation system and to require fair and expeditious regulatory decisions when regulation is required; (3) to promote a safe and efficient rail transportation system by allowing rail carriers to earn adequate revenues, as determined by the Board; (6) to maintain reasonable rates where there is an absence of effective competition and where rail rates provide revenues which exceed the amount necessary to maintain the rail system and to attract capital; (12) to prohibit predatory pricing and practices, to avoid undue concentrations of market power, and to prohibit unlawful discrimination. These points illustrate the balancing aims of the Staggers Act: to allow competition to determine the operation of the rail freight market, to provide for the financial recovery of the rail industry, and to protect shippers from abuses of market power. Within this balance, restoring the financial integrity of the railroad industry was a primary objective. According to the conference committee report: The overall purpose of the Act is to provide, through financial assistance and freedom from unnecessary regulation, the opportunity for railroads to obtain adequate earnings to restore, maintain and improve their physical facilities while achieving the financial stability of the national rail system. The act and its implementation by the ICC and STB have given the railroads wide discretion to freely set coal and other rates in response to market conditions. As directed by the act, the ICC exempted almost entirely from regulation categories of traffic with general access to competitive transportation options, such as most agricultural commodities and intermodal shipments. Shippers of traffic potentially subject to railroad market dominance and rates that could be unreasonable, such as coal and grain shipments, retained the option of appealing rates to the ICC. However, rates could be appealed only if the shipper could demonstrate that it was "captive" to one railroad; that is, it had no credible competitive alternative for receiving coal other than delivery by a single railroad. The act also provided for: Faster processing of railroad applications to merge, and of requests to abandon, sell, or lease track a railroad no longer wanted to operate. The Class I railroads responded with rapid consolidation and contraction of parts of its physical plant. Between 1980 and 2002, the Class I rail industry shrank from 39 carriers to the current seven, of which four account for most traffic and revenues. Other things being equal, the most profitable business for a railroad is typically long-haul movements where the entire route is on its own tracks ("single-line" movements). But past regulatory practice had required railroads to offer joint (multi-carrier) rates "on practically all possible combinations of railroad tracks between two points," and to offer identical rates for each route "without regard to the actual cost of providing the service." Staggers gave a railroad wide discretion to rationalize its traffic flows by canceling joint movements, changing rates, and funneling traffic to its single line routes. This was economically beneficial to the railroads, but potentially reduced the competitive routing options available to coal and other shippers. However, Staggers gave the ICC new authority to direct railroads to interchange traffic when in the public interest or "necessary to provide competitive rail service." Railroads were given an unambiguous right to enter into confidential contracts for rail service, with rates and service terms customized for specific customers. The terms of contracts are outside of regulatory jurisdiction. The Staggers Act left substantial regulatory powers with the federal government, including rate appeals for non-exempt traffic, authority to approve and condition mergers, authority to direct railroads to routinely interchange traffic at designated gateways when in the public interest, emergency powers to direct rail traffic in the event of disruptions to railroad service such as severe congestion, authority to proscribe unreasonable business practices by railroads, and authority to require financial and operations reports by the rail industry. The ICC Termination Act of 1995 ( P.L. 104-88 ) replaced the ICC with the STB, an independent regulatory agency with a three-member board administratively housed within DOT. The ICC Termination Act made other relatively limited changes to rail regulation, and essentially left intact the regulatory regime created by the Staggers Act and the ICC. Since the rail industry was largely deregulated in 1980, the Class I railroads have dramatically improved their productivity. However, cost-efficiency and revenue generation has improved more slowly, and in some respects service quality has improved little or not at all. The basis for these conclusions is discussed below. Railroads have improved their productivity by introducing improved technology and management practices; abandoning, leasing, or selling lightly-used rail lines; cutting payrolls; and employing their assets much more intensively than in the past. As shown below in Table 1 , employment by the Class I railroads dropped by 65% between 1980 and 2005, and miles of railroad operated declined by 42%. At the same time traffic increased substantially. Revenue ton-miles increased by 85% between 1980 and 2005. The fastest-growing major railroad business line was intermodal traffic, with units shipped up 277%. Coal traffic increased by 54% for the same period. The railroad share of all domestic surface freight, after reaching bottom at 46%, has slowly increased back to 50% ( Figure 8 , above). The railroads were able to move more traffic with fewer employees and a smaller system by greatly improving the utilization of their resources and increasing traffic density. Between 1980 and 2005 freight-revenue ton-miles per employee increased by 425% and ton-miles per mile of road grew by 217% ( Table 1 ). As shown in Figure 9 , the gains in productivity have generally been steady over time. Improvements in railroad cost efficiency and revenue generation have been harder to consistently achieve than the gains in productivity. As shown in Figure 10 , operating cost per revenue ton-mile, tracked in constant dollars, declined by over 50% between 1983 and 1996, but has shown little improvement since. The revenue margin (the difference between operating revenues and operating costs), also tracked in real dollars, has moved erratically over time, declining from the mid-1990s until it began to sharply increase in 2004 and 2005. As discussed later in this report, the improvement in real-dollar margins after 2003 is consistent with reported increases in rail rates due to tight capacity and other factors. The railroads have achieved some cost reductions by encouraging or demanding the transfer of costs from the carriers to shippers. For example, the railcars on a coal train can be either railroad-supplied or "private" cars supplied by the shipper. Railroads have offered rate discounts to encourage power companies to provide railcars, freeing the railroads of coal car investment and maintenance costs. Many power companies now provide the railcars used to move coal to their power plants. Between 1987 and 2007 the percentage of coal shipped in private railcars grew from 47% to 68%. Cost-shifting combined with rate reductions can save money for railroads and shippers. However, the utility industry claims that as rail capacity has tightened and the market power of the railroads has increased, railroads have sometimes insisted that power companies "pay for substantial infrastructure improvements identified by the railroad as a condition for discussing or providing rates and service terms." From the power company perspective these costs may be "onerous;" from the standpoint of the railroad this may be a rational response to a situation in which rail capacity is tight and the carrier must stretch a limited capital budget. The national rail system generally had substantial excess capacity when the railroad industry was largely deregulated in 1980. The railroads have since brought their capacity and volume of business into alignment by increasing traffic; selling off, leasing, or abandoning surplus track and equipment; and by cutting staff. They have also added capacity in some sectors; for example, to support intermodal traffic and PRB coal shipments. The changing traffic mix on the rail system has also contributed to tighter capacity. There is a tradeoff between the number of coal and other bulk cargo trains running on a system versus high-speed/high-priority intermodal traffic. To compete against trucks, rail intermodal traffic must be price competitive and offer speed and timeliness. Consequently, intermodal traffic usually takes priority over coal trains (and other freight traffic). When intermodal and coal trains are in conflict for the same segment of track, the intermodal train is typically allowed to run through while coal and other traffic is moved to a siding or otherwise held. In general, when trains of varying speeds are mixed on a rail system and the faster trains are given priority, the effective carrying capacity of the slower trains—the amount of cargo they can move over a given period of time—is reduced. A capacity-constrained rail network may lack resiliency and have limited ability to deal with unexpected events (e.g., bad weather, mechanical failures, unexpected growth in demand). Shocks to the system can result in widespread and prolonged congestion. According to 2006 congressional testimony by the FRA, "... events that once would have had little effect now cause major disruptions throughout the rail network, because there is no reserve capacity." As explained by the Congressional Budget Office (CBO): Capacity can be constrained by a shortage of any critical input—infrastructure (for example, tracks or switching systems), equipment (locomotives and other railcars), or labor. And because the transportation industries are networks, the existence of capacity constraints at one key junction or along one key corridor can cause delays that cascade throughout the system. A late afternoon thunderstorm at a hub airport, for example, can cause airplanes destined for that hub to be grounded at numerous other locations. Even people traveling between cities with clear weather may be delayed, either because they have to travel through the disrupted hub or because the aircraft they are supposed to fly aboard has been held up. Such effects can occur in the freight rail industry.... Unlike airlines, which can "reset" their networks relatively quickly because of the mobility of aircraft and their freedom from fixed infrastructure except at the origin and destination, railroad equipment has limited mobility within a system of track and yards that cannot be appreciably expanded or modified over the short term. Consequently, congestion on rail networks can persist for weeks or months. When a rail system is congested it loses "fluidity." As the term suggests, the system slows down. Trains are late and the railroads may be unable to carry all the traffic a shipper has contracted for or otherwise wants to move. A congested railroad may not be able to deliver all of the coal required by generators, and power plants can run short of fuel. Tight capacity and consequent risks of delays in rail service have been identified since at least the mid-1990s. According to a 1998 White Paper by an advisory panel to the STB, "the serious railroad transportation problems experienced in 1997 throughout the United States prompted [our analysis of] whether rail infrastructure continues to be capable of efficiently moving the volume of goods demanded by citizens. Our conclusion is that ... our rail system has reached the point of being capacity constrained." The Wall Street Journal reported in 1998 that "railroads say they increasingly are caught short of the resources to handle more business." Railroads have several avenues for increasing capacity, including: Running more trains . However, operating more trains is not always an effective means of increasing capacity. If a system is already congested or on the edge, adding more trains can trigger or exacerbate slowdowns. Running trains faster . Greater velocity allows a railroad to move more traffic with the same amount of equipment. Railroads can increase velocity through capital improvements that de-bottleneck the system and by streamlining train handling procedures. Running trains closer together . A minimum headway between trains is required for safe operations. If the headway can be reduced the density of trains on the system increases. The freight railroads are testing advanced braking and train control systems that could reduce headway. Running bigger trains. By increasing the number of cars in a train and using more locomotives a railroad can deliver more coal with fewer trains, releasing capacity for new coal traffic or other business. The biggest coal trains in routine power plant service currently have 135 cars and tests are underway on 150 car trains. Installing and improving track . Examples include adding double-track and more sidings to heavily-used rail corridors, straightening curves that force trains to slow down, replacing light-duty rail with heavier track that permit faster and heavier trains, and expanding or building new rail yards and intermodal terminals. Technological improvements . New technology has historically been instrumental to increasing rail system capacity and productivity. Examples include more powerful and reliable locomotives, light-weight aluminum railcars that carry more coal than steel cars, and track-side sensors that can detect and automatically alert a train crew to incipient equipment failures before a railcar breaks down. Adding and managing staff. Personnel planning and management is essential to fluid rail operations. At the system level, railroads want to avoid overstaffing but must have enough crews to handle traffic. In 2004 the UP was caught short-staffed, causing delivery shortages and delays for power companies and other shippers. Because it takes months to train new crews, staff shortages cannot be quickly eliminated. At the individual train management level, railroads must precisely synchronize the positioning of coal and other long-haul trains with relief crews. A train must stop, wherever it is, when its crew reaches the end of its 12 hour shift. The train will sit idle until the railroad can transport a new crew to the train. Stalled trains can block tracks and delay other trains, causing more crews to reach the end of their shifts remote from crew change points. These delays can cascade through a rail system, causing widespread congestion. Railroads allocate capacity, current and planned, to balance customer demands, operational constraints, and the railroad's financial goals. As discussed above, capacity is routinely allocated by assigning priorities to different classes of rail traffic. The highest priority is given to passenger traffic and to time-sensitive, truck-competitive intermodal traffic. The lowest priority is given to bulk shipments, such as coal trains. Another means of allocation is through pricing. Under federal law railroads are "common carriers" that are required to provide service, when reasonably practicable and on reasonable terms, to any requesting shipper. In practice, the rail industry uses "price rationing of available capacity" (also known as "congestion pricing") as a means of managing traffic. According to AASHTO, in some cases railroad companies use high prices to "de-market" business in order to release capacity that can be used more profitably and to prevent overloading of their systems. As explained by the Union Pacific railroad: We ... need to maintain a balance between the traffic we accept and the capacity we own. We maintain this balance as any other business would in the marketplace: we adjust prices to reflect demand in the market, at least where contracts give us that freedom. If we fail to act in this responsible manner, we could again be overwhelmed by more traffic than we could handle and suffer severe congestion, a situation we encountered in the fall of 2003 when traffic surged unexpectedly. Requiring us to satisfy all demand and requiring us to provide reliable service on infrastructure that lacks capacity to meet every shipping demand would put us in an impossible position. Railroads, and other transportation modes, can also deal with capacity shortages by reducing the quality of service, generally or for some customers. As described by a former railroad executive, "A railway may simply accept lower standards of service during peak times or lower service quality for some customers. A strategy of poorer service or higher rates during peak times is a de facto reality with all transportation modes today." Most of the options for increasing railroad capacity involve capital investment in equipment or infrastructure. In addition, railroads must invest large sums annually to renew or replace their existing capital stock. Railroads are consequently much more capital intensive than most businesses and comparable to electric power companies. Over the period 1998-2005, the Class I railroads spent on average the equivalent of 17% of their annual revenues on capital investment, compared to 3% for all manufacturing industries and 5% for the truck transportation sector. As shown in Figure 11 , Class I railroad capital spending in real dollars has varied since 1983, in part tracking the overall economic performance of the rail industry: Investment grew strongly in the mid-1990s, peaking at $7.6 billion (constant 2000 dollars) in 1998. The railroads invested to meet expected demand growth and to integrate merged rail systems. Following the 1998 peak, capital expenditures dropped by over a third to a recent low of $5.0 billion (constant 2000 dollars) in 2001. Factors in the decline include the 2001 recession, efforts by the railroads to pay down debts and resolve operating problems associated with the mergers of the 1990s, less demand growth than anticipated, and generally mediocre financial performance in the latter part of the 1990s. Since 2001, railroad capital spending has increased continuously to an estimated $7.2 billion (constant 2000 dollars) in 2006, 43% higher than the 2001 trough and on-par with the peak years of the 1990s. The recent growth in capital expenditures has been almost directly proportional to the increase in operating revenues that has resulted from volume growth and higher rates. Railroad capital spending as a percentage of revenues has been relatively steady from 2000 through 2005 at 15% to 16%, compared to 22% in 1998. Railroad capital investment proportional to traffic has also been steady since 2000, varying, in constant 2000 dollars, from a low of 3.3 mills per revenue ton mile in 2001 (a mill is a tenth of a cent) to a high of 3.7 mills per revenue ton mile in 2005. This compares to 5.5 mills in 1998. This pattern, in which capital investment changes in-step with growth in revenue and traffic but not more rapidly or slowly, appears to be consistent with the industry's stated approach to capacity expansion. In order to improve their return on investment, the railroads tailor investments to the expected change in demand over the short term. They do not "build ahead" of short-term demand forecasts. As one former industry executive explains, "[T]oo much capacity (again, track, terminals, cars, locomotives, and crews) means that financial returns decline and the availability of capital becomes more expensive. So management is in a constant struggle to create 'just in time' capacity; having the needed resources in place when needed and not six months too soon or six months too late." According to the President of the Association of American Railroads (AAR), a "build ahead" approach is financially unviable: ... to contend that railroads can afford to have significant amounts of spare capacity on hand 'just in case'—or that shippers would be willing to pay for it, or capital providers willing to finance it—is completely unrealistic. Like other companies, railroads try to build and staff for the business at hand or expected soon to be at hand. "Build it and they will come" has rarely been a winning strategy for freight railroads. A related point is that when a railroad expands its asset base it also incurs on-going costs for operating and maintaining those assets. Because rail investment tends to be long-lived, railroads focus their investment dollars where they can either expect long-term traffic and revenues, or can recover investments quickly. In trying not to build capacity too far ahead of, or behind, demand, railroads are not unique; the same capital budgeting problem can face any firm. In respect to coal traffic, the railroad industry, and the coal production and power industries, must deal with long-term strategic questions in making investment decisions. Because of actual or prospective actions at the state and federal levels in such areas as carbon emission controls, enhanced controls on other air emissions, and encouragement of renewable energy sources, there is uncertainty concerning the volume and source of future coal flows. The degree of this uncertainty has not stopped coal-related investment, as evidenced by continuing railroad investment in coal traffic and power company construction of new coal plants. Nonetheless, these uncertainties and incomplete information complicate long-term investment planning for railroads. For example, according to a trade press report: Eastern U.S. coal producers and railroads are moving to better plan for coal-sourcing shifts in the East, calling on the STB for assistance, as one railroad [CSX] cites a lack of solid information on which to base capital expenditures.... [According to the railroad] CSX recognizes the coming shift, but the railroad has little solid information to go on. A conservative approach to capital investment has been encouraged at times by Wall Street; for example, an investment analyst testified to Congress in 2001 that "investors, again becoming aggravated by poor returns, are now pressuring railroad management to cut back on capital expenditures." Tight rail system capacity has also helped the railroads increase rates and profits. The chief executive officer of the BNSF noted in a 2007 STB hearing that it has taken about 25 years for the rail market to find an "equilibrium of demand and capacity," and in such a market rail rates will tend to rise. The GAO identified a "capacity-constrained environment in which the demand for [rail industry] services exceeds its capacity in some areas" as contributing to rate increases. There are no firm estimates of how railroad capital spending is divided between system maintenance and capacity expansion. A rough estimate is that the railroads dedicate about 15% to 20% of their annual capital spending to capacity expansion, or about $1 billion to $2 billion. Industry-wide data are unavailable on how much of the capacity-expansion investment made by the railroad industry is attributable to coal shipments, but data for the BNSF suggests that coal-specific spending can be highly variable. As shown in Figure 12 , BNSF's annual coal-related capacity-expansion capital spending varied from over $400 million (constant 2000 dollars) to zero during the period 1994 to 2005. In addition to investments by railroads, coal producers and power companies install coal train loading and unloading facilities. Modern facilities load and unload the largest trains in four hours or less, compared to older equipment which can take 24 hours to process a train. Large mines, as in the PRB, also build "landing spots"—holding tracks which position trains off the main lines and close to the mine, ready for loading on short notice. These investments increase system capacity by improving train utilization. However, there appears to be no compiled historical data or tracking of these investments by the electric power industry or otherwise, so a clear picture of the past, current, or projected future spending by mining and power companies on rail-related infrastructure is unavailable. Policy development would probably benefit from quantitative measures of railroad capacity utilization and service quality. However, most of the public information on railroad capacity are anecdotal. This is in contrast, for example, to the industrial capacity utilization indices published by the Federal Reserve Board. The unavailability of public data on rail capacity is in part because rail system capacity is difficult to measure and define. Another consideration is that the rail network is privately owned, and capacity data may be considered proprietary by the railroads. However, as discussed below, these complications are not in themselves insuperable barriers to making more data on rail system capacity publicly available. One study broadly defines rail capacity "as the greatest possible output while maintaining a specified minimum acceptable level of service (e.g., a minimum speed)." However, this kind of formulation does not address a host of complications. There are in fact no standard definitions or measures of rail system capacity. As noted by the CBO, the concept of transportation network capacity is "elusive." A measure of rail system capacity is ultimately a function of the assumptions made by the analyst. The U.S. rail network has 70,000 origin-destination pairs, many routing options, and carries a wide variety of products. The carrying capacity of a section of railroad depends on the quality of the track, whether the corridor is single-tracked or double-tracked, the number and length of sidings, and the type of signaling system installed. Railroads move trains over the network at varying speeds, depending on the quality of service needed to compete with trucks or barges, the weather, maintenance programs, and the condition of the track. Capacity is also a function of the cost of service the railroad is willing to incur and which shippers are willing to pay. Without a consideration of cost, "the concept of capacity is meaningless." Railroad network capacity is consequently not a single metric, but is different for each type of traffic, and depends on the assumptions made for traffic mix, acceptable costs, and many other variables. Since the amount of capacity on a rail network is hard to pin down, the degree to which total capacity is being utilized is also "elusive." In spite of these complications, estimates of rail system capacity and capacity utilization are developed and used by the rail industry itself. The drivers of rail system capacity have been defined by railroad executives and other analysts; for example, the BNSF lists volume, train density, physical plant elements, and productivity as determinants of system capacity. And while the practicality (and utility) of encapsulating the capacity utilization of an entire rail system in a single index number may be questionable, it is possible to define capacity for key corridors and categories of traffic for a given set of assumptions. For instance, in the past CSX has reported the degree of capacity utilization on its network for general merchandise traffic and for intermodal traffic. Union Pacific has described its capacity situation in terms of specific corridors: [Capacity] ... is by certain corridors. Like the Sunset Corridor [from Los Angeles to El Paso]. We're at capacity on the Sunset Corridor. We are pressing capacity on the South Central [corridor] between Los Angeles and Salt Lake City. There's other areas we are not at capacity. So ... it's a little more complicated answer than probably you would like to hear but [in] some areas [with] the railroad we're bumping capacity [and in] other areas we are still in pretty good shape. Railroads estimate the current and projected capacity of parts of their systems in order to make investment decisions. An example is the critical Joint Line in the PRB, the nation's most important coal-carrying rail line. According to BNSF and UP: For many years, CANAC, a Montreal-based rail engineering firm, has been evaluating [for the railroads] PRB coal production forecasts and both railroad and mine infrastructure capacity needed to support forecasted production. Recommendations for railroad capacity proposed by CANAC in 1999 ... will be fully implemented by September 2006.... CANAC began a new study of the Joint Line in early Fall 2005.... In response, Union Pacific and BNSF have advanced construction plans to add the more than 40 miles of third and fourth main line capacity to meet the annual projected growth in demand for S[outhern]PRB coal in 2007 through 2009. In summary, while a system-wide capacity index may be difficult or impractical to develop, corridor-specific capacity measures appear to be meaningful and feasible. However, the federal government does not collect the data needed to estimate rail system capacity or require the railroad industry to provide estimates. The Association of American Railroads doubts the value and feasibility of publishing capacity estimates. In September 2006, the National Industrial Transportation League (NITL, an industrial shipper trade association which has at times raised concerns over rail industry service) suggested to the AAR a joint project to "create an objective measure of capacity for the rail industry." NITL stated that even if not entirely precise, "given the significant public dialogue about the need for increased rail capacity, such a metric would allow rail carriers, their customers and the public sector to gain a better view of the [capacity] problem." AAR's response was that creation of a capacity metric was probably impractical. Because the rail system is so complex, "... it is difficult to believe that meaningful aggregations or comparisons across railroads can be obtained." The AAR was concerned that compared to the basic performance measures, such as train speed, already publicly available, a capacity index would be "far more complicated, considerably less applicable to any particular circumstance, and potentially subject to greater misuse." Nonetheless, as noted above, capacity estimates are made and used by railroads. While the possibility of misuse or misinterpretation of capacity estimates exists, this same risk presumably can exist for any metric of economic activity. As discussed later in this report the absence of published railroad capacity estimates may impede informed analysis of rail and coal transportation policy. It also can impede efficient private-sector decision-making. In a 2007 STB hearing, the Canadian National Railway suggested that the STB "consider organizing efforts by the railroads and shippers to project future traffic growth over capacity-constrained lanes. This could help lead to efforts to direct investment dollars more efficiently." Some or much of the relevant data may be considered confidential by the railroads, coal producers, and power companies. GAO found in 2006 and 2007 studies that the railroads considered information on capacity planning, and on the condition of railway tunnels and bridges (which has system capacity as well as safety implications), to be business-sensitive and proprietary. Nonetheless, if Congress concludes that better public data on rail capacity is needed for rail policy development or otherwise, the confidentiality issue can perhaps be dealt with by aggregating or otherwise masking the published version of the data for specific rail corridors. Just as there are no public metrics that directly measure current rail system capacity, there are also no firm estimates of future capacity needs or costs. According to American Association of State Highway and Transportation Officials: Unlike with highways, there is no national planning process which allows the magnitude of rail congestion to be measured. Because "what gets measured, gets managed" there is no systematic national management of the nation's rail congestion needs. The individual railroads run their companies efficiently and make investments that meet the criteria of their business plans but, from the perspective of the performance of the national freight transportation system, there is no baseline for service, no standards for operations, no true measure of what type of system and service the country needs. A principal reason the national planning process, management, and data do not exist is that the rail network is privately owned and operated, unlike the publicly owned and operated highway system. As noted above, GAO reports indicate that much of the data AASHTO specifies would likely be considered business-sensitive and proprietary by the railroads. Trends in railroad capacity and system congestion are important to transportation policymakers because freight traffic is projected to grow enormously. DOT and AASHTO both estimate growth in the freight traffic carried by all modes of about 60% from the 2000-2002 time period to 2020. Because rail capacity can be less expensive to build, more cost-efficient to operate, and more friendly to the environment than truck transportation and road-building, some transportation planners are advocating a large increase in rail system capacity with the primary goal of displacing growth in truck traffic. For example, in a widely-cited 2003 study, Freight Rail Bottom Line Report , AASHTO estimates that "there is an estimated unfunded annual need for $2.65 billion to $4.15 billion of additional freight-rail infrastructure improvements," or $53 billion to $83 billion over 20 years. However, this estimate is focused on the new capacity needed to put part of the growth in general merchandise traffic on rail instead of trucks, not on the capacity needed to reliably ship coal or other bulk commodities. Moreover, AASHTO cautions that its cost estimates are no more than "'first approximations' for purposes of illustration and discussion" based on extrapolation from other studies and professional judgment. It notes that "long-term, system-wide cost estimates that are comparable to those developed for the highway and transit systems do not exist. The railroads and the states generate cost estimates for specific projects to calculate return on investment and estimate public benefits, but there is no program to systematically compile these costs estimates and forecast future investment levels." In summary, rigorous national-level assessments of rail system capacity needs and expansion costs do not appear to exist. Coal-fired power plants maintain coal stocks for two purposes: as a buffer against short term variability in coal deliveries and to provide an emergency supply in case deliveries are badly disrupted. The size of a plant's stockpile largely determines how much delay in coal shipments a plant can tolerate before the operator must take costly emergency measures, such as running more expensive natural gas plants in lieu of its coal generation. However, there is also a cost in tying up working capital in a large coal stockpile. There is a rough analogy between the excess capacity a railroad can build to handle peak demands and contingencies, and the coal stocks a power plant holds to provide a reserve of fuel. Railroads have suggested that it may be more economical for power companies to store more coal at their power plants than to pay the railroads to build enough surplus capacity to minimize the chance of a service problem. For example, at an April 2007 hearing before the STB on railroad capacity, CSX Chief Executive Officer Michael Ward said: ... it would make "better economic sense" for utilities to keep higher inventory levels to give them "flexibility" to make up for some unreliability of the coal supply chain. "When you think about the supply chain, my guess is that the better economic tradeoff [for utilities] is to have larger stockpiles," he said. If utilities want "100% guaranteed delivery" they would need to be willing to pay for necessary rail infrastructure, which would not be as good of an economic choice for them.... This suggestion assumes that a plant has the room to keep a large coal stockpile, which is not always the case. Coal inventories are often measured as "days of burn"; that is, the number of days the coal stockpile can keep a plant running assuming no coal deliveries. As shown in Figure 13 , days of burn for the electric power sector have generally declined since the 1970s and early 1980s, from a range of about 80 to 100 days of burn to 40 to 50 days of burn by the turn of the century. The electric power industry cut its coal stocks for several reasons: To reduce inventory holding costs and coal handling expenses in order to improve financial results. The reduced threat of major coal miner strikes, as more coal production moved to non-union western mines. Opposition to larger stocks by staff or other parties at state public utility commission rate hearings. The change in coal inventory levels presumably reflected to some degree the performance guarantees included in rail transportation contracts. Another factor was the sale of coal-fired power plants to non-utility independent power producers (IPPs), following the advent of power market restructuring. IPPs began buying large coal plants from utilities in the latter half of the 1990s and by 2006 accounted for 24% of total electric power sector coal consumption. IPPs face more financial risk and potential rewards than utilities. Utilities often have monopoly service territories and regulated rates, and can earn a regulated return on the working capital tied up in coal inventories. IPPs have none of these regulatory benefits, but have more latitude to earn profits than utilities (whose rates are designed to earn a target rate of return). In this environment IPPs reduce costs by maintaining smaller stockpiles than utilities (see Figure 14 , below). The ability of power companies to build up stockpiles has been limited at times by coal transportation problems. Nonetheless, the long-term trend by the electric power industry to reduce its coal inventories is clear. By reducing inventories as more coal was shipped long distances from western coal mines, the power industry was cutting its "shock absorber" against coal supply interruptions at the same time the coal supply chain was getting longer and potentially more vulnerable to interruption. The reduction in coal stocks also occurred in the context of the history of coal transportation disruptions (see Appendix A ). By cutting its coal inventories the electric power industry incurred more coal supply risk. According to one 2005 analysis power company "inventory optimization programs typically indicated that the holding costs of maintaining a large coal stockpile exceeded the expected [i.e., probability-weighted] cost of running out of coal." Utility inventory studies prior to 2005 may have excluded the possibility of extended, major delays in coal shipments, based on the assumption that past major disruptions were "historical anomalies." Inventories declined sharply due to the 2005 coal transportation problems. Electric power sector coal stocks dipped to an average of 37 days in 2005 and hit bottom at 32 days in August 2005; these are the lowest levels on record going back to January 1973. Stocks actually began to decline in 2004, which is consistent with the drop in coal train speeds during this decade (discussed below) and claims by some power companies that the deterioration in western rail service pre-dated the May 2005 derailments in the PRB. Rail service has generally improved since 2005 and power companies have been rebuilding stockpiles. Electric power sector coal inventories averaged 51 days of burn in 2006, the highest level since 2002, and continued to increase into early 2007. The increase in stocks has been especially large for utility companies (see Figure 14 , above). In summary, in an effort to reduce costs, the rail industry and the power industry have both been pursuing types of "just in time," cost-minimizing strategies. For the rail industry, this has meant not building capacity ahead of demand; for the power companies, it had meant reduced inventory policies. The simultaneous pursuit of these policies by the power and rail industries, and the development of a resilient coal supply chain, may be mutually exclusive. An issue between power companies and railroads is how should the cost of improving reliability be shared between paying for larger stocks at power plants and building more rail capacity. The trend toward increased stocks—though still not to the levels of the 1973-1990 period—suggests that power producers have decided to bear higher inventory costs to improve the reliability of their coal supplies. Given, as discussed below, the reported unwillingness of railroads to offer strong service guarantees, power companies may have had little choice except to increase coal stockpiles. Depending on the observer's perspective, this may be indicative of an exercise of market power, or a rational and efficient economic outcome. As rail system capacity has tightened, the quality of service for some freight traffic has degraded. As explained in 2006 by one analyst: The capacity crunch is real, it could go on for a long time, and it has serious consequences. Over the past 10 years, there have been many occasions where mergers, bad weather, or spikes in demand have triggered prolonged periods of congestion. All of the major US railroads have suffered from such episodes, and customers have frequently complained about long and unreliable transit times and equipment shortages. As shown in Figure 15 , average train speed has declined in recent years and in 2005 was about the same as in 1980. For coal trains specifically, average speed dropped between 2002 and mid-2007 on all four of the major rail systems, and with the exception of the Norfolk Southern was about the same or worse in 2007 than in 1999 ( Figure 16 ; earlier data are unavailable). Coal shippers have complained about the quality of service. According to a electric utility trade group, the Edison Electric Institute (EEI), even after the western railroads claimed in 2006 to have recovered from the severe coal service disruption of 2005 (discussed later in this report) some power plants were still not receiving their contracted coal tonnage. EEI noted that the increase in deliveries since 2005 to the Louisiana and Arkansas coal plants operated by Entergy (a large utility company), had been achieved by adding trains to the routes, not by restoring velocities to pre-2005 standards. A power company is presumably indifferent between running more trains versus fewer but faster trains, as long as the railroad is willing to supply the additional trainsets and coal delivery obligation are met; but other things being equal, system capacity is enhanced by faster trains, and consumed when more, slower trains are needed to serve customers. The problems with rail service extend beyond coal traffic. According to United Parcel Service, average speeds have also dropped since 2002 for intermodal trains: During the past 15 years, rail velocity has not been up to par with other improvements in transportation. All other transportation modes have seen significant time-in-transit enhancements during this period, with the exception of rail. Our intermodal freight movements move at slower speeds today than they did in the mid-90s, while service has declined. The [Surface Transportation] Board should consider an intriguing question: What mode of transportation moves slower today than it did 15 years ago? UPS continues to experience significant rail service issues in the Western U.S., with an improved service picture in the East. Railroad perspectives on the quality of service appear to vary. During the 2006-2007 time period, BNSF described its service as improved but still not acceptable, and CSX also pointed to the need for improvement. NS on the other hand viewed its service since 2003 as "superior." The industry trade association described coal service as especially strong in 2007. The improvement is indicated by the substantial growth in coal stocks, which probably would have been impossible to achieve without significant service gains. Electric power sector coal stocks reached 60.2 days of burn in April 2007, the highest level since the first half of 2002 and one of the highest monthly levels since the early 1990s. As rail capacity has tightened, rail carriers have reportedly become increasingly unwilling to provide strong service quality guarantees for coal shipments and other freight. According to NITL, "meaningful service provisions in contracts are virtually impossible to obtain." Foundation Energy Sales, a coal producer, testified at a 2006 STB hearing that rail contracts "often have few if any service requirements." At the same hearing EEI stated that: ... the railroads are now unwilling to accept responsibility for guaranteed performance at any meaningful level. In general, the service performance standards in rail contracts have deteriorated substantially over time as the railroads have gained more market power and as competition has deteriorated. The mid-2007 version of the BNSF's standard Common Carrier Pricing Authority for PRB coal shipments states that "until further notice, service commitments previously offered ... will not be accepted." EEI also asserts that railroads have become much more likely than in the past to use the force majeure clauses in transportation agreements to excuse inability to timely deliver coal, but there is no data series that can be used to verify this claim. As in the case of railroad capacity, the data available on railroad service are limited and largely anecdotal. An average speed for all freight traffic can be computed from data published by the AAR ( Figure 15 , above), but this measure is so broad that it is not useful for determining, for example, if cycle times for coal shipments are improving or deteriorating, or which corridors on a rail system may be a service bottleneck. A more valuable set of service indicators has been published by the rail industry since 1999. These indicators show for each of the seven Class I railroads several system-wide performance measures, including, for example: average speed of unit coal trains ( Figure 16 , above), intermodal trains, and other types of traffic; the number of railcars on the system (an indication of congestion); and the dwell time trains spend on hold in key rail yards. While this information is useful, it is limited: The train speed and cars on-line data are system-wide, so problem corridors cannot be identified. According to the AAR the data are not comparable between railroads. The lack of comparability is significant because it makes it difficult to determine if service issues on one railroad are unique to that carrier or part of a wider problem. The limited set of metrics excludes other measures (presumably important) used by the railroads themselves to measure performance. The railroads may consider this data to be proprietary. The data are posted on-line for the most recent 53 weeks. As each week rolls off the website it is not retained. There does not appear to be any readily accessible public archive of the data. To the degree it is available, data prior to 2005 may not be consistent with later years due to a change in methodology. In addition, the Canadian National railroad, which operates in the United States, does not use the same methodology to compute performance measures as the other Class I railroads. In the case of coal shipments, there is no statistical or other type of standard source that can be used to determine the frequency, duration, or seriousness of service disruptions. Perhaps the most severe recent examples of rail system congestion were: Major delays in PRB coal shipments beginning in 2005 . Delays began in May when two coal trains derailed on the Joint Line. The UP and BNSF determined the derailments were due to a widespread track instability problem caused by the infiltration of coal dust into the railroad ballast (ballast is the material, usually crushed rock, on which track is laid). The railroads had to launch a months-long maintenance program to fix the problem, causing major delays, and a delivery shortfall in 2005, as estimated by a shipper trade association, of about 30 million tons. UP and BNSF both triggered the force majeure clauses in their coal transportation contracts to excuse non-performance. The UP recommended that power companies take steps to conserve coal. BNSF believed that enough coal would ship so "that everybody is okay," but also stated that almost every BNSF-served plant using PRB coal was below target on inventory, customers would not be able to increase coal stockpiles until late 2005 or Spring of 2006, and that it would be prudent for customers to have contingency plans for alternate coal and transportation. Due to the service delays and lack of capacity the UP stopped accepting new customers for PRB coal service for almost two years, from July 2005 to March 2007. UP and Southern Pacific merger (1997) ; and Division of the Conrail system between CSX and NS (1999) . In both cases the integration of the rail systems resulted in severe system congestion and delays lasting months. The congestion on the UP system (often referred to as a "meltdown") was so bad the STB issued an emergency order allowing the diversion of UP traffic to other railroads. In addition to the consequences for shippers, these kinds of events can also be very costly for the railroads. For example, the after-tax cost of the meltdown to UP in 1997 alone was about $450 million, including business it lost and claims it paid to customers. While these events were unique in scope and severity, significant disruptions in rail transportation of coal date back to the 1970s when large-scale service out of the PRB was initiated by the Burlington Northern railroad. Disruptions in coal service occurred repeatedly in the 1990s and this decade. Appendix A lists nine episodes since 1990 when coal service was significantly disrupted, identified primarily through a review of the trade press. The triggers of these congestion and delay events varied; factors included severe weather, demand outstripping capacity, problems integrating merged rail systems, and unanticipated major maintenance projects. Tight railroad capacity increases the chance of future disruptions in coal and other freight services. As explained by the AAR, "at full or near-full capacity, transport systems become more fragile. With inadequate redundancy, there are fewer alternative routes and facilities, breakdowns and back-ups proliferate faster and further, and recovery from disruptions takes longer." Evaluating the seriousness of this situation depends in part on understanding the consequences of past disruptions in coal transportation service. However, as discussed below, this information is difficult to find. Coal transportation disruptions can impose two types of costs on power companies and their customers: Direct costs an individual shipper incurs when it takes steps to compensate for undelivered coal. Power companies can replace coal-fired generation with purchased power or electricity generated from plants using other fuels (typically natural gas); attempt to find alternative coal supplies with secure transportation (in 2005-06, some generators resorted to imported coal); or try to increase coal deliveries by buying or leasing more railcars. A power company can also keep large coal inventories on-site as a backup fuel source in the event of transportation or supply problems. These steps can keep a power plant from running out of coal, but the tradeoff is higher costs. Market costs are the market-wide increases in coal prices and rail rates that can occur when power companies have to scramble to secure coal supplies and reliable transportation services. These higher costs are incurred by all buyers, whether or not they are affected by transportation problems. If the generator is a regulated electric utility, the higher costs may be passed through to ratepayers or absorbed in whole or part out of profits, depending on state regulations. These costs can be difficult to estimate. To estimate the direct costs an analyst must develop a "what-if" picture of how a power system would have operated if the rail delivery disruption had never occurred. The relationship between a rail disruption and the market price for coal is much harder to parse. But even after granting these complications, it is notably difficult to locate quantitative information on the costs and other consequences of shortfalls in coal deliveries. There appears to be no comprehensive estimates of the costs of the 2005-06 PRB coal shipment delays by the electric power industry, the federal government, or other parties. Published estimates from electric-power related groups range from "hundreds of millions of dollars" to "roughly $4-6 billion to the economy." However, these estimates are undocumented. Appendix B lists 27 electric power generators that reported taking steps during 2005-06 to compensate for shortfalls in western coal deliveries. The list was created from a CRS search of financial reports, regulatory filings, claims filed in lawsuits between power companies and the UP railroad, and press reports. There is no assurance that the list is comprehensive since additional research avenues, such as a state-by-state review of utility rate case filings, were beyond the scope of this study. Of the 27 entities listed in Appendix B , a dozen reported incurring higher costs. Whether the other 15 entities did not report higher costs because they did not incur significant costs, could not reliably calculate the costs, chose not to reveal the costs, or the costs are reported in a document or forum this research did not uncover, is unknown. The costs that are reported total $228 million, of which four entities account for almost 80% ($180 million). This total does not include Arkansas Electric Power Cooperative, which reported costs of "millions of dollars" but no more precise figure. The reported costs appear to be incremental to the expenses the power company would have incurred with normal operations. This compilation does not account for any market-wide increases in coal and transportation prices due to the 2005-06 rail problems. In summary, the research for this report located electric power industry reported costs due to the 2005-06 rail transportation disruption of about a quarter billion dollars. This is only a rough estimate. There appears to be no comprehensive analysis of the costs and consequences of the 2005 disruption, or of earlier delays in coal deliveries. This is an example of the information gaps that permeate the rail policy debate. These gaps in data and analysis make it difficult to evaluate past and current rail service and capacity, the severity of transportation disruptions, and perhaps the need for government action. This section of the report will review trends in rail rates. Although rates are not the primary subject of this report, the relationship between rail system capacity and rates is important for evaluating legislation intended to expand capacity and improve service. The rail rate environment since 2004 has been described as a railroad "pricing renaissance" Due in part to limited rail capacity ... rates are rising for the first time since the early 1980s. Rates were up on the order of 10% in 2005, which is a major change from the prior 20 years.... The reversal of a 20-year trend suggests a very significant change.... the driving factors supporting higher rail rates are the shortage of capacity in the rail system coupled with rising rates for trucking during a time when demand is growing, most notably for coal and for containerized imports. Since service quality has declined, the higher rates certainly do not reflect faster or more reliable trip times! For the first time in a generation, the railroads are able to raise rates, so they do. The recent increases in rail rates follows a long period in which average rates declined. Rail rate indices computed by GAO show that measured in nominal dollars, average rates declined by about 20% between 1985 and 2004; converting the indices to real terms shows a 49% drop, followed by a 5.5% real dollar increase in 2005. Rates for coal dropped more than the all-traffic average. GAO's average coal rate index declined by 40% between 1985 and 2004; in real terms the decline was 62%. In 2005 real coal rates increased by 13.3%, more than twice as much as the industry-wide average. (See Figures 17 and 18 .) Coal and other rail rates declined until the middle of this decade due to: Railroad productivity gains; Competition between railroads, particularly between UP and BNSF for the growing PRB coal market. Efforts by railroads to compete with other modes, such as barges and trucks, and to expand new markets with growth potential, such as transportation of PRB coal; At the outset of the post-Staggers period, surplus capacity on the rail system; The Staggers Act allowing the railroads to enter into customized, multi-year contracts with shippers, permitting more efficient planning and operations than public tariff rates. Transfer of some costs from railroads to shippers, as discussed above. The swing from declining or relatively stable rates to increasing rates happened abruptly, around 2004, due to the confluence of several factors. As noted above, rail capacity began to tighten in the mid-1990s. After peaking in 1998, railroad capital spending declined for several years and did not return to 1995 real dollar levels until 2005. Coincident with the slow recovery in capital spending, intermodal traffic, which is especially capacity-intensive, was rapidly increasing. Intermodal shipments grew by 27% between 2000 and 2005 (see Table 1 in the section of the report on " Railroad Productivity and Efficiency Trends ," above). Intermodal traffic grew in part because trucking capacity was also limited. New hours-of-service rules effective in January 2004 cut the number of hours drivers could work between breaks, effectively reducing trucking capacity. Trucking companies also found it very difficult to recruit and retain drivers. Rising fuel costs have increased truck rates, and growing highway congestion has degraded service. These circumstances threw long-haul traffic from truck to intermodal rail and reduced the importance of the truck option as a check on rail rates. This shift may represent the leading edge of a long-term trend favorable to the rail industry. According to Standard & Poor's: Due to a combination of driver shortages, rising fuel prices, and cost differentials, the trucking industry appears to be gradually moving away from long-haul, cross-country routes, and towards shorter hauls. Many T[ruck] L[oad] carriers are allocating an increasing number of their trucks to intermodal pickup and deliveries—allowing railroads to carry containers the longest distances, with the T[ruck] L[oad] carrier then performing the "last-mile" delivery to the customer. Consequently, some carriers are increasing their purchases and ownership of rail intermodal containers, chassis, and trailers. Rates have also increased in response to higher fuel costs, an issue that has been contentious between railroads and shippers. A final consideration in rail rate increases is the consolidation of the rail industry into seven large carriers of which four are dominant. One press review of the rail industry noted that growth in demand combined with industry consolidation "has done wonders for pricing." This nexus of factors has allowed railroads to broadly increase rail rates for coal shipments. According to the Electric Power Research Institute, comparing 1999 and 2005, rates for new coal transportation agreements increased by 20% to 40% for shippers with competitive alternatives and by 40% to 70% for captive shippers. Figure 19 shows an estimate of the long-term trend in rates for new PRB rail transportation agreements for service to customers with competitive rail access. Rates in real terms generally declined after 1984, when the UP began to compete with BN for PRB business. But from 2004 to 2006, estimated rates increase by 100% (constant 2000 dollars). Whether this trend will continue is unknown. The increase in rates extends beyond coal traffic. As of late 2006, new rail transportation rates generally were reportedly running 10% to 30% above pre-2004 levels, with contract renewals for coal showing some of the largest rate increases. In the view of the rail industry, higher rates are needed to secure the financial viability of the industry and to justify capacity expansion. Railroads have reportedly told power companies that "constrained capacity and the need to raise more money for capital investments" require higher rail rates. As explained by the UP railroad, "We cannot invest for the future unless we provide service that justifies what we call reinvestible rates—rates that are sufficient to allow us to replace the infrastructure that we use to provide the service.... If government acts in a manner that allows us to obtain market-based, reinvestible rates, our ability to invest in capacity will grow, and the amount of traffic we can carry will expand. It's that simple." Coal shippers have characterized the rate increases as unreasonable. They have also criticized the STB's rate appeals process as an ineffective deterrent to or remedy for unreasonable rate increases, a concern shared by GAO. The rate increases in themselves do not necessarily signify an unreasonable exercise of market power. As discussed below, the railroads have arguably never achieved the financial adequacy goal established by the Staggers Act, in which case higher rates may be a financial necessity. A 2006 GAO study of rail rates concluded, in respect to captive shippers, that its findings "may reflect reasonable economic practices by the railroads in an environment of excess demand, or they may indicate a possible abuse of market power." As discussed later in this report, at GAO's urging the STB plans to conduct a study of rail competition and rates. As noted earlier, two types of legislative proposals have been put before the 110 th Congress to address rail service and rate issues: tax incentive bills and regulatory restructuring legislation. This section of the report describes and analyzes the tax incentive proposals from the perspective of improving the reliability of coal transportation to power plants. S. 1125 , the Freight Rail Infrastructure Capacity Expansion Act of 2007 (FRICEA), was introduced on April 17, 2007, and its House counterpart ( H.R. 2116 ) on May 2, 2007. Similar legislation was introduced in the second session of the 109 th Congress without receiving further consideration ( S. 3742 , the Freight Rail Infrastructure Capacity Expansion Act of 2006). According to the rail industry, the object of FRICEA is to help resolve a growing national problem with freight congestion, especially on highways, by providing the capacity to put more freight traffic on railroads. The underlying assumptions are that railroads are less costly to expand than highways, and that rail freight is more fuel efficient and less polluting than truck transportation. However, according to the AAR, "funding constraints will prevent railroads from meeting socially-optimal future infrastructure investment needs entirely on their own." FRICEA includes two distinct but related inducements for capital spending. The first is a 25% tax credit for capacity-expanding rail investments. The tax credit would be available to any taxpayer making qualified investments, not only railroads. The second incentive would increase rail investment generally, not just for capacity expansion, by enhancing "modal tax equity." This would be accomplished by allowing railroads and other tax payers to immediately deduct ("expense") qualifying rail capital investments from gross income. The immediate deduction of capital costs is in contrast to the normal practice of depreciating the value of capital investments over several years. The option to expense investments is intended to end a discrepancy in the tax treatment of the capital investment costs borne by railroads and other freight modes, particularly trucks and barges. Railroads own and pay for their own rights of way and structures. Tax recovery of these investments is made over time through tax depreciation. In contrast, waterways and highways are usually publicly funded and owned. Truck and barge operators pay for these facilities through taxes and user fees that can be immediately taken as an income tax deduction. The notion is that allowing the railroads to expense infrastructure investment will level the financial playing field between freight transportation modes. Advocates of modal equity in the tax treatment of freight investment costs argue it will lead to a more optimal allocation of society's resources, likely including greater investment in rail capacity. A closely related issue is whether trucks and barges pay the full cost of the infrastructure provided by the public. According to the CBO: The Federal Highway Administration estimates that large trucks pay in taxes only about 50 percent to 80 percent of the [federal] costs attributed to them. Barge operators on the inland waterways pay taxes that cover only about 20 percent of the amount the Corps of Engineers spends on navigation projects. In contrast, the railroads pay for their rights-of-way and infrastructure and often must pay local taxes on those investments as well. Those factors translate into lower private costs for truckers and water carriers and enable them to attract some freight shipments that could be carried at a lower total cost by the railroads. That encourages greater spending on highway and waterway construction than would be justified on economic grounds and leads to an inefficient use of the economy's resources. As proposed, FRICEA defines two main categories of railroad property. Qualified Freight Rail Infrastructure Property includes investments in hardware (such as track, rail yards, and freight loading and unloading terminals, and communication and control equipment) and related software. Investments in land and rail cars are specifically excluded. Qualified Locomotive Property includes purchases of locomotives that meet the following criteria: 1) the taxpayer's total locomotive capacity, measured in horsepower, is greater at the end of the tax year than at the end of the preceding tax year, and 2) the new locomotives meet the U.S. Environmental Protection Agency's emission standards for locomotives in effect on December 31, 2006. The 25% tax credit would be available for New Qualified Freight Rail Infrastructure Property and New Qualified Locomotive Property. To qualify as "new"—that is, capacity enhancing—the original use of the property or locomotive must commence with the taxpayer. In addition, infrastructure property that merely replaces existing property does not quality as "new" with the exception of expanded or replacement bridges and tunnels which increase rail capacity. The option to expense rail investments would apply to all Qualified Freight Rail Infrastructure Property, but not Qualified Locomotive Property. "Qualified Locomotive Property" that is not "New" would not qualify for any tax incentive under FRICEA. The tax credit would reduce the investment basis for calculating tax depreciation. The taxpayer could not take both the tax credit and the expense option on the same dollar of investment. FRICEA would apply to investments made between January 1, 2008, and December 31, 2012, when it would expire. The FRICEA objective of increasing system capacity appears generally consistent with the interests of coal and other shippers who want a more robust and reliable rail network, and of transportation planners who want the option of moving some freight traffic off of highways. The tax incentives also directly address the reluctance of the rail industry to take the additional financial risks inherent in greater capital spending by effectively reducing the cost of capital expansion. This discussion of FRICEA policy issues focuses on three questions: Who should control how the FRICEA tax incentives are used? Will FRICEA investments meet expectations of increasing rail system capacity and improving the reliability and quality of rail service? Does the data exist to determine the need for and track the results of FRICEA? The issue of how or if the federal government should seek to ensure modal-neutral funding for rail and other freight modes is beyond the scope of this report. Also note that because FRICEA tax incentives would reduce revenues, it may require offsets under Congressional "pay-as-you-go rules." From the standpoint of the rail industry, an advantage of FRICEA is that it leaves investment decisions to the railroads: "the railroads themselves are the ones who know where the chokepoints are in the rail network and where infrastructure expansion would do the most good." From the standpoint of some electric power and other shippers, the disadvantage of FRICEA is that shippers and the government would not have more control over how the incentives are used. As argued by the American Public Power Association, "we strongly believe Congress should not issue a blank check in the form of an investment tax credit for railroad infrastructure. Any such tax credit must be coupled with a package of much needed reliability, accountability and policy reforms." The GAO has expressed a different, more general concern about the efficacy of rail tax incentives. In a 2006 report GAO noted that: We have also raised concerns about federal tax policies. For railroads, some industry groups have proposed freight rail tax credits to encourage investment. However, our work has shown that it is difficult to target tax credits to the desired activities and outcomes and ensure that tax credits generate the desired new investments, as opposed to substituting for investment that would have occurred anyway. The impact of FRICEA investments on coal or other shippers is unpredictable. However, the railroads could choose to focus the incremental investments triggered by FRICEA toward specific geographic areas or categories of traffic, such as intermodal traffic. Intermodal investments have reportedly far out-stripped coal-related spending since the middle of this decade. If FRICEA puts more intermodal traffic on the rails, it would achieve the aims of public officials concerned with highway congestion, but could put at risk or even degrade the reliability of coal shipments. As one analyst notes, this is because "mixing the much faster intermodal trains with the slower bulk freight train movements tends to devour network capacity at an alarming rate." There have been instances in which railroad efforts to increase intermodal service have caused major delays for other traffic. Specific qualifications shippers have recommended that Congress impose on FRICEA include: The credit should be tied to the imposition of mandatory railroad reliability standards and a firm obligation to serve. Capacity expansion should focus on assistance to domestic coal and other domestic shipments, including domestic shipments moving to export ports, in contrast to import traffic. First priority for investment should be captive coal shippers and other shippers captive to a single railroad, and there should be a ban on applying the tax credit to help fund investments that would enhance railroad monopoly power. A general recommendation for regulatory oversight to ensure that the tax credit is used in the public interest and not simply to increase capacity in the most profitable rail markets. All of these proposed qualifications lack specificity and perhaps, in some cases, would be difficult to implement. Railroads are networks, so an investment in one location can have wide effects. It can be very difficult to determine if a specific investment will primarily benefit specific domestic shippers or groups of shippers. The implication of the proposed qualifications is that each FRICEA investment would have to be individually reviewed by the government before it could qualify for the tax credit. This degree of review (and likely associated delay) might choke off the additional investment FRICEA is intended to encourage. It is also important to consider that the community of railroad shippers is not homogenous. For example, intermodal shippers are unlikely to support restrictions designed to funnel investment toward captive coal traffic. Other shippers support FRICEA as it stands, including the National Mining Association (which represents coal and other mining industries) and TXU, a large Texas-based electric power company. If Congress does want to consider the possible restrictions on FRICEA investments mentioned above, other formulations might require less intrusive federal oversight. An example is limiting the FRICEA incentives to specific types of investments with system-wide effects on capacity and quality of service. Examples of these "freight-neutral" investments include advanced electronically controlled pneumatic (ECP) brakes and positive train control (PTC) systems, and de-bottlenecking specified major choke points. This targeted-investment approach could supplement current "public-private partnerships" which jointly fund specific freight rail projects. This alternative approach to directing FRICEA investments may require less detailed federal supervision than some other approaches, but still has potential disadvantages, including the following: it pre-judges today which investments would best enhance system capacity, something which could change with market and technical developments; tax incentives would not flow to worthwhile investments outside of the specified categories; and this approach, like other proposed limitations on FRICEA investments, could constrain the ability of the private sector managers responsible for the coal supply chain (and other traffic) from directing the incentives to what in their judgment would be the most productive uses. As discussed earlier, information on rail capacity and service quality is limited. Without a common baseline, different interests may have radically different views of the extent of current capacity and service issues, the benefits FRICEA is likely to yield, and what would constitute success for FRICEA. The greatest difference in expectations is likely to be between shippers, such as electric power producers, and the railroads. Power companies want fast, reliable service over a rail network with sufficient capacity to smoothly absorb traffic growth at what they view as economical rates. They also want the system to have enough redundancy to be able to quickly bounce back from disruptions, such as bad weather or unexpected surges in demand. However, from the railroad perspective this scenario may imply ill-considered investment in excess rail capacity in lieu of the power industry purchasing larger coal stocks for power plants. The railroad industry entered the post-Staggers era with financially burdensome excess capacity. As noted above, it has eliminated this surplus by, for example, increasing traffic, shedding assets and labor, increasing efficiency, and not building too far ahead of excess demand. The resulting tight capacity had directly contributed to the ability of the rail industry to raise rates and revenues. According to JP Morgan Securities, "it appears that the long term trend of growth in demand for rail transportation finally caught up with available capacity, and the past two years have been a period of much tighter rail capacity compared to the historical norm. As a result rail transportation rates have risen significantly in 2004 and 2005.... While the situation of tight capacity has had a negative impact on rail service for several railroads and many shippers have received less reliable rail transport service, it has also been a significant positive from a investor perspective." In early 2007 the railroads were reported to be "buoyed by new financial reports that validate their strategy of keeping capacity snug and pricing firm." The rail industry has expressly noted the pricing advantages of running railroad systems with limited surplus capacity. According to the BNSF, "We don't bring capacity on sooner than we need it, so we always have a natural tightness.... Supply chains from all industries are feeling a 'tightness' in their ability to immediately leverage up for additional volume. This will result in increasing the value for our service, improving our returns." CSX's strategy for increasing the profitability of its intermodal business included reducing excess capacity. UP told Wall Street analysts in 2005 that "in some ways we are where we always wanted to be with the demand for our service outstripping the supply." Part of the business strategy outlined by UP was to "leverage strong demand to drive [revenue] yield improvement by swapping out less profitable business for higher yielding moves ... our price plan is actually designed to meter the flow of business onto the railroad and to drive up the profitability of the business that we do handle." The strategy of minimizing excess capacity to support prices is not unique to the railroad industry. According to the investor Warren Buffett, speaking of the electric power industry: In a deregulated market, generators have a clear incentive to reduce power reserves.... "If you own in a deregulated environment, if you own generation assets, what do you want? Things to be tight." ... [T]he nation's responsibility is to have "some—not too much, [but] some—excess capacity at all times. It's crazy to operate without a margin of safety," he said. Wise utility regulation allows for extra capacity and an adequate return on investment.... "The last thing in the world an unregulated operator wants is excess capacity around...." However, it may be possible for industry actors to deliberately maintain a tight capacity environment, conducive to pricing power, only if the industry is highly concentrated or if competition is otherwise muted. To the degree that tight capacity has contributed to the recent ability of the railroads to raise rates, it is not clear why the railroads would build significant surplus capacity with or without FRICEA incentives. In this case, FRICEA may not result in system-wide improvements to rail system service and resiliency in the face of adverse circumstances. Because the public data on rail capacity and service is limited, the problems FRICEA is intended to resolve cannot be clearly defined. Looking ahead, no existing metrics in the public domain could be used to rigorously measure the changes in coal capacity and service caused by FRICEA or other factors. FRICEA does not require industry or government to define a service and capacity baseline, provide a detailed characterization of investments that use FRICEA incentives, or determine the improvements to capacity and service, if any, that result from FRICEA incentives. The relevant data may be considered proprietary by the railroads, coal producers, and power companies. Nonetheless, as discussed earlier in this report, if Congress concludes that better public data on rail capacity and service is needed, the confidentiality issue can perhaps be dealt with by aggregating or otherwise masking published capacity and service data for specific rail corridors. Issues that may be of interest in evaluating the tax incentive proposals include: Should the public influence how the FRICEA incentives are used (beyond the guidelines built into the proposed legislation)? If so, how can this intervention be structured as to be practical and not unduly burdensome? Are the expected outcomes from FRICEA clear? Coal and other shippers want a fluid, resilient rail network offering high quality service even under adverse conditions. This implies a level of investment in buffer capacity that may not be affordable, even with FRICEA incentives, and may not be attractive to the rail industry in any event because tight capacity has contributed to the industry's ability to raise rates. The question is whether FRICEA is expected to lead to system-wide improvements in rail capacity and service or more limited benefits. Does the government need additional information on rail capacity and service? This could include a baseline and on-going data that would make it possible to evaluate the need for and effectiveness of FRICEA. Collecting and publishing more capacity and service data may require taking steps to protect the confidentiality of business-sensitive information. The rail regulatory restructuring bills before the 110 th Congress are intended to deal with a host of concerns, raised by coal and other shipper interests, over rail service and rates. This discussion will focus on how the proposals could affect the reliability of coal transportation to power plants. The restructuring bills fall into two categories: comprehensive restructuring and repeal of railroad antitrust exemptions. The two categories of bills are summarized below, followed by an analysis of their potential impacts. Note that a legal analysis of the bills, and in particular on disagreements concerning the current application of the antitrust laws to the railroad industry, is beyond the scope of this report. S. 953 , the Railroad Competition and Service Improvement Act of 2007 (RCSIA), was introduced on March 21, 2007, and its House counterpart ( H.R. 2125 ) on May 3, 2007. Similar legislation was introduced in the 109 th Congress without receiving further consideration, including the Railroad Competition Acts of 2005 ( S. 919 ) and 2006 ( S. 2921 ), and the Railroad Competition Improvement and Reauthorization of Act of 2005 ( H.R. 2047 ). According to the preambles, the bills are intended to "ensure competition in the rail industry, enable rail customers to obtain reliable rail service, and provide those customers with a reasonable process for challenging rate and service disputes." RCSIA would make major changes to federal rail regulation, as summarized below: The existing policy (49 U.S.C. § 10101) would be amended to put additional emphasis on ensuring head-to-head competition between railroads, establishment of reasonable rates, and "consistent, efficient, and reliable rail transportation service" (RCSIA section 101). From a regulatory perspective, a rail bottleneck is a situation in which more than one railroad can originate the traffic required by a customer, such as PRB coal, but only one railroad has physical access to the customer, such as a power plant. The bottleneck carrier is then in a position to direct all shipments over its lines and to charge relatively high rates for service over what may be a very short distance. The STB has the authority to use "reciprocal switching" and joint terminal access to open bottlenecks (49 U.S.C. § 11102), but it has construed this authority relatively narrowly; specifically, to situations where a shipper can demonstrate that a bottleneck carrier has engaged in anti-competitive behavior, or when the shipper has, in certain defined circumstances, entered into a contract with another railroad for the non-bottleneck part of the haul. According to GAO no shipper has successfully pursued the anti-competitive option before the Board. One shipper was successful using the contract option. RCSIA sections 102 (requiring rail carriers to quote rates and provide service between any two points on their systems) and 104 (directing the STB to order reciprocal switching between railroads if in the public interest or if necessary to provide competitive service) would give shippers wide latitude to open bottlenecks and create competitive rail access. By doing so, RCSIA would appear to reverse a long-standing policy of permitting railroads, under most circumstances, to keep a shipment on its own tracks rather than forcing it to interchange. Long-hauls and single-line hauls are the most economical modes of rail operations, in contrast to short-hauling. Section 105 of RCSIA, "Areas of Inadequate Rail Competition," addresses rail competition across a much wider scope. As described in a summary of the bill, this section of RCSIA: Allows a Governor to petition the STB to have all or part of his or her state designated as an "area of inadequate rail competition." To qualify, the area must be served by essentially one carrier, most of the rates must exceed 180 percent of the direct cost to the railroad of the transportation and the state or area of the state must have suffered significant economic adversity because of this lack of competition. Within 60 days after the STB so designates a state or area of the state, the STB shall fashion a remedy for this lack of rail competition. The remedies specified in Section 105 include reciprocal switching, expedited arbitration of rate disputes, expedited review of whether rates are discriminatory, requiring a rail carrier to provide rail service on its system on behalf of another railroad, and "other remedies authorized by law." When a railroad sells or leases track to a short line railroad, the transfer agreement may restrict the short line from interchanging certain traffic with other carriers. The object is to allow the Class I railroad to remain (in conjunction with the short line) the only railroad serving a market. These restrictions are referred to as "paper barriers" or "interchange commitments." RCSIA would ban paper barriers in the future and, upon review by the STB, make current interchange commitments unlawful (Section 103). This is another means of introducing more competition into the rail system. Effectuating this ban on interchange commitments would likely be complex and contentious. The existing sale and lease agreements that contain paper barriers presumably have sale prices, lease rates, and perhaps other terms predicated in part on the traffic and revenues the Class I railroad expects to receive consequent to the interchange restrictions. Eliminating the papers barriers could therefore change the economic basis of the agreements, with impacts on rates, operations, and possibly even the viability of the transactions that are difficult to predict. RCSIA has several provisions that directly address rail service quality. The bill would require the STB to post information about rail service complaints and their resolution on its website and submit an associated annual report to Congress (Section 201); require rail transportation subject to the jurisdiction of the STB to be "reliable and efficient" (section 202); qualify the precedence that contract service has over common carrier service under current law (section 102); state that a rail carrier may be liable for payment of damages "due to failure of timely delivery" (Section 203); and create an Office of Rail Customer Advocacy within DOT, to be appointed in consultation with the Secretary of Agriculture. The advocate would "accept rail customer" complaints, participate in STB proceedings, have the ability to initiate STB proceedings, and would have the power to collect information and have access to the data collected by the STB (Section 204). (Under Section 304 of RCSIA shippers agricultural products can demand binding arbitration to resolve service and rate issues. This option is not available to shippers of coal or other goods.) The current STB rate appeal process has been widely criticized by coal and other shipper interests. GAO concluded in 2005 that the STB's rate appeal process is "ineffective." The rate appeal process is of particular interest to power companies because almost all rate cases since the passage of Staggers have involved coal shipments to power plants. This is because coal shipments are one of the few categories of regulated traffic that have enough volume and revenue at stake, and the prerequisite lack of competitive service, to justify the cost (several million dollars) and time (typically more than three years) necessary to pursue a rate appeal. Section 302 of RCSIA directs the STB to develop a new rate appeal process based on a railroad's cost of service, akin to the process used in electric utility rate cases. The process is to take no longer than nine months, "shall not require excessive litigation costs," and puts the burden of proof on the railroad to demonstrate that the rate is reasonable (currently the burden of proof is on the complainant to show that a rate is unreasonable). It also explicitly bans any rate appeal process that relies, like the current procedure, on the cost of a hypothetical competitor. (As noted above, Section 304 of RCSIA gives agricultural shippers an option, unavailable to other shippers, of opting-out of the rate appeal process altogether and relying on binding arbitration to resolve rate disputes.) The rate appeal process, and the proposal to change it, is a point where major threads of rail policy intersect. The existing process is deliberately designed to allow railroads to charge rates to captive customers that will include a large share of the system-wide "non-attributable" costs that cannot be specifically tied to any individual rail movement. This allows the railroads to charge lower rates (but never lower than direct cost) to customers who have competitive alternatives and are price sensitive. A cost-based rate appeal process—that is, rates based primarily on the costs that can be directly tied to a specific movement—could sharply reduce the amount of non-attributable costs chargeable to captive customers. If the railroad industry is still not revenue adequate, or if the high rates charged to captive customers are a cornerstone of the rail industry's financial stability, then cost-based rate appeals could detrimental to the financial stability of the rail industry. However, under other circumstances—such as, the industry is revenue adequate, there are relatively few captive customers, and/or the higher rates captive shippers are charged are not central to the financial integrity of the rail industry—a cost based rate appeal process may be feasible. As discussed elsewhere in this report, the information available on rail competition, rail rates, and the revenue adequacy of the railroad industry is deficient. This makes it difficult to judge whether a cost-based rate appeal process would pose financial risks to the rail industry. The Board currently has authority to initiate investigations "only on complaint" (49 U.S.C. § 11701). Section 401 would allow the STB to begin investigations on its own initiative. It also allows the Board to suspend railroad practices that it believes may be in violation of the law. Section 201 of the bill requires the STB to respond within 90 days to complaints requesting injunctive relief against railroad practices alleged to be unlawful (excluding allegations of unreasonable rail rates). S. 772 , the Railroad Antitrust Enforcement Act of 2007, was introduced on March 6, 2007, and its House counterpart ( H.R. 1650 ) on March 22, 2007. Similar legislation was introduced in the second session of the 109 th Congress but did not receive further consideration ( S. 3612 , the Railroad Antitrust Enforcement Act of 2006). According to the preambles, the bills are intended to "amend the Federal antitrust laws to provide expanded coverage and to eliminate exemptions from such laws that are contrary to the public interest with respect to railroads." The railroad industry historically has had limited exemptions from the antitrust laws. The exemptions were predicated on the assumption that normal market forces could not operate in the rail industry, and accordingly allowed the rail industry to operate in ways, such as the coordination of rates, that would have been unacceptable in a free market. The exemptions also reflected the notion that the comprehensive regulation of rates, service, market entry and exit, and mergers by the ICC effectively replaced the usual antitrust oversight of the Department of Justice and Federal Trade Commission. In its most recent revision to rail regulation, the ICC Termination Act of 1995, the Congress chose to continue these exemptions. The key exemptions include: The STB has sole jurisdiction over railroad mergers. Railroads are the only regulated industry whose mergers cannot be challenged by Department of Justice (DOJ). Railroads generally cannot be sued for injunctive relief for antitrust violations by private parties. "Railroads are generally exempt from Sherman Act antitrust actions for treble damages if common carrier rates 'approved by the [government]' are involved." Joint rates established by two or more railroads which have been approved by the STB are exempt from antitrust review. While these exemptions do not block all possible avenues for antitrust inquiry, they are significant. In 2004, DOJ noted that bottleneck rates and interchange commitments might be areas of interest for antitrust review, but because these transactions were approved by the STB they may not be subject to the antitrust laws. On the other hand, DOJ at the same time expressed interest in reviewing for possible antitrust violations the practice of the western rail carriers of publicly disclosing certain rates. The status of this review, if underway, is not known. The proposed legislation would eliminate these exemptions. Advocates apparently anticipate that shippers will use these new openings to attack bottleneck rates and paper barriers, and perhaps seek to add what they view as pro-competitive conditions to existing rail merger terms. Proponents also believe that if new mergers are proposed between the Class I railroads, perhaps to create trans-continental carriers, DOJ would take a broader view of market power and competitive effects than the STB has done. The proposal to eliminate the STB's jurisdiction over mergers is consistent with the recommendations of the federal Antitrust Modernization Commission. The railroads oppose the antitrust proposals, noting that: The implication of proponents that the "railroads can engage is conduct over which there is no government oversight ... is false." The railroads are subject to other aspects of the antitrust laws and extensive regulation by the STB. The limited exemptions that apply to the railroads are "narrowly applied," are intended to avoid dual jurisdiction between the STB and other parts of the government, and in some cases reflect special circumstances. For example, according to the AAR the exemption from private demands for injunctive relief is intended to prevent interruptions in rail system operations. The proposed changes to the law are unnecessary. For example, "the STB has the authority to enforce certain provisions of the antitrust laws in lieu of the Federal Trade Commission. Moreover, the federal government is not precluded from seeking injunctive relief, and the federal antitrust provisions permitting private parties to sue for damages contains no exclusion for railroads." In the view of the AAR, proponents of this legislation basically do not like certain decisions made by the STB and are seeking to move decisions to a different forum. The AAR argues that "limited antitrust exemptions for the railroads exist because railroads are subject to economic regulation .... If one is to assess whether the antitrust exemption should be eliminated, one should also assess whether the remaining regulatory regime should be treated likewise." The regulatory restructuring bills before the 110 th Congress are the latest in a series of legislative proposals dating from 1983 to substantially change federal rail regulation. The antitrust and rail competition bills described above are intended by proponents to Improve coal and other service. Drive down rail rates, by giving shipper interests new avenues to force head-to-head competition between railroads. Simplify the rate appeal process and tie prescribed rates to costs. Encourage improved service by creating new legal obligations for railroads to provide good service, and by highlighting service issues through the web posting process, annual report to Congress on service, and creation of the Rail Customer Advocate. The railroad industry characterizes these proposals as "re-regulation." It argues that the proposals would inhibit the pricing and operational freedom that has been important to the revival of the rail industry, and would cause the industry's finances and service quality to regress. According to the AAR: Reregulation would deprive U.S. freight railroads of several billion dollars in revenue each year, making it impossible for them to fund the rail capacity improvements our country needs. The result would be a shrunken rail network, higher shipping costs, more gridlock and environmental degradation as freight that otherwise would move by rail moved on the highways instead, and eventually a government bailout. It would be foolhardy to destroy the best freight rail system the world has ever seen in order to move toward a discredited system that failed in the past and would fail again in the future. Critics of rail industry service have suggested that in a more competitive environment the railroads will be more innovative and attuned to customer demands. The rail industry contends that it has been on the leading edge of technological innovation; critics claim it has been slow to implement new processes and technologies that could improve service and reduce costs. In 2004 the National Industrial Transportation League commented, in relation to its assertion at the time that more competition was needed in the rail market: Competition drives efficiencies and innovation. It leads to a fundamental shift in thinking, away from a static and ultimately counterproductive effort to protect a "franchise," toward a positive effort to grow business opportunities and eliminate costs. Competition promotes cooperation between transportation providers and their customers as both become partners in an effort to eliminate inefficiencies and improve their market opportunities. The result of these efforts is increased demand for the service—that is, growth. The current restructuring proposals aim at improving service by heightening competition. The emphasis on competition is consistent with an underlying principal of the current regulatory regime, which is "to allow, to the maximum extent possible, competition and the demand for services to establish reasonable rates for transportation by rail;" though, as discussed below, it is not certain that more reliance on market forces would be the actual outcome from the proposals. The bills would not require the government to develop and enforce specific rail service standards, as has been proposed in the past. The bills also do not directly address the limited information on rail service and capacity discussed earlier in this report. Without more information, aspects of the proposed legislation are difficult to evaluate. For example, the emphasis on rate relief and greater competition in the bills presumes that high rail rates, especially for captive shippers, is a significant national issue. This may or may not be the case. No thorough analysis exists on the degree to which rail traffic is captive or of the rates paid by these shippers. According to a 2006 study by GAO, there is: ... a reasonable possibility that shippers in selected markets may be paying excessive rates related to a lack of competition in these markets. While our analysis of available measures shows that the extent of captivity appears to be dropping in the freight railroad industry, shippers that may be captive are paying substantially over the statutory threshold for initiating a rate relief case. This situation may simply reflect reasonable economic practices ... or it may represent an abuse of market power. Our analysis provides an important first step in assessing competitive markets nationally, but it is imperfect given the inherent limitations of the Carload Waybill Sample [an STB data set] and the proxy measures available for weighing captivity. A more rigorous analysis of competitive markets nationally is needed—one that identifies the state of competition nationwide and inquires into pricing practices in specific markets. The GAO recommended that the STB conduct a comprehensive study of rail competition and rates, a suggestion the STB initially rejected based on GAO's inconclusive findings and its own lack of resources. In June 2007 the STB reversed itself and said it would hire a contractor to conduct such a study to be completed by late 2008. GAO commended the STB "for taking this action, [but] it remains to be seen whether these analysts would have STB's statutory authority and sufficient access to information to determine whether rail rates in selected markets reflect justified and reasonable pricing practices or an abuse of market power by the railroads." The effect of the bills, particularly RCSIA, is also difficult to evaluate because the outcomes will largely depend on how the legislation is implemented. Implementation may produce results that differ from the apparent objectives of its supporters. For example: Under reciprocal switching or other avenues for opening rail bottlenecks, the new competing railroad would be required to pay the incumbent railroad a fee for the use of the incumbent's tracks. For example, a new competing railroad delivering coal to a previously captive power plant might pay a trackage rights fee to the incumbent for each ton of coal it delivers. A study performed for the FRA suggests that the fee should be designed to, in effect, include all of the profit the incumbent carrier had earned before the bottleneck was opened. The report suggests that this and other aspects of its recommended approach would yield the most efficient outcome and keep incumbent railroad financially whole, but such a large fee could, in many cases, eviscerate the competitive value of reciprocal switching. RCSIA requires the STB to replace its current rate appeal process with a cost of service approach "similar to the rate regulatory systems of [state] public service commissions and the Federal Energy Regulatory Commission." However, traditional utility rate cases can be complex, time consuming to prepare and litigate, and very expensive. While RCSIA puts a nine month time limit on rate cases, it may nonetheless have less impact on the accessibility and affordability of the process than its proponents intend. As noted above, Section 105 of RCSIA authorizes the STB to designate areas of inadequate rail competition and implement within those zones numerous remedies, not all of which are specified in the legislation ("other remedies authorized by law"). This provision is so broad that its potential geographic and regulatory scope, and its impact on rail rates, revenues, service, and profits, are very difficult to judge. Section 105 is probably the part of RCSIA with the greatest potential for reintroducing pervasive regulation into the rail industry. In general it is unclear how complex and intrusive a regulatory framework the STB would have to create to implement RCSIA. A related issue is the practical ability of the STB to timely handle the additional workload RCSIA would assign to the agency. The Board is a small agency, with 137 full time equivalent staff and a budget of $26.1 million in FY2006. It may be difficult for the Board to effectively execute the proposed additional duties without more resources. An important question concerning the rail restructuring proposals is the impact they would have on a central goal of the Staggers Act, returning the rail industry to financial health. By reducing the number of captive shippers and otherwise driving down rail rates, the restructuring proposals would likely cut railroad revenues and profits for some period of time. The railroad industry's position is that the financial impact would be crippling, particularly since the railroads have still not achieved the objective of revenue adequacy established by Staggers. If this is the case service would likely deteriorate for coal and other shippers. The issue of the financial impact of the restructuring proposals is particularly apt because the proposals could have the effect of changing the existing approach to railroad rate setting. This approach, called "constrained market pricing," was developed by the ICC in 1985 with coal traffic at the forefront. Constrained market pricing is predicated on two principles: The railroad industry is not revenue adequate, and to achieve revenue adequacy the railroad industry must be able to differentially price its services based on the price sensitivity of various groups of customers. For instance, when trying to win business that has a truck alternative, the railroad might price the movement to recover little more than the costs directly attributable to that movement, and few or none of the system-wide "non-attributable" costs (such as yard expenses) incurred by the railroad. On the other hand, it may set rates to move coal to a captive power plant at a price that recovers all the attributable costs of the movement plus a substantial share of the non-attributable system-wide expenses. Demand-sensitive differential or "strategic" pricing is widely used in American industry. In the case of the rail industry, where potential competition is limited by high barriers to entry, rates to the captive customers are, in principle, ultimately "constrained" by the shippers' option to appeal to the STB. Rates can be appealed if the shipper can demonstrate that it is captive and that rates exceed 180% of the direct costs of the movement. If a protested rate meets these initial criteria, the STB then determines whether the rate exceeds the costs of a hypothetical most-efficient competitor (a "stand-alone" railroad). The costs of the stand-alone railroad represent, according to the underlying theory, the highest reasonable rate ceiling; if the rate is ultimately determined by the STB to exceed stand-alone costs, a new rate is prescribed based on this ceiling. In short, constrained market pricing is designed to help the rail industry achieve financial recovery by allowing it to charge relatively high rates to captive customers and relatively low rates to customers who have competitive options. The rail restructuring proposals, by providing avenues for reducing the number of captive shippers and the rates they pay, would chip away at a pillar of the constrained market pricing system. However, this may be more or less of a concern depending on whether or not the rail industry has reached the Staggers goal of revenue adequacy. In summary, it can be hypothesized that if the railroad industry is revenue adequate, it may be better able to withstand the stronger dose of competition and regulation the proponents of regulatory restructuring propose, and may be better positioned to respond to more intense competition with lower costs, greater efficiency, and better service. If the industry is not revenue adequate, then the regulatory status quo may be the better course of action. In particular, should the regulatory restructuring proposals, if implemented, undermine the industry's finances, then the results of regulatory change could be deterioration in rail service for coal and other traffic. There is arguably a contradiction between demands for both lower rates and better service. This point is made by Norfolk Southern: [The Norfolk Southern CEO testified at an STB hearing] that he hears three things from rail customers. "They want more capacity; they want better service; and they want lower rates. And I don't know how you do all three".... [H]is summary of the three themes he hears from rail customers was reinforced by subsequent witnesses with no one even trying to reconcile the irreconcilable.... Unfortunately, many parties fail to see that infrastructure investment, better service, and rates are three legs to one stool. No one wants to pay; everyone wants someone else to pay. The counter-argument, noted above, is that more competition will force innovation, efficiency gains, and traffic growth that will leave the railroads whole or better off. Because of these considerations it would be useful to know if the rail industry is achieving the Staggers Act objective of revenue adequacy. As required by statute, the STB makes an annual determination of revenue adequacy for each Class I railroad. However, for the reasons discussed below, the reliability of these determinations is problematic. The ICC's methodology for determining revenue adequacy was defined in a 1981 decision. The test selected by the ICC is whether a railroad's return on investment was at least equal to its cost of investment capital. As explained by the ICC: ... "adequate" revenues are those which provide a rate of return on net investment equal to the current cost of capital (i.e., the level of return available on alternative investments). This is the revenue level necessary for a railroad to compete equally with other firms for available financing in order to maintain, replace, modernize, and, where appropriate, expand its facilities and services. If railroads cannot earn the fair market rate of return, their ability both to retain existing investments and obtain new capital will be impaired, because both the existing and prospective funds could be invested elsewhere at a more attractive rate of return. The ICC "emphasize[d] that revenue adequacy is a long-term concept that calls for a company, over time , to average a return on investment equal to its cost of capital." Therefore, while a railroad might be revenue adequate in one year, it would not be deemed to have met the Staggers Act objectives for financial performance until it had achieved this threshold for a period of time. However, the ICC declined to specify "what period of time may be sufficiently representative in every case. This will vary depending upon the carrier's traffic base and the relative stability of the economy at the time." The ICC also noted that "we want to make clear that we will not and cannot guarantee any railroad a return equal to the cost of capital. A railroad, like any other firm, should earn such a return only if it provides a desired service in an efficient manner. We want to take great care, however, not to deny railroads the opportunity to earn the cost of capital." The ICC applied this approach retroactively to 1979 and subsequently. Using this standard, the financial performance of the railroad industry has been poor. As shown in Figure 20 , over 27 years the Class I railroad industry as a whole has never once been revenue adequate. The difference between the industry's return on investment and cost of capital narrowed from 1979 to 1990, but the gap has not subsequently been closed or consistently narrowed ( Figure 20 ). During this period the ICC and STB made 445 individual determinations of revenue adequacy for railroad companies. It found railroads to be revenue adequate in just 32 instances, of which just over half were for two companies, the Illinois Central (now part of Canadian National) and Norfolk Southern. Including subsidiaries and merger partners, the Union Pacific had one finding of revenue adequacy in 27 years by the STB's reckoning, CSX three findings, and BNSF four findings. Under the economic theory underpinning the Board's revenue adequacy test, the consistent inability of the railroad industry as whole, or even individual carriers, to achieve revenue adequacy for over a quarter century should result in significant capital shortages and even disinvestment in the rail industry. According to testimony relied upon by the ICC in developing its revenue adequacy test: In the final analysis, the only valid test of adequacy of a railroad's revenues is that they yield a rate of return equal to the opportunity cost of capital. Failing that, regulation will result in service deterioration as a result of disinvestment. ... any firm that earns less than this amount [its cost of capital] will be unable to compete in the market for funds. Its owners will neither wish nor be able to keep the enterprise's capital intact. They will withdraw their capital as quickly and as expeditiously as they can. The ICC concluded that "railroad management has little incentive to reinvest funds generated by ratepayers in continued rail uses if greater returns are available elsewhere. Railroads are private companies whose stockholders would not permit such reinvestment. Thus, even retained earnings will not be invested in the company if they cannot earn a rate of return equal to the cost of capital." Nonetheless, the railroads continued to invest billions of dollars in their systems over the years, even as they consistently fell short of the regulatory standard for revenue adequacy. This discrepancy between the failure to achieve revenue adequacy and the continued availability of investment capital has been explained as a consequence of optimistic investors putting money into the rail industry in anticipation of financial results that were not realized. Other observers have suggested that the ICC's methodology for measuring railroad revenue adequacy does not comport with the true state of the industry. The ICC itself made adjustments to the details of its methodology in 1986 after observing that its approach "does not appear to produce a realistic picture of the state of the rail industry." According to Standard and Poor's, writing, respectively, in 1995 and 1999: ... until it earns at least its cost of capital, the rail industry is considered unhealthy—at least in the technical sense. We think the industry is actually fit as a fiddle, so how can this be? We believe that the [ICC's] definition of cost of capital is at fault. ... the industry technically remains "revenue inadequate".... The fact that the industry may not achieve revenue adequacy is not particularly meaningful, however, given the many flaws in the design of this financial test. The revenue adequacy conclusions drawn by the STB are contradicted at times by statements made by railroads to financial analysts. The STB determined that NS was revenue adequate in 2004, but the railroad told investment analysts that it had not achieved its cost of capital. UP, which according to the STB analysis has been revenue adequate only once since 1979, told Wall Street that it "did achieve our cost of capital in many years and even exceeded." These contradictions can perhaps be explained by differences which may exist between the financial measurement methods specified by the STB for regulatory filings versus those used by individual companies for their own purposes. Nonetheless, a situation in which the Board's metric of revenue adequacy—which in essence is a measure of how willing investors should be to put money into the railroad industry—differs from the rail industry's own reports to the investment analysts who advise those same investors, creates some uncertainty about the utility of the STB determinations. Critics who claim that the STB's methodology understates the rail industry's actual financial performance have raised numerous technical objections to the Board's approach. One criticism that appears to have particular significance relates to the methodology used by the Board to determine the rail industry's cost of equity capital, a component of the overall cost of capital. The STB uses a "single-stage discounted cash flow" (DCF) model to estimate the cost of equity. A key input into this method is an earnings growth rate that is assumed to continue, unchanged, indefinitely. The assumption of an unchanging growth rate is workable for steady-state industries with growth rates that roughly mirror the growth of the overall economy. However, if an industry has been growing rapidly—as has recently been the case for the railroads—and this current high growth rate is used in the DCF formula—as the STB has done—the DCF model will produce an overstated cost of equity. This methodological pitfall is documented in the financial literature; for example, one standard text notes that "The simple constant-growth DCF formula is an extremely useful rule of thumb, but no more than that. Naive trust in the formula has led many financial analysts to silly conclusions ... resist the temptation to apply the formula to firms having high current rates of growth. Such growth can rarely be sustained indefinitely, but the constant-growth DCF formula assumes it can." This problem was pointed out to the STB at least as early as 1997. In August 2007 the STB proposed changing the approach used to estimate the cost of equity from the DCF model to an alternative "capital asset pricing model" (CAPM) methodology. The Board's sample CAPM calculations show that application of the new method could cut its estimate of the railroad industry's overall cost of capital in 2005 by more than a third, from 12.2% to 7.5%. Using these new estimates, the railroad industry as a whole was revenue adequate in 2005. The significant change in revenue adequacy that results from what is, in essence, a technical adjustment, points at a broader possible problem with the STB's revenue adequacy methodology. This is the STB's effort to peg the financial state of the railroad industry to a single, relatively simple to calculate measure that can be determined with a minimum of judgment. This objective may be difficult to achieve. Financial analysis is often not as cut-and-dried as running numbers through a model and receiving clear results. For example, the Board noted that the literature on estimating just the equity component of the cost of capital is "vast ... covering the fields of finance, economics, and regulation." Another source notes that "there is no generally accepted definition of the cost of equity capital, but only a number of competing theories that are more or less capable of being applied numerically." In a situation with this degree of methodological uncertainty, it is not clear that an essentially mechanical determination of revenue adequacy based on one financial ratio will necessarily yield reliable results. Note that in traditional utility rate hearings the appropriate rate of return is typically set through a contested hearing process, not through the mechanical application of a formula and procedure. According to one source, for a public utility commission: It is appropriate to use the results of mathematical financial models to provide a 'zone of reasonableness' for the [return on equity or ROE].... However, the determination of the ROE is not an exact science. Judgment is inherent and certainly used by financial analysts when applying financial models. Certainly, a commission needs to exercise similar judgment to evaluate the overall results of those models and select an appropriate ROE.... In contrast to the current use of a single financial ratio to determine revenue adequacy, prior to passage of the Staggers Act the ICC relied on a qualitative evaluation of multiple financial indicators. When it adopted its current methodology in 1981, the Commission rejected a "multi-faceted standard" because it would require "a considerable amount of subjectivity in terms of selecting the mix of indicators to use and the performance standards applicable to each indicator.... Based on the record, we must reject a multi-indicator standard ... because no practical way has been shown to implement it objectively." The STB later noted that an advantage of the ICC's method for computing the key cost of equity component is that "the simple DCF method required few inputs and few judgment calls...." However, it may be difficult to avoid introducing considerable judgment into the revenue adequacy determination. For example, the CAPM approach the STB has proposed using in its future revenue adequacy determinations requires its own set of assumptions; the STB notes that "there are disputes over how to apply the model and whether newer methods are superior." According to a survey of finance practitioners, there are "substantial disagreements" on how to estimate all three of the key inputs to the CAPM model. As one text observes, "finance is in large part a matter of judgment, and we simply must face this fact." Financial analysis of a firm or industry for revenue adequacy purposes may require the use of multiple measures, and the application of judgment in weighing the indicators and arriving at a final assessment. There is no consensus on whether or not the railroad industry has achieved revenue adequacy. There is a large body of opinion that the railroad industry has not achieved returns equal to its cost of capital or perhaps has done so only recently, or question how long current favorable financial trends will continue. For example, the Financial Times reported in 2007 that industry consolidation "along with solid demand ... has done wonders for pricing, allowing the sector to earn its cost of capital and more for a change. It is far from clear, however, how long that trend can continue." A study for the Electric Power Research Institute concluded in 2005 that the rail industry returns were approaching but had not yet reached the industry cost of capital. A transportation investment analyst testified to Congress in 2001 that "the bottom line is the railroads don't earn their cost of capital ... they destroy capital every year." In summary, opinion on the regulatory restructuring proposals may hinge in part on views of the railroad industry's financial condition. For the reasons discussed above, the STB's revenue adequacy determinations may be of uncertain value in developing such a view. The following issues may be of interest in evaluating the regulatory restructuring proposals: Are the coal and other rail service (and related rate and competitive access) issues the restructuring bills address of sufficient import to justify extensively revising the current regulatory framework? Existing data on service, capacity, rates, and the degree to which captive coal and other shippers are subject to market power are incomplete at best. Should the executive agencies be directed to gather and analyze additional data in these areas on an ongoing basis? As of mid-2007 the STB plans to conduct a study of rail competition and rates, but this will apparently be a one-time analysis. What is the actual financial state of the railroad industry? Congress's view of the restructuring proposals may depend in part on an evaluation of the financial condition of the railroads; in particular, whether they have achieved the regulatory goal of revenue adequacy. A financially robust industry may be able to respond to enhanced competition with the innovation and service improvements suggested by proponents. A weaker industry may contract in response to more intense competition, and service could deteriorate. There are other perspectives: if the railroads have achieved revenue adequacy then it might be unwise to make major changes; if it has not, then more competition may be needed to jump-start the industry. A predicate for reaching any of these conclusions is a rigorous analysis of the financial state of the railroads, and this does not currently appear to be available. Would the restructuring proposals actually achieve substantial service improvements? RCSIA leaves implementation details undefined, making the outcomes from the law uncertain. These implementation issues include, for example, the fees for bottleneck service, how a cost of service rate appeal process could be economically managed, and operation of the remedies proposed for areas of inadequate competition. Service Focus : as an alternative to extensive revision of the current regulatory regime, could more limited changes result in material improvements in coal rail service? If otherwise desirable, a more limited agenda might include elements of current proposals, including giving rail service problems and their resolution greater public visibility; creation of a rail public advocate; and new requirements in the law for reliable rail service. Appendix A. Significant Disruptions in Deliveries of Coal to Power Generators Since 1990 Appendix B. Costs and Other Consequences of the 2005-2006 Disruption in Rail Transportation of Coal
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Half the nation's electricity comes from coal, and most of that coal is delivered to power plants by railroads. The reliable supply of coal by rail is therefore important to the electric power system. Concern over reliable deliveries of coal and other commodities, limited rail system capacity, and related issues such as rail rates, sparked several congressional hearings in 2006. This report provides background information and analysis on coal transportation by rail to power plants. The report discusses: Problems since 1990 with the rail delivery of coal. Implications of rail capacity limits on service reliability. The role of coal inventories as a backstop to reliable coal deliveries. Proposed legislation intended, in part, to improve the quality of rail service to coal-fired plants and other shippers. The report also identifies data and analysis gaps that complicate measuring the scope of rail service and capacity issues, determining the need for federal action, and evaluating the possible efficacy of proposed legislation. Freight rail transportation and electric power generation are mutually dependent network industries. Railroads accounted for over 70% of coal shipments to power plants in 2005, and due to economic and physical limitations on other modes (truck, barge, and conveyor) the heavy dependency of the power industry on rail transportation is likely to continue into the future. From the standpoint of the rail industry, coal transportation is an important business, accounting in recent years for about 20% of freight revenues for the major railroads. The mutual dependency between the rail and power industries creates a complex business relationship. There are connections and to some degree tradeoffs between such factors as railroad investments in capacity and service enhancement, and power company tolerance for transportation risk and willingness to carry the cost of larger coal stockpiles. A central point is that increasing the reliability of coal deliveries to power plants costs money, as does coping with disruptions. A central issue between power companies and railroads is how these costs should be shared. Proposed legislation before the 110th Congress discussed in this report includes the Freight Rail Infrastructure Capacity Expansion Act of 2007 (S. 1125 and H.R. 2116), the Railroad Competition and Service Improvement Act of 2007 (S. 953 and H.R. 2125), and the Railroad Antitrust Enforcement Act of 2007 (S. 772 and H.R. 1650). This report will be updated as developments warrant.
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Current popular attention being paid to the threat of chemical and biological weapons (CBW)use by terrorists may give the impression that this is a new phenomenon, but it is not. Most chemicaland biological weapons themselves have a long history: the first chemical weapons were used inancient Greece; biological weapons have been used in a wartime context since at least the MiddleAges. (1) Employed extensively in the first World War,notably in the use of mustard gas, chemicalweapons have evolved very little in their technology since the mid-twentieth century. Althoughrecent technological advances in biological weapons have been made, the vaccines and treatmentsavailable to deal with some of them have also advanced. Historically, most terrorist groups haveavoided using CBW, in part because they do not want to alienate their own constituencies, and inpart because they have not had the technical expertise to turn them into effective weapons. (2) ThoseCBW attacks that have occurred represent a small proportion of the total number of internationalterrorist incidents. (3) CBW weapons have rarely beenused by subnational groups. But there is growing concern that past patterns of use could be about to change. Many experts worry about the increasing availability of CBW in the last decade or so, combined with the serious psychological impact that their use would have. This concern was heightened after 1995, when theJapanese terrorist organization Aum Shinrikyo used the chemical nerve agent sarin on the Tokyosubway, killing 12 people and injuring up to 6,000. The group's efforts, which fell far short of itsgoals, attracted widespread attention and helped increase focus on the so-called weapons of massdestruction (WMD) terrorist threat. While there is considerable information about state acquisition and/or use of CBW, evidence regarding nonstate acquisition and/or use is contradictory and often sketchy. (4) Although hardevidence is limited, a sampling of terrorist groups or individuals that are reported to have shown aninterest in or used chem-bio agents (usually in very limited ways) includes the PKK (KurdistanWorker's Party), believed to have weaponized the nerve gas sarin; HAMAS (Islamic ResistanceMovement), which has reportedly coated shrapnel with poisons and pesticides; numerous U.S.domestic individuals and groups without foreign connections (including the Minnesota PatriotsCouncil, the so-called "Alphabet Bomber," R.I.S.E., Larry Wayne Harris, and others) who have usedor intended to use ricin, plague, anthrax, hydrogen cyanide, sarin, and other agents; and of courseAl Qaeda and its associated groups. (5) But the effortsof Aum Shinrikyo represented a watershed, withits bizarre and seemingly irrational agenda, its systematic pursuit of technical competency, and itsrepeated attempts to kill a large number of Japanese civilians. Even with its multiple technicalfailures, Aum Shinrikyo led to heightened anxiety about the attractiveness and feasibility of futuremass casualty terrorist use of CBW. Still, numerical trends for CBW attacks have not increased. According to the Monterey Institute of International Studies' terrorism chronology, between 2000 and 2001 (the last year forwhich published data are available), the number of hoaxes went up (from 25 to 603) but the numberof CBW incidents actually decreased (from 48 to 25). (6) Thus it would appear that the fall 2001anthrax attacks in the United States resulted in numerous copy-cat hoaxes, but they did not reflectan overall increase in bioterrorism events. However, terrorism experts continue to worry about theuse of chemical and biological agents. The reasons for increased potential use can be grouped into four major categories: the growthof militant religious groups with political agendas as a percentage of all terrorist groups, theincreasing global availability of CBW information and stockpiles, the internationalization of thethreat of terrorism, and the clear evidence of terrorist interest and capabilities. First, there has been a sharp increase in militant religious groups internationally as a percentage of all terrorist groups. Over the last years of the twentieth century, such groups went from being justover three percent of all identified terrorist groups in 1980 to forty-three percent by 1995. (7) Militantreligious terrorists, experts note, may label their victims as heretics or infidels and thus unfit to live. The incentives for such groups to kill large numbers of people may thus be unconstrained by thescruples of earthly constituencies. In combination with this worrisome development, the lethality per terrorist attack went up over the course of the past decade. While there were fewer attacks overall in the 1990s, the number ofpeople killed and maimed per attack increased. This confirmed the fear of many experts thatterrorism based on extreme religious beliefs, in association with other developments discussedbelow, might be even more dangerous than were the left wing, right wing, andethnonationalist/separatist groups that predominated in earlier years. (8) A larger proportion of theattacks that did occur were executed by persons with religion-based animus. The tragedies ofSeptember 11th seemed to bear out both of these trends. Second, there is a growing concern about the increasing availability of information and resources for the building of weapons by subnational groups that in former years had been feasibleonly with the resources of a state. Like the rest of the world, terrorist groups have access to the vastamount of technical data disseminated through the Internet. More and more information that mightpreviously have been difficult to collect is becoming easily accessible. Among the groups that havereportedly demonstrated interest in acquiring unconventional weapons (besides Al Qaeda) are thePLO, the Red Army Faction, Hezbollah, the Kurdistan Workers' Party, German neo-Nazis, and theChechens. (9) At the same time, the breakup of theSoviet Union increased potential access to a vast,highly advanced arsenal of not only nuclear but also chemical and biological weapons and expertise. The combination of greater movement of people, knowledge and products across borders in aglobalized world, and greater availability of materials and expertise in the post-Soviet era, havetogether led to a potentially serious erosion in state control over chemical and biological weapons(or their ingredients). (10) Third, the nature of international terrorism has evolved in dangerous ways in recent years. Although many traditional groups carry on in their struggles, the growth of religiously-orientedgroups has led to an increased commonality of interests between populations in disparategeographical areas. In part in reaction to American global policies and cultural as well as politicalglobal reach, groups are developing ties across formerly divisive ideological, ethnic, and nationallines. The area of potential recruits is thus broader than it might have been for a traditionalethnonationalist/separatist group supported only by its local constituency, for example. Also, thisinternationalization of the threat has often led to a greater distance between groups and targets. Theresult is not only a removal of moral constraints but also political constraints, with less worry aboutpotentially sullying a homeland or killing potential constituents. Thus, the internationalization ofterrorism may unfortunately imply an increase in just the sorts of incentives that lead groups toconsider unconventional weapons. Fourth, and perhaps most important, there are clear indications of interest in CBW on the part of contemporary terrorist groups, as well as some evidence of actual capabilities. With along-standing expressed desire to acquire them and a demonstrated willingness to kill Americans,Al Qaeda (and its associates) is the group that most worries U.S. experts. Osama bin Laden hasreportedly pursued the development of chemical and biological weapons since the early 1990s. (11) In1998, he spoke of acquiring weapons of mass destruction being a "religious duty," and the eleventhvolume of Al Qaeda's 5,000-page "Encyclopedia of Jihad" is devoted to explaining how to constructCBW. (12) There are many substantiated examples in the open press of efforts by Al Qaeda and its allies to develop these weapons. During operations in Afghanistan, coalition forces found trace amountsof ricin and anthrax at five or six sites, as well as evidence of an interest in plague, cyanide, andbotulinum toxin. (13) In December 2001, CNNobtained a cache of 64 Al Qaeda video tapescontaining gruesome evidence of experiments using an apparent nerve gas against dogs. (14) Furtherafield, in 2002 a reported plot by nine Moroccans to use a cyanide compound to poison the watersupply of the U.S. Embassy in Rome was disrupted; several of the men involved had ties to AlQaeda. (15) In January 2003, a reported plot by sixAlgerians to use ricin was uncovered in a Londonapartment. One of the six arrested had attended Al Qaeda training camps, whereas the others hadreceived training in Chechnya and the Pankisi Gorge region of Georgia. (16) Most recently, evidenceseized in March 2003 with the arrest of operations chief Khalid Shaikh Mohammed demonstratedsurprising technical sophistication, with production timetables and manufacturing specifications forbio-chemical agents, especially weaponized anthrax. (17) In addition to these highly publicizedexamples, there are many other press reports of varying reliability. It is hard to know with confidence what the logic of this apparently growing interest in CBW is. If high casualties are the intended end, these agents are not the most effective means: chem-bioagents are generally more useful for increasing anxiety and panic than causing high numbers ofcasualties. Projections of tens of thousands of casualties are theoretically possible, (18) but many suchestimates are worst-case scenarios likely to occur in hard-to-achieve circumstances, with idealweather conditions, temperature controls, dispersion rates, concentrations of agent, and so on. (19) Still,terrorism is a psychological weapon, intended for political effect. The goal might instead be to causeeconomic damage, or to show strength and increase political support or leverage, or to copy otherterrorist groups, or to emulate the technological capabilities of states-or some combination of these. While this is a fine line to draw, there is a danger that Western governments might overstate andhype the threat, leading to some of the same outcomes by heightening anxieties. There are a largenumber of practical obstacles to terrorists using these weapons, and these will be discussed next. There are at least four reasons why terrorist groups like Al Qaeda might avoid using chem-bioagents in attacks against the United States and its interests. First and most important, the technicaldifficulties in carrying out such attacks continue to be significant. Aum Shinrikyo is a good exampleof a group that had unusually favorable circumstances for producing chemical and biologicalweapons, including money, facilities, time and expertise, yet they were unable to do so effectively. Some experts argue that Aum Shinrikyo's experience, which included problems ranging fromobtaining biological seed cultures to effectively disseminating them to chemical leaks and accidents,is as easily a warning of the technical challenges involved as it is an example for future groups. (20) For most nonstate actors, difficulties with acquiring materials, maintaining them, transforming theminto weapons, and disseminating them effectively are numerous. While many technical advanceshave occurred in recent years, arguably reducing the barriers somewhat, there are still considerableobstacles to terrorist development of chemical and biological weapons. (21) Second, as mentioned above, there are far easier and potentially more "effective" (at least in terms of casualty numbers) alternatives to chemical and biological weapons. On the rare occasionswhen they have been used, CBW have not resulted in large death tolls, especially compared toconventional weapons such as truck bombs and individual explosive devices. (22) It is worth bearingin mind that the attacks of September 11th accomplished mass destruction without anyunconventional weaponry. If measured strictly in terms of their proven capacity to kill people or thefrequency of terrorist use in the past, CBW weapons are not the most worrisome threat. Third, the incentives and disincentives for individual terrorists to use chemical and biological weapons are complex and may not be exactly the same as those that guide the use of moreconventional weapons. Recent suicide attacks indicate, among other things, an apparently growingwillingness on the part of terrorist organizations to plan and condone the death of their ownoperatives in the service of the cause. It is difficult to handle many chemical and biological agentswithout putting the handler at risk, especially in the absence of the kind of top-quality equipment thatis more commonly available to states. But instantaneous death in a dramatic explosion is a far cryfrom the agony of a slow death from smallpox or exposure to a nerve agent. Of course, there aremany unknowns; but from an individual perspective, the incentives and disincentives for dying ina CBW attack should not be assumed to be the same as those that factor into other types of attacks. Indeed, the existence of larger numbers of religious terrorists could actually imply a decreased likelihood of the use of chemical and biological weapons. Although this point should not beoverstated, violence whose primary aim is to kill as many perceived enemies as possible may not belikely to employ these agents. It is difficult in most scenarios to execute an attack with chem-bioweapons that kills a large number of people. Finally, groups tend to mimic previous successes. Although terrorists do innovate in various ways, (23) groups have most often preferred to useweapons that have a proven track record. There areno guarantees, but going strictly on the odds and the historical patterns of terrorist behavior, mostexperts posit that there is a higher likelihood that the next major attack will use conventional notunconventional means. But, again, the caveat is that terrorism seeks to shock. If a chemical or biological terrorist attack were to occur, it is most likely that the event wouldbe on a small scale physically, with much larger effects on the population psychologically. For thisreason, targets of terrorism are forced to seek a fine balance: On one hand, it is important to preparethe public for the possibility of an attack. Among other things, since one of the incentives for usingthese weapons is to induce panic, preparations lower the likelihood of their occurrence in the firstplace. On the other hand, hyping and publicizing the threat potentially distorts its probablemagnitude and likelihood. This could arguably add to the incentives for a terrorist organization toattempt an attack. Additional measures to counter both state and especially non-state means of proliferation of chemical and biological weapons are crucial to reducing the threat in the future, both domesticallyand internationally. This is a difficult technical challenge in an age of globalization, when theexpertise and means to carry out attacks are becoming much harder to control through traditionalstate measures like border controls, export controls, treaties and sanctions. Defensive measures andconsequence management to reduce both the effects of an attack and the incentives to carry one outwill be increasingly important. Within the United States, some measures enhancing the security oflaboratories/facilities have already been enacted. (24) Some believe that existing measures are adequate,and others disagree. With respect to the increasing global availability of information and materials related to chemical and biological weapons, an important issue could be the fate of the people who haveworked in the Iraqi weapons programs. At this writing, the full nature of those programs is notpublicly known; however, as the United States forcibly disarms Iraq, it could become critical toensure that CBW materials and expertise are not disseminated during and after military operations. This is a potential danger not only with respect to keeping track of the whereabouts and behavior ofthe scientists who have been in charge (and may have already been identified by UNMOVIC and/orU.S. intelligence) but also the production-level technicians and others who may have access or somedegree of knowledge. At least in the short term, the nightmarish scenario of loss of control of Iraqi CBW, including potential sale or transfer to terrorist organizations, could arguably be more likely in an atmosphereof political or economic instability. There might be incentives for new links to develop betweenIraqis who might have benefitted from the previous regime, and well-heeled groups like Al Qaeda(and its associates). Osama bin Laden's expression of support for the Iraqi people (if not theBa'athist regime), as well as evidence of Al Qaeda's existing interest and capabilities, argue forscrupulous caution along these lines. There have been extensive measures under the Nunn-LugarComprehensive Threat Reduction program oriented toward the arsenal of the former Soviet Union,but a post-conflict Iraq could present important new proliferation risks. Existing legislation,including the Iraq Sanctions Act of 1990 and existing provisions under the Chemical WeaponsConvention and the Biological and Toxin Weapons Convention, may not adequately address thisnew concern, (25) and additional measures targetingthis emerging danger may be worth considering.
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There is widespread belief that the likelihood of terrorist use of chemical and biological weapons (CBW) is increasing, in part as a result of publicized new evidence of terrorist interest andcapabilities, as well as the political fall-out from the war in Iraq. This is a serious present concernthat deserves examination in the broader framework provided by the patterns, motivations andhistorical context for the current terrorist threat. Although it can have a powerful psychologicalimpact, past CBW use by terrorists has been rare and has not caused a large number of casualties,especially compared to other weapons. Terrorist attacks are deliberately designed to surprise, so notrend analysis will ever perfectly predict them, especially in the contemporary international climate. This report presents the arguments for and against future nonstate terrorist acquisition and/or use ofCBW weapons against the United States, as well as a brief discussion of issues for congressconcerning how best to counter the threat. It will not be updated.
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Recognizing the risk that a standing army could pose to individual civil liberties and the sovereignty retained by the several states, but also cognizant of the need to provide for the defense of the nation against foreign and domestic threats, the framers of the Constitution incorporated a system of checks and balances to divide the control of the military between the President and Congress and to share the control of the militia with the states. This report summarizes the constitutional and statutory authorities and limitations relevant to the employment of the armed forces to provide disaster relief and law enforcement assistance. Congress has the constitutional power to raise, support, organize and regulate the armed forces, art. I, §8, cls. 11-14. These clauses do not expressly limit Congress as to how, when, or where it might employ the armed forces, although presumably such use must be in furtherance of other constitutional powers. Congress is also empowered to provide for calling forth the militia to execute federal law and to suppress insurrections, §8, cl. 15, and to provide for organizing, arming, and disciplining the militia and to govern them when they are employed in the service of the United States, §8, cl. 16. Once the army is raised or the militia called forth, the President serves as their Commander-in-Chief, art. II, §2, cl. 1. And of course, the President is vested with the responsibility to "take Care that the Laws be faithfully executed," art. II, §2, cl. 3. Congress has delegated to the President the authority to use the armed forces to respond to a variety of domestic crises, and Presidents have asserted some inherent authority to use the military even without express statutory authorization. Under the Constitution, states retain the primary responsibility and authority to provide for civil order and the protection of their citizens' lives and property. However, the Constitution provides that the federal government is responsible for protecting the states against invasion and insurrection, and, if the state legislature (or the governor, if the legislature cannot be convened) requests it, protection against "domestic Violence," art. IV, §4. States may not keep their own standing armies, art. I, §10, cl. 3, but they retain the authority to call forth their militias to suppress insurrections or quell civil disturbances, subject to any restraints imposed by the Constitution or by Congress, in the exercise of its constitutional powers. Congress has complete authority over federal lands, military installations, and similar areas, art. I, §8, cl. 17. The Constitution does not explicitly bar the use of military forces in civilian situations or in matters of law enforcement, but the United States has traditionally refrained from employing troops to enforce the law except in cases of necessity. The Posse Comitatus Act (PCA), 18 U.S.C. §1385, punishes those who, "except in cases and under circumstances expressly authorized by the Constitution or Act of Congress, willfully use[] any part of the Army or the Air Force as a posse comitatus or otherwise to execute the laws.... " The act does not apply to the Navy or Marines and does not prohibit activities conducted for a military purpose (base security or enforcement of military discipline) that incidentally benefit civilian law enforcement bodies. The act does not apply to the National Guard unless it is employed in federal service. Questions arise most often in the context of assistance to civilian police. At least in this context, the courts have held that, absent a recognized exception, the PCA is violated (1) when civilian law enforcement officials make "direct active use" of military investigators, (2) when the use of the military "pervades the activities" of the civilian officials, or (3) when the military is used so as to subject citizens to the exercise of military power that is "regulatory, prescriptive, or compulsory in nature." Congress has provided for a number of statutory exceptions to the PCA by explicitly vesting law enforcement authority either directly in a military branch (e.g, the Coast Guard) or indirectly by authorizing the President or another government agency to call for assistance in enforcing certain laws. Congress has delegated authority to the President to call forth the military during an insurrection or civil disturbance, 10 U.S.C. §§331-335. Section 331 authorizes the President to use the military to suppress an insurrection at the request of a state government, which is meant to fulfill the federal government's responsibility to protect states against "domestic violence" (although the term "insurrection" is arguably much narrower than the phrase "domestic violence"). Section 332 delegates Congress's power under the Constitution, art. I, §8, cl. 14, to the President, authorizing him to determine that "unlawful obstructions, combinations, or assemblages, or rebellion against the authority of the United States make it impracticable to enforce the laws of the United States" and to use the armed forces as he considers necessary to enforce the law or to suppress the rebellion. Section 333 permits the President to use the armed forces to suppress any "insurrection, domestic violence, unlawful combination, or conspiracy" if law enforcement is hindered within a state, and local law enforcement is unable to protect individuals, or if the unlawful action "obstructs the execution of the laws of the United States or impedes the course of justice under those laws." This section was enacted to implement the Fourteenth Amendment and does not require the request or even the permission of the governor of the affected state. The Insurrection Act has been used to send the armed forces to quell civil disturbances a number of times during U.S. history, most recently during the 1992 Los Angeles riots and during Hurricane Hugo in 1989, during which widespread looting was reported in St. Croix, Virgin Islands. If the President decides to respond to such a situation, generally upon the recommendation of the Attorney General and, if necessary, the request of the governor, he must first issue a proclamation ordering the insurgents to disperse within a limited time, 10 U.S.C. §334. If the situation does not resolve itself, the President may issue an executive order to send in troops. Congress has also authorized the armed forces to share information and equipment with civilian law enforcement agencies, 10 U.S.C. §§371-382, although prohibiting the use of armed forces personnel to make arrests or conduct searches and seizures. Department of Defense (DOD) regulations assert another exception that does not rest on statutory authority, but is available in very limited circumstances and covers "Actions that are taken under the inherent right of the U.S. Government ... to ensure the preservation of public order and to carry out governmental operations within its territorial limits, or otherwise in accordance with applicable law, by force, if necessary." The emergency power, according to DOD directives, is available to protect federal property and functions, and to authorize prompt and vigorous Federal action, including use of military forces, to prevent loss of life or wanton destruction of property and to restore governmental functioning and public order when sudden and unexpected civil disturbances, disaster, or calamities seriously endanger life and property and disrupt normal governmental functions to such an extent that duly constituted local authorities are unable to control the situation. Ordinarily, the implementation of such operations must be authorized by executive order, but DOD officials and military commanders may take emergency action without prior authorization in cases where "sudden and unexpected civil disturbances (including civil disturbances incident to earthquake, fire, flood, or other such calamity endangering life) occur, if duly constituted local authorities are unable to control the situation and circumstances preclude obtaining prior authorization by the President." The Robert T. Stafford Disaster Relief and Emergency Assistance Act (the Stafford Act, 42 U.S.C. §§5121, et seq.) authorizes the President to make a wide range of federal aid available to states that are stricken by a natural or man-made disaster. It provides statutory authority for employing the U.S. armed forces for domestic disaster relief. Permitted operations include debris removal and road clearance, search and rescue, emergency medical care and shelter, provision of food, water, and other essential needs, dissemination of public information and assistance regarding health and safety measures, and the provision of technical advice to state and local governments on disaster management and control. The authority does not constitute an exception to the PCA. In the event of a disaster that results in the wide-scale deterioration of civil law and order, the authority to employ active duty troops to perform law enforcement functions must be found elsewhere. The Stafford Act does not authorize the use of federal military forces to maintain law and order. Federal forces would have no authority, for example, to act as traffic controllers or provide security for facilities used in the relief efforts, unless such activities serve a valid military purpose. Patrolling in civilian neighborhoods for the purpose of providing security from looting and other activities, would not be permissible, although patrolling for humanitarian relief missions, such as rescue operations and food delivery (which may have the incidental benefit of deterring crime) would not violate the PCA. Military resources may be employed in the following situations. Upon the request of the governor, the President may task DOD to provide any emergency work the President deems essential for the preservation of life and property in the immediate aftermath of an incident that may ultimately qualify for assistance under a declaration. Such assistance is available for up to ten days prior to a presidential declaration of an emergency or a major disaster, 42 U.S.C. §5170b(c). Emergency work can include the clearance and removal of debris and wreckage and the restoration of essential public facilities and services, 42 U.S.C. §5170(c)(6)(B). The provision is designed for instances where communications problems impede the ability to meet the prerequisites for declaring an emergency or major disaster or the ability to coordinate the work through FEMA. Unless the President determines that a disaster implicates preeminently federal interests, the declaration of an emergency under the Stafford Act requires that the governor of the affected state first make a determination that the situation is of such severity and magnitude that the state is unable to respond effectively without federal assistance, which determination must include a detailed definition of the type and amount of federal aid required, 42 U.S.C. §5191. The governor must also implement the state's emergency response plan, for example, by activating the state's National Guard units under state control (in which case the PCA does not apply to them), and provide information regarding the resources that have been committed. The prerequisites for a major disaster declaration are similar to those for an emergency, 42 U.S.C. §5170. The governor must first execute the state's emergency plan and make a determination that state capabilities are insufficient to deal with the circumstances. However, the governor need not specify which forms of assistance are needed. The governor must provide information regarding the resources that have been committed and certify that the state will comply with cost sharing provisions under the Stafford Act. There is no provision for the declaration of a major disaster without the governor's request. If the governor activates Guard units and keeps them under state control, those units are not restricted by the PCA. If the state's National Guard units are called into federal service to respond to an emergency or a major disaster, their role is restricted to the disaster relief operations authorized under the Stafford Act. DOD doctrine allows commanders to provide resources and assistance to civil authorities without or prior to a declaration under the Stafford Act when a disaster overwhelms the capabilities of local authorities and necessitates immediate action "to save lives, prevent human suffering, or mitigate great property damage." Immediate response actions can include the types of activities authorized under the Stafford Act, including, at the request of civil authorities, rescue, evacuation, and emergency medical treatment, restoration of essential public services, debris removal, controlling contaminated areas, safeguarding and distributing food and essential supplies, and supplying interim emergency communications. The controlling directive does not require a request from state or local officials, but states that "DoD Components shall not perform any function of civil government unless absolutely necessary on a temporary basis under conditions of Immediate Response. Any commander who is directed, or undertakes, to perform such functions shall facilitate the reestablishment of civil responsibility at the earliest time possible." The immediate response authority is not provided for in any statute, but is said to have deep historical roots. While the immediate response authority does not constitute an exception to the PCA, in some cases it may appear so. The potential exists for a disaster relief situation, under which DOD invokes the immediate response authority, to rapidly deteriorate into a civil disturbance. Law enforcement activities in connection with a civil disturbance are an exception to the PCA. Therefore, DOD would be able to assist civil authorities with both disaster relief and law enforcement, simultaneously, under separate authorities. The 1906 San Francisco earthquake is a noted example of a simultaneous natural disaster/civil disturbance. The commanding general of the Pacific Division, on his own initiative, deployed troops to assist civil authorities to stop looting and protect federal buildings, while also assisting firefighters in battling the raging fire.
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Natural disasters, such as Hurricane Sandy, raise questions concerning the President's legal authority to send active duty military forces into a disaster area and the permissible functions the military can perform to protect life and property and maintain order. The Stafford Act authorizes the use of the military for disaster relief operations at the request of the state governor, but it does not authorize the use of the military to perform law enforcement functions, which is ordinarily prohibited by the Posse Comitatus Act. However, the President may invoke other authorities to use federal troops to aid in the execution of the law, including the Insurrection Act. This report summarizes the possible constitutional and statutory authorities and constraints relevant to the use of armed forces, including National Guard units in federal service, to provide assistance to states when a natural disaster impedes the operation of state and local police.
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Like other manufacturing industries, the worldwide recession is weighing heavily on aerospace manufacturing. This is especially true for commercial aerospace companies and their suppliers, which are being buffeted by the significant decline in global air travel, resulting in a sharp drop in new orders for aircraft and parts. The aerospace industry's commercial side anticipates difficult business conditions for the near and medium term, but long-term projections by Boeing, for instance, are positive, with airlines expected to need 29,000 new planes valued at $3.2 trillion between 2009 and 2028. For now, the defense segment of the aerospace sector has offset the downward trend because it still benefits from continuing government expenditures for military aircraft. Aerospace industry analysts nonetheless predict that there could be tough times ahead for producers of military aircraft. The international market for aerospace manufacturing is also rapidly changing, and it raises the question of what impact nascent competitors in countries such as China and Russia will possibly have on the future competitiveness of U.S. aircraft manufacturers. As an industry, aerospace manufacturing in 2008 directly supported over 500,000 high-skilled and relatively well-paid private sector manufacturing jobs nationwide. The private sector aerospace manufacturing workforce in 2008 earned an average wage of $79,700, or about 47% more than the annual average manufacturing wage of $54,400. Many jobs in aerospace manufacturing require at least a bachelor's degree in a specialized technical field such as engineering, which largely explains the significant wage differential. As a result of collective bargaining agreements negotiated by major aerospace unions, including the International Association of Machinists and Aerospace Workers and the Society of Professional Engineering Employees in Aerospace, 21% of aerospace workers were union members or covered by union contracts in 2006, compared with 13% of all workers throughout private industry. The U.S. aircraft manufacturing industry is composed of major firms such as Boeing, United Technologies, Northrop Grumman, Gulfstream Aerospace, and Textron, among others. Established aerospace manufacturing centers are located in Washington state, California, Texas, Kansas, Connecticut, and Arizona (with a combined workforce of more than 305,000 in 2008, comprising over 60% of the aerospace workforce nationwide). Aerospace manufacturing clusters are also present in Florida, Georgia, Ohio, Missouri, and Alabama. Other states, such as South Carolina, are also seeking to increase their aircraft manufacturing production base. In October 2009, Boeing announced it would locate a second final production assembly line in North Charleston, South Carolina, to produce its new 787 mid-sized aircraft, dubbed the Dreamliner. Ground was broken on the Boeing Charleston plant in November 2009, with the production line expected to be operational in July 2011 and delivery of the first plane scheduled for the first quarter of 2012. Boeing anticipates the South Carolina facility will add over 3,800 new jobs within seven years. This would be a significant jump for the state's aerospace manufacturing industry, which currently accounts for less than 1% of South Carolina's manufacturing workforce. For the most part, the ongoing contraction in aerospace manufacturing does not appear in the 2008 data used predominately in this report since the full impact of the economic downturn did not hit the U.S. economy until late 2008. However, the effects have been felt strongly on the commercial side of the industry, and the end of production of key aircraft platforms such as the F-22 and C-17 bodes ill for defense aircraft manufacturing. The aerospace industry by its very nature is cyclical—with industry-specific cycles seemingly occurring approximately every 10 years—and highly susceptible to changing international situations and market forces that are often beyond its control. Commercial aircraft manufacturing sales are directly tied to the health of the airline industry, and a host of factors can influence demand for air travel, including increased economic activity, regional conflicts, terrorism, and disease outbreaks. Full-year 2009 aerospace industry sales statistics are presently unavailable from the aerospace industry trade group, the Aerospace Industries Association (AIA), or from government sources, but many believe considerable evidence indicates a weakening aircraft market, which most likely will reverse the strong market upturn and the lucrative period for aerospace manufacturing that extended back to 2003. Aerospace manufacturing, unlike other industries, entered the current recessionary period from a strong starting position, with limited debt and a strong backlog of orders, according to AIA. AIA in its 2008 Year End Review and 2009 Forecast reported an increase in industry-wide estimated sales of $204.4 billion in 2008, compared to $200.3 billion in 2007 (in current U.S. dollars). As of 2008, aerospace manufacturing by sales accounted for 1.4% of U.S. gross domestic product (GDP). This was down from 1.5% in 2000 and 1.7% in the late 1990s. The commercial market and defense market are the two major industry segments that comprise aerospace manufacturing. Commercial aircraft and parts shipments totaled $96.6 billion in 2008, comprising 63% of total industry shipments, down 4% over 2007, which was a change in direction from the positive growth recorded in commercial aerospace manufacturing shipments dating back to 2003. At the same time, new orders in 2008 for civil aircraft and parts fell for the first time since 2003, dropping from $184.5 billion to $124.1 billion between 2007 and 2008, down by 33%. Defense is the smaller of the two, and this segment depends on the U.S. government for a significant share of its sales. Government agencies including the Department of Defense (DOD) and the National Aerospace and Space Administration (NASA) are the aerospace industry's single largest customers. Defense aircraft and parts accounted for 37% of total aircraft and parts shipments of $152.4 billion in 2008. These shipments were up 40% year-over-year between 2007 and 2008, rising from $39.7 billion to $55.8 billion. The strength of this segment is an important offset during downturns because aerospace companies can often rely upon government business to buoy the commercial sector through its cyclical highs and lows. Aerospace products and parts, including aircraft engines made by firms such as General Electric and United Technologies, are manufactured at large production facilities and hundreds of smaller, but not necessarily small, manufacturers, which are suppliers of parts and components to U.S. and overseas aerospace manufacturers. Main suppliers include the privately held Vought Aircraft Industries, a major subcontracting partner on many commercial and military aircraft programs. Other supplier firms would include Spirit AeroSystems, a major supplier of commercial assemblies and components, and Crane Corporation, a designer and manufacturer of critical systems and components to the aerospace and defense markets. For many decades, the U.S. large commercial jet manufacturing industry was dominant worldwide. Today, the world market has evolved into the highly competitive duopoly of Airbus and Boeing. At the same time, the U.S. aircraft industry now depends on many non-U.S. firms for contributions to their own products. Parts of Boeing's newest aircraft, the 787 Dreamliner, have been outsourced to a global supplier network including firms in Australia, Canada, China, Italy, and Japan. Of concern to many lawmakers in the large commercial aircraft market segment is the current dispute pending before the World Trade Organization (WTO) between Airbus and Boeing. The unfair subsidization case, which dates back to a May 30, 2005, WTO filing by the United States, alleges that member states of the European Union (EU) provided Airbus with illegal subsidies from 1970 to 2004, thus giving the European aircraft manufacturer an unfair advantage in the large commercial aircraft market. The counterclaim by the EU is that Boeing received billions of dollars in industrial subsidies by way of research and development programs dating back to the 1980s through U.S. military and space programs, along with state-level tax breaks. Aerospace manufacturers like Boeing depend heavily on the international market for sales. For example, about 70% of Boeing's commercial airplane sales (by value) are sold to customers outside the United States. Industry-wide exports (including defense and space products) by U.S. manufacturers of aerospace vehicles and equipment increased for five consecutive years, from $53 billion in 2003 to $97.4 billion in 2007. This growth was followed by a slight decrease in aerospace exports in 2008, dropping 2%, according to data compiled by the U.S. Department of Commerce. Japan, France, the United Kingdom, Canada, and Germany were the top five export markets for U.S. aerospace products in 2008, accounting for 36.2% of total aerospace exports worldwide. Outside of these major markets, the United States increased its aerospace vehicle and equipment exports to emerging markets such as Brazil and China. U.S. aerospace exports to China more than doubled between 2003 and 2008, growing from $2.7 billion to $5.5 billion. U.S. aerospace exports to Brazil rose 320% during the same time period, to $5.8 billion. France, Canada, the United Kingdom, Germany, and Japan were the leading aerospace suppliers to the United States in 2008, accounting for almost 75% of all aerospace imports, for a total of $27.9 billion. U.S. aerospace exports made a contribution to reducing the U.S. merchandise trade deficit by offsetting deficits in other areas of trade. The U.S. aerospace industry trade balance stood at over $57 billion in 2008. Boeing and Airbus entered the ongoing recessionary period with a considerable backlog of undelivered aircraft on their books (Airbus recorded a backlog of 3,715 and Boeing 3,714). Both firms have continued to deliver significant numbers of new aircraft to their airline and/or leasing firm customers, and both are profitable. Boeing posted revenues of $60.9 billion and Airbus recorded revenues of $38.7 billion in 2008. Nonetheless, the recession is affecting both producers. In 2008, net orders fell for both Boeing and Airbus (see Table 1 ). For the first three quarters of 2008, Airbus and Boeing received total new orders of 785 airplanes and 625 airplanes, respectively. For the same period in 2009, these numbers have dropped to 149 and 181. There are expectations both firms will have to significantly reduce their aircraft production rates at some point to correspond with this decrease in new orders. By one view, there is a growing supply of surplus aircraft in this market sector and it will take years for this surplus to be absorbed by a global airline industry currently operating at reduced capacity. Another possible sign of trouble for commercial jet manufacturers could be the evolving economic and financial crisis in Dubai. Boeing and Airbus rely on the Middle Eastern market for sales of their aircraft, particularly to the region's large airlines such as Fly Emirates, the national airline of Dubai. Emirates is one of the largest customers for the Airbus A380, with 58 orders. Less exposed is Boeing, but nonetheless it has 23 unfilled orders on its books with Emirates through October 2009 for its 777 aircraft. It is too early to predict what the economic turmoil in Dubai could mean for the orders of these aircraft or for future orders. Boeing and Airbus both have substantial backlogs of orders on their books built up beginning in 2003. Industry analysts say that Boeing is working on a seven-year backlog and Airbus on a six-year backlog. Both have slowed production lines for 2009, and the trend may continue through 2010 or 2011, but many analysts expect this hiatus to be temporary. Boeing's market projections indicate an average annual fleet growth of 3.2% and cargo growth rates of 5.4% from 2009 through 2028. The long-term trajectory for all aircraft manufacturers appears to be strong, with the global market absorbing 29,000 new commercial passenger and freight airplanes valued at $3.2 trillion by 2028 due to such factors as volatile fuel prices, aging fleets, and environmental concerns. For the near and medium term, however, both manufacturers have other issues that will affect their financial performance. The Boeing 787 program is now over two years behind its delivery schedule, originally slated for rollout on July 8, 2007. In part, the delay is viewed by many as being related to problems associated with the highly advanced composite technology that Boeing is incorporating into the aircraft. But many observers also believe the delays are due to the heightened level of outsourcing and concomitant international risk-sharing that Boeing built into the 787. Boeing has a large undelivered backorder of 840 of these planes valued at $140 billion, but until it starts delivering these aircraft in significant numbers the program will remain a drain on its profitability. Airbus had a similar experience with its A380 aircraft program earlier in this decade. Although now in production (19 had been delivered as of October 2009), the world's largest commercial aircraft was delayed for years and it is unlikely that deliveries to date have come anywhere close to recouping the costs of developing that aircraft. Airbus is also in the process of developing a competitor aircraft for the 787 and 777, the A350 XWB, a long-range, mid-size, extra-wide-body airplane. Airbus is taking orders for the aircraft (reporting that it has more than 500 orders from 32 customers), but deliveries are still well off, with the expectation that the first planes will be delivered in 2013, meaning that the A350 XWB program will also be a negative draw on the firm's finances for some years to come. Just like the large commercial aircraft market, the regional jet (RJ) market—typically considered to be commercial jet aircraft with up to 100 seats—depends on the recovery of the airline industry, and it is in a period of prolonged downturn. No U.S.-based firm produces RJs. Canada's Bombardier and Brazil's Embraer are the two major manufacturers of these aircraft, and they now control the market. More recently, deliveries of RJs have slowed. Save for one large order for the as-yet-to-be-built 100- to 130-seat Bombardier C Series aircraft (50 units), with an anticipated entry into service date of 2013, neither manufacturer would have had more than 20 new orders for the first three quarters of 2009. This is a major drop from the 2008 level for the same period of over 200 new orders. Some industry analysts believe the natural annual market for RJs is around 200 aircraft. Regardless of the non-U.S. manufacture of these airframes, RJs represent an important market for the U.S. aerospace manufacturing sector, which provides these manufacturers with engines, landing gear, avionics, and a wide range of other components. One research group, Forecast International, projects that between 2009 and 2018 a total of 3,754 regional aircraft will be produced at an estimated cost of $115 billion. Bombardier projects deliveries of 12,400 aircraft in the 20- to 149-seat segment over the next 20 years. Forecast International also points to increased potential competition from three new entrants into the regional jet market: the Chinese state-owned company, the Commercial Aircraft Corporation of China, Ltd. (COMAC), with its ARJ21; the Japanese firm Mitsubishi Heavy Industries, with the Mitsubishi Regional Jet (MRJ); and the Russian firm Sukhoi, with its Superjet 100. Much of the world's air traffic falls in the general aviation, or GA, category. This sector of aircraft manufacturing covers all aircraft that are not for military use or used for scheduled flights (private and commercial aircraft available for charter or cargo). A wide variety of aircraft types are included in the GA market, ranging from single engine piston aircraft to corporate jets. The General Aviation Manufacturers Association (GAMA) reports that through the end of 2008, the general aviation market was booming. In 2007, deliveries of business jets exceeded 1,000 for the first time, and shipments of new business jets in 2008 reached 1,315 planes, up 15.6% over 2007. Before 2009, production of all but piston aircraft had been increasing steadily on an annualized basis. U.S. production in the business jet classification segment reached 955 aircraft in 2008 (out of total world production of 1,315 units). Since the ongoing recession hit hardest in the fall of 2008, orders for new GA aircraft and especially business jets have fallen dramatically, with the use of corporate jets viewed unfavorably by some in the current economic climate. U.S. business jet production was off by almost 46.8% in the first nine months of 2009. Industry analysts project a significant decline in orders for 2009. Overall, worldwide shipments of general aviation aircraft, including airplanes that are not business jets, fell 7.1% in 2008, to 3,969. Kansas is one state, in particular, that is directly affected by the downturn in the general aviation market. Business jet producers Cessna, Hawker Beechcraft, and Bombardier's Learjet each have production facilities in Wichita, often referred to as the "Air Capital of the World." Kansas's aerospace and parts manufacturing industry employed 43,290 workers, representing 23% of the state's manufacturing workforce. Already, Hawker Beechcraft has reduced production and shed jobs. In February 2009, the company announced that it would lay off 2,300 workers this year, and most recently Hawker made public the closure of its factory in Salina, KS. Additionally, Cessna Aircraft, the largest manufacturer of corporate jets in the United States, said earlier this year that it would lay off at least 4,600 in 2009, 4,000 of which will come from Wichita. One possible issue of interest to Members of Congress is increased competition to the domestic industry from low-cost competitors, including the emergence of possibly strong aerospace manufacturing centers in China and Russia. As the above discussion indicates, non-U.S. firms dominate the RJ market and participate in the GA market. The large commercial jet aircraft manufacturing sector is a Boeing and Airbus duopoly. Over the years, aerospace firms from several non-traditional aircraft manufacturing nations have attempted to enter various parts of the international commercial aircraft sector. With the exception of some GA products, these attempts have largely been commercial failures. As mentioned earlier, a number of new initiatives appear to be under way. While aerospace firms in Europe and Japan have long driven competition with the United States, Russia and China have not, until recently, been strong competitors in the international market. Nowadays, both nations appear to have plans to dominate a much larger share of their own domestic markets and, in turn, perhaps the global market. Most notable is a new Chinese initiative to build an aircraft to compete in the same markets as the A320 series and the B737 series. COMAC was launched by the Chinese government in May 2008 for the express purpose of overseeing the development and production of large civil aircraft. The Comac C919, an approximately 156-seat aircraft with dimensions similar to the A320, is in development, though a production date has not yet been announced. Slated for certification no later than 2016, that model would compete directly with Boeing and Airbus. Though still in early design, Chinese officials have said the C919 should have operating costs 10% below those of comparable Western jetliners. Another competitor could be Russia's United Aircraft Corporation (UAC), a Russian government-owned joint stock company. UAC has stated it plans to become the third-largest aircraft manufacturer worldwide by 2015. Both Chinese and Russian aircraft manufacturers face significant hurdles in building commercial aircraft, since neither has ever built such airplanes for the commercial market, which requires planes to be reliable, have low operating costs, and be easily maintained. Another outstanding barrier to their market entry is certification by U.S. and EU aviation authorities. Congress has been discussing broad issues affecting the competitiveness of the nation's aerospace manufacturing industry for most of this decade. In the early 2000s, the Presidential Commission on the Future of the U.S. Aerospace Industry released its recommendations on how to maintain the competitiveness of the aerospace sector. The Aerospace Commission called for a national aerospace policy along with a government-wide framework to implement this policy, as well as the removal of prohibitive legal and regulatory barriers that impede the ability of the industry to grow. The Commission also advanced policies to maintain U.S. global aerospace leadership by proposing investments in America's industrial base, workforce, and research and development infrastructure. Many industry analysts argue that globalization helps the United States achieve its business objectives and enhances the competitiveness and vitality of aerospace exporters. But U.S. export licensing laws can negatively impact a customer's ability to acquire aerospace products and parts from the United Sates. While larger firms have learned to manage export control requirements, they remain a heavy burden for smaller companies, which in some cases inhibits the ability of second- and third-tier suppliers to compete in the international marketplace. The response by some overseas competitors to U.S. export control policies has been to develop products that do not contain any U.S. components. Like all other sectors of the U.S. economy, environmental concerns impact the aerospace industry. As the world debates the possible implications of climate change, it appears that the aerospace industry will have to contribute to reduction of carbon emissions. How to limit the environmental impact of aviation is a hotly debated topic in the United States and many foreign countries. Concerns include the possibility that some countries could establish unilateral measures to limit greenhouse gas emissions (GHG) for aviation. For instance, the EU's Emissions Trading Scheme (ETS) —a cap-and-trade system—wants the aviation industry to take responsibility for the emissions it contributes to the atmosphere, and all intra-EU and international flights are set to be included under the ETS beginning on January 1, 2012. The aerospace industry confronts a considerable workforce challenge, which is part of an overall problem in the U.S. science and technology workforce. The industry claims that the United States is not producing enough qualified workers to meet the needs of aerospace companies, and not enough students are opting for science and engineering careers. The number of students receiving engineering bachelor's degrees dropped by 11% between 1986 and 2006, but more recent data indicate a change in this trend, with engineering degrees conferred to undergraduates up 14% since 2000. In addition, the current aerospace industry workforce is aging, with an increase in retirements projected in coming years. According to Aviation Week's 2009 Workforce Study, the average age of the broad U.S. aerospace and defense industry workforce is 45, with an average age of 43 among engineers. Boeing reports the average age of today's aerospace engineer at 54 years, which is even older. A 2008 report by the American Institute of Aeronautics and Astronautics found that 26% of aerospace professionals will be eligible to retire this year, and potential additional retirements of "baby-boom" personnel will create a virtual "silver tsunami" of skilled workforce reduction. As a consequence, there is concern among aerospace companies that they are rapidly losing their institutional knowledge base. At the same time, the industry is finding it difficult to replenish its workforce with a younger engineering base. Significant competition for the small pool of technically trained aerospace talent comes from other industries, such as information technology and financial services, and increasingly other countries.
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Aircraft and automobile manufacturing are considered by many to be the technological backbones of the U.S. manufacturing base. As the Obama Administration and Congress debate how to strengthen American manufacturing, aerospace is likely to receive considerable attention. Like other manufacturing industries, the worldwide recession has affected aerospace manufacturing, with both the defense and commercial sides of the industry facing difficult business conditions for the near and medium term. This report primarily provides a snapshot of the U.S. commercial (non-defense, non-space) aerospace manufacturing industry and a discussion of major trends affecting the future of this industry. The large commercial jet aviation market is a duopoly shared by the U.S. aircraft manufacturer Boeing and the European aircraft maker Airbus, with fierce competition between these two companies. The regional jet market is dominated by two non-U.S. headquartered manufacturers, Brazil's Embraer and Canada's Bombardier, both of which utilize a high level of U.S.-produced content in their products. The general aviation market includes companies such as Cessna and Gulfstream. Aerospace manufacturing is an important part of the U.S. manufacturing base. It comprised 2.8% of the nation's manufacturing workforce in 2008 and employed over 500,000 Americans in high-skilled and high-wage jobs. More than half (61%) of the nation's aerospace industry jobs are located in six states: Washington state, California, Texas, Kansas, Connecticut, and Arizona. Several smaller aerospace manufacturing clusters are found in states such as Florida, Georgia, Ohio, Missouri, and Alabama. Other aerospace centers are beginning to emerge in southern states, such as South Carolina, where Boeing is now building a second production line to produce the 787 Dreamliner. Aerospace manufacturing contributes significantly to the U.S. economy, with total sales by aerospace manufacturers (including defense and space) comprising 1.4% of the U.S. gross domestic product in 2008. U.S. aircraft manufacturers depend heavily on the international market for their sales. The aerospace industry sold more than $95 billion in aerospace vehicles and equipment (including defense and space) to overseas customers in markets such as Japan, France, Germany, and the United Kingdom, and imported over $37 billion in aerospace products from abroad, providing a significant positive contribution of $57.7 billion to the U.S. trade balance in 2008. Increasingly, other markets are becoming important as an opportunity to increase U.S. sales, but also because of the potential for future competitors to challenge the U.S. aerospace industry's competitive position. U.S. aerospace exports to China have increased since 2003, totaling $5.5 billion in 2008. At the same time, some analysts maintain that China could become a global competitor in the commercial aerospace market. Already, China is working to develop airplanes that could become globally competitive in both the regional jet and large commercial jet aviation market. Russia has stated that it wants to become the world's third-largest aircraft manufacturer by 2015. Congress has been discussing issues affecting the competitiveness of the U.S. aerospace manufacturing industry for most of this decade. Among the concerns and issues affecting the future of the commercial sector of the industry are export control policies, environmental concerns, and an aging aerospace workforce. Additionally, the United States and the European Union are engaged in a long-running trade dispute over subsidies, with each side claiming the other subsidizes its domestic companies.
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The full funding policy is a federal budgeting rule that has been applied to Department of Defense (DOD) procurement programs since the 1950s. Although technical in nature, the policy relates to Congress's power of the purse and its responsibility for conducting oversight of DOD programs. The application of the full funding policy to DOD procurement programs has been affirmed at various times over the last five decades by Congress, the Government Accountability Office (GAO), and DOD. In recent years, some DOD weapons—specifically, certain Navy ships—have been procured with funding profiles that do not conform to the policy as it traditionally has been applied to DOD weapon procurement programs. DOD, in recent budget submissions and testimony, has proposed or suggested procuring ships, aircraft, and satellites using funding approaches that do not conform to the policy as traditionally applied. DOD's proposals, if implemented, could establish new precedents for procuring other DOD weapons and equipment with non-conforming funding approaches. Such precedents could further circumscribe the full funding policy, which in turn could limit and complicate Congress's ability to conduct oversight of DOD procurement programs. The issue for Congress is how to respond to DOD's proposals for procuring ships and aircraft for DOD with funding approaches that do not conform to the full funding policy as traditionally applied to DOD weapon procurement programs. Congress's decision on this issue could have significant implications for Congress's ability to conduct oversight of DOD procurement programs. It could also affect DOD's budgeting practices, budget discipline, and annual funding requirements. For additional discussion of this issue as it relates to procurement of Navy ships, see CRS Report RL32776, Navy Ship Procurement: Alternative Funding Approaches—Background and Options for Congress , by [author name scrubbed]. For DOD procurement programs, the full funding policy requires the entire procurement cost of a weapon or piece of equipment to be funded in the year in which the item is procured. The rule applies to all weapons and equipment that DOD procures through the procurement title of the annual DOD appropriations act. In general, the policy means that DOD cannot contract for the construction of a new weapon or piece of equipment until the entire cost of that item has been approved by Congress. Sufficient funding must be available for a complete, usable end item before a contract can be let for the construction of that item. A principal effect of the full funding policy is to prevent the use of incremental funding in the procurement of DOD weapons and equipment. Under incremental funding, a weapon's cost is divided into two or more annual portions, or increments, that reflect the need to make annual progress payments to the contractor as the weapon is built. Congress then approves each year's increment as part of its action on that year's budget. Under incremental funding, DOD can contract for the construction of a weapon after Congress approves only the initial increment of its cost, and completion of the weapon is dependent on the approval of the remaining increments in future years by that Congress or future Congresses. There are two general exceptions to the full funding policy. One permits the use of advance procurement funding for components or parts of an item that have long production leadtimes. The other permits advance procurement funding for economic order quantity (EOQ) procurements, which normally occur in programs that have been approved for multiyear procurement (MYP). Congress imposed the full funding policy on DOD in the 1950s to make the total procurement costs of DOD weapons and equipment more visible and thereby enhance Congress's ability to understand and track these costs. Congress's intent in imposing the policy was to strengthen discipline in DOD budgeting and improve Congress's ability to control DOD spending and carry out its oversight of DOD activities. Understanding total costs and how previously appropriated funds are used are key components of Congress's oversight capability. The full funding policy is consistent with two basic laws regarding executive branch expenditures—the Antideficiency Act of 1870, as amended, and the Adequacy of Appropriations Act of 1861. Regulations governing the policy are found in Office of Management and Budget (OMB) Circular A-11 and DOD Directive 7000.14-R, which provide guidelines on budget formulation. Support for the policy has been periodically reaffirmed over the years by Congress, the Government Accountability Office (GAO), and DOD. For a detailed discussion of the origins, rationale, and governing regulations of the full funding policy, as well as examples of where Congress, GAO, and DOD have affirmed their support for the policy, see Appendix B . Prior to the imposition of the full funding policy, DOD weapon procurement was accomplished through incremental funding. Incremental funding fell out of favor because opponents believed it did (or could do) one or more of the following: make the total procurement costs of weapons and equipment more difficult for Congress to understand and track; create a potential for DOD to start procurement of an item without necessarily understanding its total cost, stating that total cost to Congress, or providing fully for that total cost in future DOD budgets—the so-called "camel's-nose-under-the-tent" issue; permit one Congress to "tie the hands" of one or more future Congresses by providing initial procurement funding for a weapon whose cost would have to be largely funded by one or more future Congresses; increase weapon procurement costs by exposing weapons under construction to potential uneconomic start-up and stop costs that can occur when budget reductions or other unexpected developments cause one or more of the planned increments to be reduced or deferred. Although incremental funding fell out of favor due to the above considerations, supporters of incremental funding could argue that its use in DOD (or federal) procurement can be advantageous because it can do one or more of the following: permit very expensive items, such as large Navy ships, to be procured in a given year without displacing other programs from that year's budget, which can increase the costs of the displaced programs due to uneconomic program-disruption start-up and start costs; avoid a potential bias against the procurement of very expensive items that might result from use of full funding due to the item's large up-front procurement cost (which appears in the budget) overshadowing the item's long-term benefits (which do not appear in the budget) or its lower life cycle operation and support (O&S) costs compared to alternatives with lower up-front procurement costs; permit construction to start on a larger number of items in a given year within that year's amount of funding, so as to achieve better production economies of that item than would have been possible under full funding; recognize that certain DOD procurement programs, particularly those incorporating significant amounts of advanced technology, bear some resemblance to research and development activities, even though they are intended to produce usable end items; reduce the amount of unobligated balances associated with DOD procurement programs; implicitly recognize potential limits on DOD's ability to accurately predict the total procurement cost of items, such as ships, that take several years to build; and preserve flexibility for future Congresses to stop "throwing good money after bad" by halting funding for the procurement of an item under construction that has become unnecessary or inappropriate due to unanticipated shifts in U.S. strategy or the international security environment. In recent years, some items, notably Navy ships, have been procured with funding profiles that do not conform to the policy as traditionally applied to DOD procurement programs. In addition, DOD is now proposing to procure other items, including both ships and aircraft, with funding profiles that do not conform to the policy as traditionally applied. As part of its action on the FY1993 defense budget, Congress created the National Defense Sealift Fund (NDSF)—a revolving fund in the DOD budget for the procurement, operation, and maintenance of DOD-owned sealift ships —and transferred procurement of new military sealift ships and certain Navy auxiliary ships from the Shipbuilding and Conversion, Navy (SCN) appropriation account, where they traditionally had been procured, to the NDSF. Since the NDSF is outside the procurement title of the defense appropriation act, sealift ships procured since FY1993, including DOD's new Large, Medium-Speed, Roll-on/Roll-off (LMSR) ships, as well as Navy Lewis and Clark (TAKE-1) dry cargo ships procured since FY2003, have not been subject to the full funding policy as traditionally applied to DOD procurement programs. As discussed in a 1996 CRS report, although individual LMSRs were ostensibly fully funded each year by Congress, like ships procured in the SCN account, DOD in some cases actually applied LMSR funding provided in a given year to partially finance the construction of LMSRs authorized in various years. For example, although Congress ostensibly approved $546.4 million in FY1995 for the procurement of two LMSRs, the FY1995 funds were actually applied to help finance portions of 16 LMSRs whose construction contracts were awarded between FY1993 and FY1997. In explaining its use of funds in the LMSR program, DOD stated: The National Defense Sealift Fund (NDSF) is not a procurement appropriation but a revolving fund. Dollars appropriated by Congress for the fund are not appropriated to purchase specific hulls as in the case of, for example the Navy's DDG-51 program. Rather, dollars made available to the NDSF are executed on an oldest money first basis. Therefore, full funding provisions as normally understood for ship acquisition do not apply. The Navy during the 1990s procured several individual ships in the SCN account during the 1990s—including amphibious ships, aircraft carriers, and an attack submarine—with funding profiles approved by Congress that, for various reasons, do not appear to conform to the full funding policy as traditionally applied to DOD procurement programs. These ships were listed and discussed in CRS testimony to the House Armed Services Committee on March 9, 1999. More recently, Congress included, in both the FY2000 and FY2001 defense appropriations acts, a provision in the SCN section stating "That the Secretary of the Navy is hereby granted the authority to enter into a contract for an LHD-1 [class] Amphibious Assault Ship which shall be funded on an incremental basis." The ship in question is LHD-8, which was funded on an incremental basis, with the final increment provided in FY2006. DOD records the ship in its budget presentations as an FY2002-procured item. As part of its proposed FY2005 and FY2006 budget submissions, the Administration proposed, and Congress approved, funding the two lead Littoral Combat Ships (LCSs) in the Navy's research, development, test and evaluation (RDT&E) account rather than the SCN account, where Navy ships traditionally have been procured. Since the Navy's RDT&E account is outside the procurement title of the defense appropriation act, the ships are not subject to the full funding policy as traditionally applied to DOD procurement programs. As part of its action on the FY2002 defense appropriations bill, Congress granted DOD authority to enter into a 10-year leasing arrangement for 100 aircraft based on the Boeing 767 commercial aircraft design to serve as Air Force aerial refueling tankers. Although this was a leasing arrangement rather than a procurement action, some critics argued that the stream of annual lease payments to be made under the arrangement could be viewed as the equivalent of incremental funding. As part of its action on the FY2004 defense authorization bill, Congress granted DOD revised authority to enter into a 10-year leasing arrangement for 20 aircraft and to procure up to 80 additional aircraft under a multiyear procurement contract that uses incremental funding. The tanker lease was ultimately not implemented. In addition to the recent non-conforming examples cited above, DOD in recent budget submissions has proposed or suggested procuring additional ships, aircraft, and satellites using funding approaches that would not conform to the full funding policy as traditionally applied to DOD procurement programs. In testimony to the Strategic Forces subcommittee of the Senate Armed Services Committee on the proposed FY2008 military space programs budget, Ronald Sega, the Undersecretary of the Air Force, suggested using incremental funding for procuring large, expensive satellites that are not procured in large numbers. The Administration, as part of its FY2007 and FY2008 defense budget submission, proposed to procure an amphibious assault ship called LHA-6—the lead ship in the LHA (Replacement), or LHA(R) program—in FY2007 using split funding (a two-year form of incremental funding) in FY2007 and FY2008. The Administration, as part of its FY2007 and FY2008 defense budget submissions, proposed to procure each of the first two DDG-1000 (formerly DD(X)) destroyers in FY2007 using split funding in FY2007 and FY2008. The Administration, as part of its FY2007 and FY2008 defense budget submission, proposed to procure the aircraft carrier CVN-78 in FY2008 using split funding in FY2008 and FY2009. About 35.2% of the ship's estimated procurement cost of $10.5 billion was provided in the form of advance procurement funding between FY2001 and FY2007, 26.1% is to be provided in the procurement year of FY2008, and 38.8% is to be provided in FY2009. The Administration, as part of its FY2007 budget submission, is proposing to procure F-22 aircraft over the next several years using incremental funding. The Administration, as part of its FY2005 defense budget submission, proposed procuring the lead DDG-1000 destroyer in the Navy's RDT&E account rather than the SCN account. Congress, in acting on the FY2005 budget, directed that the lead DDG-1000 be funded in the SCN account. The Administration, as part of its FY2003, FY2004, and FY2005 defense budgets submissions, proposed procuring 60 C-17 airlift aircraft under a follow-on multiyear procurement (MYP) arrangement approved by Congress in FY2002 that would procure at least some of the aircraft with funding profiles that resembled incremental funding rather than full funding. Under this approach, the Air Force has requested Congress to appropriate enough money in a given year to make progress payments on the MYP contract rather than to fully fund a specific number of aircraft. The affect would be to reduce requested funding in the initial years of the contract and increase amounts requested in later years. This proposal is of particular note because it would, if implemented, extend use of something resembling incremental procurement to an area of defense weapon procurement outside shipbuilding. In 2001 and again in 2005, some Navy officials advocated the use of a funding arrangement called advance appropriations for Navy ships, particularly as a means of increasing the number of ships that could be placed under construction in the near term with available funding. Use of advance appropriations would enable the Navy to begin construction on a ship in a given year even though the budget authority for that year provided only an initial increment of the total procurement cost of the ship. Under advance appropriations, funding for the entire procurement cost of a ship would be approved by Congress in a single decision. In contrast, however, to traditional full funding, in which the full procurement cost of the ship is assigned to (i.e., scored in) the budget year in which it is procured, under advance appropriations, the procurement cost of the ship approved in a given year would be divided into several portions, or increments, that would be scored across several budget years starting with the original year of procurement. In contrast to incremental funding, under which Congress must take a positive action each year to approve the portion of the ship's cost assigned to that year, with advance appropriations, Congress each year would need to take a positive action to cancel the portion of the ship's cost assigned to that year. Although Navy supporters of the advance appropriation concept stressed that advance appropriations is a form of full funding rather than incremental funding, they acknowledge that advance appropriations could be described informally as a legislatively locked-in counterpart to incremental funding. OMB Circular A-11 defines advance appropriations as appropriations that are: Enacted normally in the current year; Scored after the budget year (e.g., in each of one, two, or more later years, depending on the language); and Available for obligation in the year scored and subsequent years if specified in the language. The circular allows for the use of advance appropriations to help finance capital assets under certain circumstances. Specifically, Principle 2 in Appendix J on principles of financing capital assets, states (italics as in the original): Regular appropriations for the full funding of a capital project or a useful segment (or investment) of a capital project in the budget year are preferred. If this results in spikes that, in the judgment of OMB, cannot be accommodated by the agency or the Congress, a combination of regular and advance appropriations that together provide full funding for a capital project or a useful segment or an investment should be proposed in the budget. Explanation: Principle 1 (Full Funding) is met as long as a combination of regular and advance appropriations provide budget authority sufficient to complete the capital project or useful segment or investment. Full funding in the budget year with regular appropriations alone is preferred because it leads to tradeoffs within the budget year with spending for other capital assets and with spending for purposes other than capital assets. In contrast, full funding for a capital project (investment) over several years with regular appropriations for the first year and advance appropriations for subsequent years may bias tradeoffs in the budget year in favor of the proposed asset because with advance appropriations the full cost of the asset is not included in the budget year. Advance appropriations, because they are scored in the year they become available for obligation, may constrain the budget authority and outlays available for regular appropriations of that year. If, however, the lumpiness caused by regular appropriations cannot be accommodated within an agency or Appropriations Subcommittee, advance appropriations can ameliorate that problem while still providing that all of the budget authority is enacted in advance for the capital project (investment) or useful segment. The latter helps ensure that agencies develop appropriate plans and budgets and that all costs and benefits are identified prior to providing resources. In addition, amounts of advance appropriations can be matched to funding requirements for completing natural components of the useful segment. Advance appropriations have the same benefits as regular appropriations for improved planning, management, and accountability of the project (investment). Navy advocates of using advance appropriations for Navy shipbuilding noted that the mechanism is used by several federal agencies other than DOD. Although use of advance appropriations for Navy shipbuilding was supported in 2001 by some Navy officials and some Members of Congress, the Navy in 2001 apparently did not receive approval from the Office of Management and Budget (OMB) to use the approach for shipbuilding, and did not officially propose its use as part of its FY2002 budget submission to Congress. Congress in 2001 did not adopt advance appropriations as a mechanism for funding Navy ships. The House Appropriations Committee, in its report ( H.Rept. 107-298 of November 19, 2001) on the FY2002 defense appropriations bill ( H.R. 3338 ), stated that it was dismayed that the Navy continues to advocate the use of alternative financing mechanisms to artificially increase shipbuilding rates, such as advanced appropriations, or incremental funding of ships, which only serve to decrease cost visibility and accountability on these important programs. In attempting to establish advanced appropriations as a legitimate budgeting technique, those Navy advocates of such practices would actually decrease the flexibility of future Administrations and Congresses to make rational capital budgeting decisions with regard to shipbuilding programs. Accordingly, the Committee bill includes a new general provision (section 8150) which prohibits the Defense Department from budgeting for shipbuilding programs on the basis of advanced appropriations. The general provision mentioned above (Section 8150) was not included in the final version of the bill that was passed by Congress and signed into law ( P.L. 107-117 of January 10, 2002). For discussion of proposals from Navy officials in 2005 for using advance appropriations for procuring Navy ships, see CRS Report RL32776, Navy Ship Procurement: Alternative Funding Approaches—Background and Options for Congress , by [author name scrubbed]. In response to the proposals listed above to procure ships and aircraft with funding profiles that do not conform to the policy as traditionally applied to DOD procurement programs, Congress has six basic options: Approve procurement of the items using the proposed non-conforming approach without added bill or report language . This option, if implemented, might well be viewed by DOD or others as setting a precedent for applying non-conforming funding approaches to other DOD procurement programs in the future. Approve procurement of the items using the proposed non-conforming approach, but with added bill or report language intended to limit the application of the approach strictly to the specific program in question. This option would accommodate DOD's request for FY2003 while attempting to avoid setting such a precedent. The success of this option in not setting such a precedent could depend on the forcefulness of the wording used in the bill or report language. Approve procurement of the items with a conforming funding approach, but without added bill or report language. This option would avoid setting a precedent for using non-conforming approaches in the future and perhaps, by inference, also affirm Congress's preference for the full funding policy. Approve procurement of the items with both a conforming funding approach and added bill or report language affirming Congress's preference for the full funding policy. This option would avoid setting a precedent for using non-conforming approaches in the future and positively affirm Congress's preference for the full funding policy. Reject procurement of the requested items entirely, without added bill or report language. This option might or might not be interpreted by DOD as affirming Congress's preference for the full funding provision, depending on other issues relating to the program (e.g., concerns about need for the program, or its cost) that might be viewed as having influenced Congress's decision on it. Reject procurement of the items with added bill or report language affirming Congress's preference for the full funding policy. This option would positively affirm Congress's preference for the full funding provision, particularly if the added legislation or comment makes it clear that Congress's decision to not procure the items was directly related to the proposal to fund them using a non-conforming approach. In addition to responding to specific proposals for procuring ships and aircraft with non-conforming approaches, Congress may consider options for addressing legislatively the application of the full funding policy to DOD procurement programs generally. In this regard, Congress could decide to either maintain the status quo or add new bill or report language. New bill or report language could be aimed at any of the following basic objectives: Terminating the application of the full funding policy to DOD procurement programs. This option could involve dropping the current policy preference for full funding and permitting DOD to employ either full funding, incremental funding, or some other funding approach, depending on which approach DOD deems most appropriate for the program in question. Alternatively, this option could involve instituting a new policy that prohibits the use of full funding and perhaps establishes a new policy preference for using incremental funding or some other funding approach. Relaxing or otherwise modifying the application of the policy to DOD procurement programs. This option could involve permitting non-conforming approaches to be used for certain categories of weapons or equipment, or for procurements conducted under certain circumstances. It could also involve permitting DOD to make greater use of alternative budgeting mechanisms, such as revolving funds, for procurement of weapons and equipment. As discussed in Appendix B , a 1996 GAO report examined some alternative mechanisms used at certain government agencies other than DOD and recommended that "The Congress should consider enabling agencies to use more flexible budgeting mechanisms that accommodate up-front funding over the longer term while providing appropriate oversight and control." Strengthening or expanding the scope of application of the policy as it relates to DOD programs. This option could involve giving the full funding provision a specific basis in statute for DOD (or federal) programs, or applying it to DOD programs funded outside the procurement title of the DOD appropriations act, such as those funded in the RDT&E account or the National Defense Sealift Fund. One recent example of proposed legislation relating to the use of full funding in DOD procurement programs, mentioned earlier, was Section 8150 of the FY2002 defense appropriations bill ( H.R. 3338 ) as reported by the House Appropriations Committee ( H.Rept. 107-298 of January 10, 2002), which stated: None of the funds appropriated in this Act may be used to prepare a budget request for submission to Congress by the Department of Defense for fiscal year 2003 that contains any proposal to acquire ships for the Department of the Navy through the use of incremental funding amounts or advanced appropriations. The limitation against incremental funding does not apply to the specific shipbuilding programs that were funded on an incremental basis in fiscal year 2002. As mentioned earlier, this provision was not included in the final version of the bill that was passed by Congress and signed into law ( P.L. 107-117 of January 10, 2002). A second example concerns the National Defense Airlift Fund (NDAF)—a revolving fund outside the procurement title of the DOD appropriations act that was similar to the NDSF, but intended for airlift aircraft such as the C-17. The NDAF was established by report language on the FY2001 defense appropriations bill ( H.R. 4576 / S. 2593 ). The conference report on the bill directed that C-17s be procured in the NDAF rather than the Air Force's aircraft procurement account, where airlift planes traditionally had been procured, but also directed that C-17 procurement conform to the full funding policy: The conferees direct that the Department of Defense budget for all future C-17 procurement and support costs within the National Defense Airlift Fund. The conferees direct that future budget documents for the NDAF should conform to the requirements for other DOD procurement accounts including the content and format of budget exhibits, reprogramming thresholds among procurement, advanced procurement, and interim contractor support line items, application of the procurement full funding policy , and Congressional notification for changes in quantity. The NDAF was disestablished as part of Congress's action on the FY2002 defense appropriations bill, and procurement of C-17s reverted to the Air Force's aircraft procurement account. A third example is Section 1007 of the FY1996 defense authorization bill ( H.R. 1530 ) as reported by the House National Security Committee ( H.Rept. 104-131 of June 1, 1995), which would amend 10 USC 114 at the end by adding the following new subsection: (f) (1) No funds may be appropriated, or authorized to be appropriated, for any fiscal year for a purpose named in paragraph (1), (3), (4), or (5) of subsection (a) using incremental funding. (2) In the budget submitted by the President for any fiscal year, the President may not request appropriations, or authorization of appropriations, on the basis of incremental funding for a purpose specified in paragraph (1). (3) In this subsection, the term ''incremental funding'' means the provision of funds for a fiscal year for a procurement in less than the full amount required for procurement of a complete and usable product, with the expectation (or plan) for additional funding to be made for subsequent fiscal years to complete the procurement of a complete and usable product. (4) This subsection does not apply with respect to funding classified as advance procurement funding. This provision was not included in the final version of the bill ( S. 1124 ) that was passed by Congress and signed into law ( P.L. 104-106 of February 10, 1996). In considering options for responding to specific DOD proposals for non-conforming approaches, or for addressing the issue of full funding in DOD procurement generally, Congress can consider several factors, including Congress's power of the purse, congressional oversight of DOD procurement programs, future Congresses, DOD budgeting and program-execution discipline, and the potential impact on weapon procurement costs. As shown in the excerpts from the congressional hearings and reports presented in Appendix B , the full funding policy has long been considered important to Congress's ability to control executive branch spending. DOD spending forms a large part of overall federal spending (and an even larger share of discretionary federal spending). Procurement of weapons and equipment in turn forms an important part of overall DOD spending (and an even larger share of the portion of the DOD budget that is considered more "discretionary" in nature). Congressional hearings and GAO reports over the years suggest that circumscribing the application of the full funding policy to DOD procurement programs could reduce congressional control over spending. As also shown in the excerpts presented in Appendix B , the full funding policy has traditionally been viewed as beneficial in terms of making the total cost of DOD weapons and equipment more visible to Congress. As mentioned earlier, understanding total costs and how previously appropriated funds are used are key components of Congress's oversight capability. Incremental funding or other non-conforming funding approaches, by spreading the costs of individual weapons or pieces of equipment over several years, could complicate the task of understanding and tracking total weapon costs and the uses of previously appropriated funds, particularly if such approaches are applied to numerous weapon acquisition programs. As also shown in the excerpts from the 1996 GAO report presented in Appendix B , however, GAO's case studies of certain federal agencies other than DOD suggests that there may be room under certain circumstances for using alternative funding mechanisms, such as revolving funds, in a way that preserves congressional control of spending and congressional oversight. The issue is whether these alternative mechanisms would be appropriate for DOD, which has a much larger budget and much larger annual capital needs than most other federal agencies. As discussed in the excerpts presented in Appendix B , use of incremental funding or other non-conforming approaches could commit future Congresses to providing funding for programs initiated by previous Congresses, and thereby reduce the flexibility of future Congresses to adapt current-year budgets to changing needs. Alternatively, as mentioned earlier, it could be argued that incremental funding can enhance Congress's ability to respond to changing circumstances by giving future congresses the ability to stop funding the construction of a weapon that suddenly becomes unnecessary or inappropriate due to unanticipated shifts in U.S. strategy or the international security environment. Incremental funding, in this view, could permit Congress to stop throwing good money after bad. Independent of its importance to congressional powers and responsibilities, the full funding policy is viewed by DOD and others as imposing discipline on DOD budgeting practices. As shown in the excerpts presented in Appendix B , full funding is often viewed as helping to ensure that DOD officials identify, make investment trade-offs on the basis of, and budget adequately for the full costs of its weapons and equipment. In addition, DOD has sometimes stated that full funding is a source of discipline on DOD program managers that encourages them to execute their programs within cost. Alternatively, as mentioned earlier, it could be argued that use of incremental funding can assist in the making of unbiased investment trade-offs by avoiding a potential bias against the procurement of very expensive items that might result from an item's large up-front procurement cost (which appears in the budget) overshadowing its long-term benefits (which do not appear in the budget) or its lower life cycle operation and support (O&S) costs compared to alternatives with lower up-front procurement costs. It could also be argued that some DOD procurement programs incorporate significant amounts of advanced technology and that GAO, in a 2001 letter report and briefing on incremental funding of capital asset acquisitions, stated that it "recognizes that some incremental funding for high technology acquisitions is justified because, while such projects are intended to result in a usable asset, they are closer in nature to research and development activities." In addition, it could be argued that use of incremental funding would be advantageous in DOD budgeting because, as mentioned earlier, it reduces the amount of unobligated balances associated with DOD procurement programs. Finally, it could be argued that use of incremental funding can be advantageous in DOD budgeting because it implicitly recognizes potential limits on DOD's ability to accurately predict the total procurement costs of items, such as ships, that take several years to build. Funding approaches like incremental funding and advance appropriations can permit the military services to start construction on a greater number of weapons in the near term than would be possible under full funding. This could make incremental funding and advance appropriations attractive in the near term to service officials, industry officials, and their supporters, particularly given the decreased rates of weapon procurement that began in the early 1990s and are currently programmed by DOD to continue for several more years. The full costs of weapons started under these approaches, however, would eventually have to be paid in later years (along with the costs of weapons procured in those later years). As reflected in some of the excerpts presented in Appendix B , incremental funding traditionally has been viewed as creating a potential for increasing weapon procurement costs due to uneconomic start-up and stop costs that can occur when budget reductions or other unexpected developments cause one or more of the planned increments to be reduced or deferred. A related argument is that if firms are uncertain about approval of future funding increments for a particular weapon, they may be less inclined to invest in new and more efficient production technologies for that weapon, effectively increasing its cost. It could also be argued, however, that incremental funding or advance appropriations can help reduce weapon procurement costs in at least two specific cases. The first concerns a very expensive item, such as a large ship, that is usually procured once every few years. The examples usually cited are aircraft carriers and amphibious assault ships. If the Navy is not permitted to have a one-year "spike" in the SCN account in the year that it procures such a ship, then fully funding the ship within the SCN account could require other planned ship-procurement efforts to be delayed to the following year. Such a delay, it can be argued, could disrupt the production lines for those other ships, which could increase their procurement prices due to the resulting shut-down and start-up costs. The second concerns a very specific (and perhaps rare) scenario under which a weapon that is beyond its initial "ramp-up" period of procurement (i.e., a program that is ready from a technical and managerial standpoint to execute higher rates of procurement) is, due to near-term budget constraints, planned for procurement at a very uneconomic rate in the near term, but at a more-than-economic-rate a few years later. Under such a specific scenario, use of incremental funding or advance appropriations could permit the service to shift the start of production of some of the units planned for later years into the near term, improving production economies of scale in the near term while preserving adequate production economies of scale in later years. If the near-term gains in economies of scale are greater than the downstream losses in economies of scale, the result could be a reduced combined procurement cost for all of the weapons in question. Two factors bear upon the current debate over whether to procure DOD weapons using non-conforming funding approaches: The first is the relatively low rates at which many DOD weapon and equipment programs are currently planned for procurement. The second is the interest that some Members of Congress have in modernizing DOD's weapons and equipment more quickly than now planned and in maintaining the financial health of U.S. defense firms, particularly those that have experienced several years of reduced production rates. One potentially important question is whether the military services or defense firms are taking advantage of these two factors to induce Congress to adopt non-conforming funding approaches that could permit increased weapon-procurement rates in the near term, but also, by reducing adherence to the full funding policy, permanently weaken Congress's ability to conduct oversight of DOD programs. Military and defense-industry officials likely would not admit openly to pursuing such a strategy. Indeed, they might not even be aware that proposals for non-conforming funding approaches could pose such a trade-off for Congress. Nevertheless, addressing such proposals may involve balancing a need to meet DOD procurement goals within available funding against the goal of preserving Congress's control over DOD spending and its ability to conduct oversight of DOD programs. The House Armed Services Committee, in its report ( H.Rept. 110-146 of May 11, 2007) on the FY2008 defense authorization bill ( H.R. 1585 ), approved the Navy's FY2008 request for the second of two increments of procurement funding for the amphibious assault ship LHA-6, the second of two increments of procurement funding for the first two DDG-1000 destroyers, and the first of two increments of procurement funding for the aircraft carrier CVN-78. The Senate Armed Services Committee, in its report ( S.Rept. 110-77 of June 5, 2007) on the FY2008 defense authorization bill ( S. 1547 ), approved the Navy's FY2008 request for the second of two increments of procurement funding for the amphibious assault ship LHA-6, the second of two increments of procurement funding for the first two DDG-1000 destroyers, and (with a recommended $20-million reduction) the first of two increments of procurement funding for the aircraft carrier CVN-78. With regard to Space-Based Infrared Satellite System (SBIRS) High satellites, the committees report states: The budget request included $587.0 million in Research, Development, Test, and Evaluation, Air Force (RDTEAF), PE 64441F, for Space-Based Infrared Satellite System (SBIRS) High. The committee recommends an increase of $100.0 million to address nonrecurring and other obsolescence issues to support SBIRS High GEO satellites three and four. As a result of the time elapsed between the acquisition of the SBIRS High GEO satellites one and two and the planned acquisition of satellites three and four, some significant redesign work is necessary. This gap has served to highlight an issue in the allocation between research and development funding for constellations with a small number of satellites. While the committee does not support incremental funding of satellite programs, production or acquisition gaps in these small constellations, in certain limited circumstances may dictate treatment of these later satellites as research and development satellites. This problem is limited to constellations of no more than four satellites and occurs when substantial nonrecurring costs are incurred. The committee directs the Secretary of Defense to submit a report no later than August 1, 2007 outlining the budgetary and programmatic implications of utilizing Research and Development funds for small constellations of satellites in limited circumstances, including when such a funding approach might be appropriate. The committee also directs the Secretary to address in the report alternative approaches and options to fund satellite development and testing, including the establishment of a single Air Force budget line for space research, development, and testing. (Page 230) Appendix A. Prior-Year Legislative Activity FY2007 FY2007 Defense Authorization Act ( H.R. 5122 / P.L. 109-364 ) House In its report ( H.Rept. 109-452 of May 5, 2006) on H.R. 5122 , the House Armed Services Committee recommended approval of the Administration's proposed use of split funding FY2007 and FY2008 for procuring the amphibious assault ship LHA-6, but did not recommend approval of the Administration's proposal to use split funding in FY2007 and FY2008 for procuring the two lead DDG-1000 destroyers. The committee for FY2007 instead recommended full funding for one DDG-1000, and design funding for a second. The committee also did not recommend approval of the Administration's request to use incremental funding for procuring F-22 aircraft. Regarding shipbuilding programs, the committee's report also states: The budget request recommends incremental funding for 3 of the 7 ships in the request, including for the first time construction of a surface combatant, the next-generation destroyer DD(X). Furthermore, during the consideration of the National Defense Authorization Act for Fiscal Year 2006 ( P.L. 109-163 ), the Navy sought and was granted the authority to use incremental funding for the next aircraft carrier [CVN-78], which will be recorded as procured in 2008. The committee remains concerned that the use of incremental funding is not a solution to the Navy's problem in funding shipbuilding. While incremental funding can allow the Navy to smooth out the dramatic spikes in shipbuilding funding required as a result of aircraft carrier construction every four or five years, it does not fundamentally increase the number of ships that a given amount of money will purchase. During the committee's hearings on shipbuilding, all witnesses emphasized the importance of program and funding stability as the top priority for reducing the cost of shipbuilding and sustaining the shipbuilding industrial base. The committee notes that Congress adopted the full funding policy in the 1950s in part because of a concern that incremental funding was detrimental to funding stability. Future congresses may find themselves unwilling, or unable, to fund completion of ships begun in prior years and only partially funded. The committee remains convinced that the full funding policy is the correct policy for funding shipbuilding. The committee understands that the Department of Defense this year considered submission of a legislative proposal that would permanently authorize the use of "split funding" for aircraft carriers and large deck amphibious ships, and the Navy's fiscal year 2007 shipbuilding plan already assumes such authority for the second LHA class amphibious assault ship. The committee has approved the use of split funding for certain ships in certain cases. However, the committee does not believe that a blanket policy supporting incremental funding for any class of ship is appropriate, and has not included such a provision in the bill. (Pages 68-69) Regarding the F-22 program, the committee's report states: The committee notes that the Fiscal Year 2007 budget request included $2 billion for the Department of the Air Force's F-22 aircraft program. However, despite the Fiscal Year 2006 projection for procurement of 29 F-22's in Fiscal Year 2007, the funds requested for Fiscal Year 2007 were for subassemblies and not aircraft. Rather than authorize incremental funding for major aircraft programs, which Congress has not done in decades, the committee recommends an additional $1.4 billion for the full funding for procurement of 20 F-22 aircraft. (Page 14) The report also states: The budget request contained $1.5 billion for the F-22 aircraft procurement program, but included insufficient funds to procure 20 F-22 aircraft in fiscal year 2007.... The budget request included an F-22 multiyear acquisition strategy to procure 3 lots, numbered as lots 7 through 9, each consisting of 20 aircraft, between fiscal years 2008 and 2010. As part of this strategy, the budget request included a plan to incrementally fund each of these three lots over a three year period through budgeting for advance procurement two years prior to full funding, subassembly activities to be budgeted one year prior to full funding, and final assembly to be budgeted in the third year. The committee understands that the Department of Defense's F-22 multiyear acquisition strategy is inconsistent with the full-funding policy which would allow for advance procurement of long-lead items to protect a delivery schedule, and require a budget for procurement of complete and useable end items in a fiscal year. The committee considers the F-22 incremental funding acquisition strategy to be wholly unacceptable. The committee believes that the full-funding policy should apply to the F-22 aircraft procurement program, and any other Department of Defense aircraft procurement program contemplated in the foreseeable future. The committee further believes that incremental funding of aircraft procurement programs presents an unacceptable budgeting risk that, due to unforeseen circumstances, future funding increments may not be authorized and appropriated to provide the required funding increments which would result in partially completed end items that are of no military value to the Department of Defense or to warfighting commands. Therefore, the committee recommends $2.9 billion to fully fund and procure 20 F-22 aircraft in fiscal year 2007, an increase of $1.4 billion. The committee very strongly urges the Department of Defense and the Department of the Air Force to restructure its future F-22 procurement budget plans to comply with the full-funding policy. (Page 105) The report also commented on the use of incremental funding for military construction programs, which are not procurement programs, but rather programs for building military bases and facilities. Military construction programs are funded through a military construction appropriations bill that is separate from the DOD appropriation bill, and consequently are not subject to the full funding policy that covers items funded through the procurement title of the DOD appropriation bill. Military construction programs have made regular use of incremental funding. With regard to military construction programs, the report states: The committee is troubled by the January 10, 2006, guidance from the Office of Management and Budget to cease use of incremental funding of military construction projects except for the purposes of base realignment and closure activities and projects that have "major national security impacts." Due to the implementation of this guidance during the fiscal year 2007 budget process, Department of Defense components were forced to cut a number of important projects from the fiscal year 2007 program. As a result, several construction projects that are critical to military readiness, important to the effective conduct of military operations, or necessary to enhance quality of life have been indefinitely deferred. In at least one such case, incremental execution would likely be the more efficient means of funding and constructing the project. The committee notes that the Department has a record of effective management while utilizing incremental funding for military construction projects. As such, the committee recommends "re-incrementing" two projects contained in the budget request, including recapitalization of hangar 5 at Naval Air Station Whidbey Island, Washington. While this would result in a funding reduction in fiscal year 2007 of $31,153,000, the committee recommends full authorization for the project of $57,653,000 and expects the Secretary of the Navy to execute the project under proven incremental funding practices. (Page 431) The report similarly states: As noted [earlier in the report], the committee is troubled by the January 10, 2006, guidance from the Office of Management and Budget to cease use of incremental funding of military construction projects except for the purposes of base realignment and closure activities and projects that have "major national security impacts." In light of the Department of Defense's proven record of effective management while utilizing incremental funding for military construction projects, the committee recommends "re-incrementing" the project to replace a clinic at MacDill Air Force Base, Florida. While this results in a funding reduction in fiscal year 2007 of $41,400,000, the committee recommends full authorization for the project of $92,000,000 and expects the Secretary of Defense to execute the project under proven incremental funding practices. (Page 434) Senate Section 121 of the Senate version of the FY2007 defense authorization bill ( S. 2766 would authorize the use of four-year incremental funding for procuring CVN-78 and future aircraft carriers, rather than split funding (i.e., 2-year incremental funding) as proposed by the Navy. Under 4-year incremental funding, the main portion of the procurement cost of CVN-78, for example, would be divided into four increments that would be provided in FY2008, the ship's year of procurement, and the three following years. Section 121 would also authorize the Navy to contract in FY2007 for the procurement long-lead items for CVN-79 and CVN-80, aircraft carriers that the Navy plans to procure in FY2012 and FY2016, respectively. This authority resembles an economic order quantity (EOQ) arrangement, except that EOQs normally take place within the context of a multiyear procurement (MYP). These ships have not been approved for MYP, and under past practice would not qualify for it under the requirements set forth in the law governing MYP arrangements. MYP arrangements are permitted to cover items to be procured over a period of up to five years, while the authority granted under Section 121 would cover three ships that the Navy wants to procure over a period of nine years (FY2008-FY2016). Section 146 of the bill would prohibit the use of incremental funding for procuring F-22 aircraft. (The section would also prohibit the Air Force from entering into a multiyear procurement (MYP) contract for the program in FY2007.) In its report ( S.Rept. 109-254 of May 9, 2006) on S. 2766 , the Senate Armed Services Committee recommended approval of the Administration's proposed use of split funding FY2007 and FY2008 for procuring LHA-6 and the two lead DDG-1000s. With regard to Section 121 on aircraft carriers, the report states: The committee recommends a provision that would authorize the Secretary of the Navy to incrementally fund procurement of CVN-21 class aircraft carriers over four year periods, commencing with CVN-78 procurement in fiscal year 2008. The budget request included $739.1 million in Shipbuilding and Conversion, Navy (SCN) for CVN-78 advance procurement and $45.1 million in SCN for CVN-79 advance procurement. The provision would also authorize advance procurement for CVN-80, commencing in fiscal year 2007. In reviewing the budget request for fiscal year 2006, the committee received testimony from the Navy and industry that the low rate of shipbuilding was driving higher costs, which in turn further reduced shipbuilding rates, creating a downward spiral. The committee believes that stable ship requirements, increased funding in the shipbuilding budget, and increased flexibility for funding large capital ships are critical elements of any strategy to reverse this trend. The Secretary of the Navy's fiscal year 2007 report to Congress on the long-range plan for the construction of naval vessels identifies a requirement to procure the CVN-21 class aircraft carriers at 4-year intervals, commencing in fiscal year 2008. The Navy originally planned to procure the first CVN-21 class aircraft carrier, CVN-78, in fiscal year 2006. Since then, the Navy has delayed procurement to 2008, which has delayed fielding this vital capability, while significantly increasing the aircraft carrier's procurement cost. The committee believes that procuring and delivering the CVN-21 class aircraft carriers over 4-year periods in accordance with the Navy's long-range plan is vital to the National Defense Strategy, and is vital to the affordability of these capital ships. Elsewhere in this report, the committee has expressed concern with cost growth on the CVN-77 program, and has urged the Navy and the shipbuilder to identify opportunities to improve affordability of future aircraft carriers. Procurement delays, excess inflation, and material escalation have been reported as significant contributors to CVN-77 cost growth. The shipbuilder has proposed to achieve significant CVN-21 class program savings through a stable procurement plan, and through procurement of economic order quantity material for CVN-79 and CVN-80 in conjunction with CVN-78 procurement. In view of the potential for significant program savings, the committee recommends an increase of $50.0 million in SCN for CVN-21 class advance procurement, and directs the Secretary of the Navy to review economic order quantity and long lead time material procurement for the CVN-21 class. The Secretary is to submit a report to the congressional defense committees with the fiscal year 2008 budget request, outlining the advance procurement requirements to potentially optimize economic order quantity savings and escalation avoidance (to include offsetting factors) for the first three vessels of the CVN-21 class. Of the amount authorized to be appropriated for advance procurement for CVN-79 and CVN-80, none of the funds are available for obligation prior to 30 days following receipt of the Secretary's report. (Page 67) With regard to Section 146's prohibition of incremental funding for the F-22 program, the report states: The committee recommends a provision that would prohibit the Secretary of the Air Force from using incremental funding for the procurement of F-22A aircraft. In the past, the Congress has approved of incremental funding of certain space programs and a select number of shipbuilding programs. Notwithstanding assertions to the contrary, authorizing incremental funding for the F-22A would set a precedent for funding aircraft. The committee sees no justification for setting such a precedent in the case of the F-22A, where the Department of Defense has proposed incremental funding merely as a way of alleviating cash flow pressures on the overall Department. (Page 94) The report similarly states: The budget request included $1,981.3 million in Aircraft Procurement, Air Force (APAF) as part of an incremental funding strategy that would lead to a production profile of 20 aircraft per year for a three-year multiyear procurement of 60 aircraft, beginning in fiscal year 2008. No complete F-22A aircraft were to be procured in fiscal year 2007.... The committee does not agree with the Department of Defense acquisition strategy to incrementally fund the F-22A. The committee sees no justification for setting a precedent for funding aircraft, as in the case of the F-22A, where the Department of Defense has proposed incremental funding merely as a way of alleviating cash flow pressures on the overall Department. (Pages 96-97) Conference Report Section 121 of the conference report on H.R. 5122 ( H.Rept. 109-702 of September 29, 2006) authorizes four-year incremental funding for the CVN-21 class aircraft carriers CVN-78, CVN-79, and CVN-80. Section 124 authorizes the procurement of the first two DDG-1000 destroyers in FY2007 using split funding in FY2007 and FY2008, as requested by the Navy. The section states in part: (c) SENSE OF CONGRESS ON FUNDING FOR FOLLOW-ON SHIPS.—It is the sense of Congress that there is sufficient benefit to authorizing the one-time exception provided in this section to the full funding policy in order to support the competitive procurement of the follow-on ships of the DDG-1000 Next-Generation Destroyer program. However, it is the expectation of Congress that the Secretary of the Navy will structure the DDG-1000 program so that each ship, after the first two ships, is procured using the method of full funding in a single year. Section 134 prohibits the use of incremental funding for the procurement of F-22A fighter aircraft. With regard to funding of military construction projects, the conference report states: The conferees note that, in a memo dated January 10, 2006, the Associate Director of National Security Programs in the Office of Management and Budget (OMB) provided guidance to the Under Secretary of Defense (Comptroller) and Chief Financial Officer about requests for incremental funding of military construction projects. OMB has stated the intent to limit incremental funding of military construction projects to an exceptional practice, as intended by OMB Circular A—11. This guidance represents a change in policy for the budgeting of certain military construction projects. The conferees acknowledge that requesting full funding to ensure a military construction project results in a complete and useable facility, or useable improvement to an existing facility, should be the preferred practice consistent with law and current policy to ensure an accurate accounting of all obligations incurred by the Federal Government. The conferees also acknowledge that, for certain military construction projects estimated to exceed $50.0 million and where the construction period is planned to exceed 2 years, Congress has supported the use of incremental funding to address the fact that not all military construction funds appropriated by Congress for a project will be expended in the first year. In these cases, the Department of Defense has had the option of requesting only those appropriated amounts expected to be expended in the budget year, and notifying potential contractors that the project's completion is subject to subsequent appropriations. This option then allows the Department to address additional military requirements in the military construction budget request; and accelerating the completion of critical projects for military readiness, operations, and service members' quality of life. Because of the efficiencies gained by this method, the conferees' agreement includes the use of incremental funding not proposed in the budget request for certain military construction projects. The conferees also note that the Department has requested incremental funding for single military construction projects that will construct multiple complete and useable facilities. The conferees are concerned that this practice will encourage the bundling of facility requirements into very large contracts, thereby curtailing contractor competition. Therefore, the conferees encourage the Department to avoid the use of incremental funding requests for projects with multiple complete and useable facilities, except in cases where operational requirements dictate a compelling need for facilities. (Pages 929-930) FY2007 Defense Appropriations Act ( H.R. 5631 / P.L. 109-289 ) House Section 8008 of H.R. 5631 as reported in the House states in part That none of the funds provided in this Act may be used for a multiyear contract executed after the date of the enactment of this Act unless in the case of any such contract— (1) the Secretary of Defense has submitted to Congress a budget request for full funding of units to be procured through the contract and, in the case of a contract for procurement of aircraft, that includes, for any aircraft unit to be procured through the contract for which procurement funds are requested in that budget request for production beyond advance procurement activities in the fiscal year covered by the budget, full funding of procurement of such unit in that fiscal year.... In its report ( H.Rept. 109-504 of June 16, 2006) on H.R. 5631 , the House Appropriations Committee recommended approval of the Administration's proposed use of split funding FY2007 and FY2008 for procuring the amphibious assault ship LHA-6, but did not recommend approval of the Administration's proposal to use split funding in FY2007 and FY2008 for procuring the two lead DDG-1000 destroyers. The committee for FY2007 instead recommended full funding for one DDG-1000. The committee also did not recommend approval of the Administration's request to use incremental funding for procuring F-22 aircraft. The committee's report states: For fiscal year 2007, the Committee faces several challenges in recommending appropriations for the Department of Defense and the intelligence community. First, the President's budget proposes an unorthodox approach to funding two major procurement programs, the F-22 fighter of the Air Force and the DD(X) destroyer of the Navy. In both cases, the budget request includes incremental or partial funding, for these two programs. In the case of the F-22, incremental funding is requested in the middle of the production run. The use of incremental funding mortgages the future of the procurement budget of the Defense Department in a manner that is not acceptable to the Committee. In addition, the precedent of incremental funding for these programs could be applied to a variety of other procurements, leading to a loss of budget transparency and reducing the ability to perform oversight. Therefore, the recommendations in this bill include full funding for one DD(X) destroyer and the F-22 fighter program. Funding of $2,568,111,000 is recommended to complete full funding of one DD(X) vessel. This is the same level as the funding request for this item, but under the President's budget these funds would have been allocated on an incremental basis against two ships. In the case of the F-22, the Committee has added $1,400,000,000 to fully procure 20 additional aircraft. In combination with the section 302(b) allocation for the Subcommittee on Defense, which is $4,000,000,000 below the President's request, this has necessitated difficult tradeoffs within the budget for the Department of Defense generally and the Air Force specifically. However, providing full funding for these programs this year avoids more difficult choices in the years ahead. (Page 4) Regarding the DD(X), the report states: The Committee recommends $2,568,111,000 for the procurement of 1 DD(X) destroyer. The budget requested $2,568,111,000 to incrementally fund 2 ships, with the balance of funding to be provided in fiscal year 2008. The Committee cannot support such a far-reaching policy change which has implications beyond the Navy's shipbuilding program. Further, the Navy's proposal requires special legislative authority to be executed, and this authority is not included in the House-passed National Defense Authorization Act, 2007 ( H.R. 5122 ). (Page 139) Regarding the F-22, the report states: The budget request proposes to incrementally fund the F-22 fighter procurement program. This proposal is contrary to the full funding requirement the Congress has required for aircraft procurement programs. The Department of Defense presented the Committee with essentially two options—agree to incremental funding, or find $1,400,000,000 in savings from other programs to fully fund F-22 procurement. The Committee has chosen the latter option and recommends an additional $1,400,000,000 for the procurement of 20 F-22 aircraft in fiscal year 2007. In making these changes and providing the additional funds, the Committee is reiterating the long standing requirement for full funding of major weapon system procurements. (Page 163) Senate In its report ( S.Rept. 109-292 of July 25, 2006) on H.R. 5631 , the Senate Appropriations committee recommends rejecting the Air Force's request to incrementally fund the next lot of F-22 fighter aircraft, and approving the Navy's request to incrementally fund the first two DDG-1000 destroyers. Regarding the F-22 program, the report states: The fiscal year 2007 budget requests $1,981,302,000 to begin incrementally funding the next lot of F-22A aircraft. The Committee finds no compelling reason to ignore the full funding policy and incrementally fund this program. Therefore, $1,400,000,000 was added to the budget estimate to fully fund the proposed multiyear procurement of aircraft consistent with the guidance in S. 2766 , the National Defense Authorization Act for Fiscal Year 2007. (Page 135) Regarding the DDG-1000 program, the report states: Consistent with the Senate-passed authorization bill and the Navy's current acquisition strategy, the Committee recommendation supports the budget request of $2,568,111,000 for [incremental funding of the] dual lead ships. The Committee reminds the Navy that this is a unique acquisition strategy and should not be used as a precedent for incrementally funding any future DDG-1000 or any other shipbuilding program. (Page 115) In addition, regarding the Navy's Littoral Combat Ship (LCS), program, the report states: With the fiscal year 2007 budget submission of $520,670,000 for the fifth and sixth LCS flight 0 ships, the Navy revealed the LCS unit cost estimate used as a basis for last year's appropriation was exclusive of contract change orders, planning and engineering services, program management support and other costs not included in the ship construction contract ... As a result, the Navy is unable to procure both the third and fourth LCS flight 0 ships without the availability of additional funding. The Committee is troubled by this revelation and recommends rescinding [in Section 8043] the insufficient fiscal year 2006 funds currently allocated to the fourth LCS flight 0 vessel. The Committee is further troubled by reports that the first two LCS flight 0 ships under construction are exceeding their cost as previously budgeted.... As a result, the Committee believes the fiscal year 2007 budget request is insufficient to procure two ships and recommends $300,670,000 to fully fund procurement of one LCS seaframe, which is a reduction of $220,000,000 and one seaframe from the request. The Committee notes that this recommendation puts the Navy on its previously established path of procuring four LCS flight 0 ships by the end of fiscal year 2007. (Pages 115-116) Conference Report Section 8008 of the conference report on H.R. 5631 ( H.Rept. 109-676 of September 25, 2006) states in part that That none of the funds provided in this Act may be used for a multiyear contract executed after the date of the enactment of this Act unless in the case of any such contract— (1) the Secretary of Defense has submitted to Congress a budget request for full funding of units to be procured through the contract and, in the case of a contract for procurement of aircraft, that includes, for any aircraft unit to be procured through the contract for which procurement funds are requested in that budget request for production beyond advance procurement activities in the fiscal year covered by the budget, full funding of procurement of such unit in that fiscal year;... The conference report approves the Navy's request for the initial (FY2007) increment of procurement funding for the LHA(R) amphibious assault ship, which the Navy wants to procure in FY2007 using split funding in FY2007 and FY2008. The conference report approves the Navy's request for the initial (FY2007) increment of procurement funding for the first two DDG-1000 destroyers, which the Navy wants to procure in FY2007 using split funding in FY2007 and FY2008. The report states: The conferees agree to provide $2,568,111,000 for the DDG-1000 (formerly DDX) Destroyer Program, and agree to delete language proposed by the House requiring full funding of a single lead ship. The effect of the conference agreement would allow the Navy to split fund twin lead ships of the DDG-1000 class, if authorized in separate legislation by the Congress. This action is being taken based upon the expectation that the total cost of these two ships is well understood and low risk. The conferees are willing to make this one-time exception to the full funding principle because of the unique situation with the shipbuilding industrial base and with the DDG—1000 program. The conferees will not entertain future requests to fund ships other than under the full funding principle, except for those historically funded in this manner (aircraft carriers and some large deck amphibious ships). The unusual procurement of twin lead ships raises the risk that future design changes or production problems will impact two ships under construction simultaneously. This could raise costs significantly compared to other lead ship programs. However, the Navy believes the cost and schedule risk in the DDG-1000 program is low enough to permit the twin lead ship acquisition strategy. The Navy has identified the total cost to procure the twin lead ships of the DDG—1000 class as $6,582,200,000. The conferees insist that the Navy manage this program within that total cost, and will be unlikely to increase funding through a reprogramming or an additional budget request except in the case of emergency, natural disaster, or other impact arising from outside the Navy's shipbuilding program. (Page 180) FY2006 FY2006 Defense Authorization Act ( H.R. 1815 / P.L. 109-163 ) House In its report ( H.Rept. 109-89 of May 20, 2005) on the FY2006 defense authorization bill ( H.R. 1815 ), the House Armed Services Committee states: [Chief of Naval Operations] Admiral [Vernon] Clark, in his posture statement before the House Committee on Appropriations, Subcommittee on Defense stated, "We need to partner with Congress and industry to regain our buying power. Acquisition and budget reforms, such as multi-year procurement, economic order quantity, and other approaches help to stabilize the production path, and in our view, reduce the per unit cost of ships and increase our shipbuilding rate." The committee does not agree that creative financing methodologies that delay recognizing the true cost of shipbuilding or that provide ever-increasing amounts of funding to cover the explosion in ship costs are responsible actions. Incremental funding, advanced procurement, multiyear procurement, and various creative shipyard work allocation arrangements have failed to control the cost growth of vessel classes such as the Virginia class submarine, the replacement amphibious assault ship (LHA(R)), the future major surface combatant ship (DD(X)), and the future aircraft carrier CVN-21. (Page 63) Section 1004 of the bill as reported by the committee states: SEC. 1004. REPORTS ON FEASIBILITY AND DESIRABILITY OF CAPITAL BUDGETING FOR MAJOR DEFENSE ACQUISITION PROGRAMS. (a) Capital Budgeting Defined- For the purposes of this section, the term 'capital budgeting' means a budget process that— (1) identifies large capital outlays that are expected to be made in future years, together with identification of the proposed means to finance those outlays and the expected benefits of those outlays; (2) separately identifies revenues and outlays for capital assets from revenues and outlays for an operating budget; (3) allows for the issue of long-term debt to finance capital investments; and (4) provides the budget authority for acquiring a capital asset over several fiscal years (rather than in a single fiscal year at the beginning of such acquisition). (b) Reports Required- Not later than July 1, 2006, the Secretary of Defense and the Secretary of each military department shall each submit to Congress a report analyzing the feasibility and desirability of using a capital budgeting system for the financing of major defense acquisition programs. Each such report shall address the following matters: (1) The potential long-term effect on the defense industrial base of the United States of continuing with the current full up-front funding system for major defense acquisition programs. (2) Whether use of a capital budgeting system could create a more effective decisionmaking process for long-term investments in major defense acquisition programs. (3) The manner in which a capital budgeting system for major defense acquisition programs would affect the budget planning and formulation process of the military departments. (4) The types of financial mechanisms that would be needed to provide funds for such a capital budgeting system. Senate Section 122 of the Senate version of the FY2006 defense authorization bill ( S. 1042 ) as reported by the Senate Armed Services Committee ( S.Rept. 109-69 of May 17, 2005) would permit the aircraft carrier CVN-78 to be procured with split funding (i.e., incremental funding) during the period FY2007-FY2010. The section states: SEC. 122. SPLIT FUNDING AUTHORIZATION FOR CVN-78 AIRCRAFT CARRIER. (a) AUTHORITY TO USE SPLIT FUNDING- The Secretary of the Navy is authorized to fund the detail design and construction of the aircraft carrier designated CVN-78 using split funding in the Shipbuilding and Conversion, Navy account in fiscal years 2007, 2008, 2009, and 2010. (b) CONDITION FOR OUT-YEAR CONTRACT PAYMENTS- A contract entered into for the detail design and construction of the aircraft carrier designated CVN-78 shall provide that any obligation of the United States to make a payment under the contract for a fiscal year after fiscal year 2006 is subject to the availability of appropriations for such fiscal year. Section 123 of the bill would permit an amphibious assault ship LHA(R) to be procured with split funding (i.e., incremental funding) in FY2007 and FY2008. The section would also permit FY2006 funding to be used for advance construction of the ship. The section states: SEC. 123. LHA REPLACEMENT (LHA(R)) SHIP. (a) AMOUNT AUTHORIZED FROM SCN ACCOUNT FOR FISCAL YEAR 2006- Of the amount authorized to be appropriated by section 102(a)(3) for fiscal year 2006 for shipbuilding and conversion, Navy, $325,447,000 shall be available for design, advance procurement, and advance construction with respect to the LHA Replacement (LHA(R)) ship. (b) AMOUNTS AUTHORIZED FROM SCN ACCOUNT FOR FISCAL YEARS 2007 AND 2008- Amounts authorized to be appropriated for fiscal years 2007 and 2008 for shipbuilding and conversion, Navy, shall be available for construction with respect to the LHA Replacement ship. (c) CONTRACT AUTHORITY- (1) DESIGN, ADVANCE PROCUREMENT, AND ADVANCE CONSTRUCTION- The Secretary of the Navy may enter into a contract during fiscal year 2006 for design, advance procurement, and advance construction with respect to the LHA Replacement ship. (2) DETAIL DESIGN AND CONSTRUCTION- The Secretary may enter into a contract during fiscal year 2007 for the detail design and construction of the LHA Replacement ship. (d) CONDITION FOR OUT-YEAR CONTRACT PAYMENTS- A contract entered into under subsection (c) shall provide that any obligation of the United States to make a payment under the contract for a fiscal year after fiscal year 2006 is subject to the availability of appropriations for that purpose for such fiscal year. S.Rept. 109-69 states: The CVN-78 will be a new class of aircraft carrier, incorporating numerous new technologies. This budget request reflects the second one-year slip in the program in recent years. This slip would cause a delay in the delivery of the CVN-78 until fiscal year 2015, with the ship it is scheduled to replace, the USS Enterprise (CVN-65), scheduled to be decommissioned in fiscal year 2013. Additionally, this slip translates into a cost growth for CVN-78 of approximately $400.0 million, according to the Navy. The committee is concerned about this delay. The committee has been told there is no technical reason for the delay, but that the delay was driven by budget considerations. Both the Secretary of the Navy and the Chief of Naval operations testified that large capital assets such as aircraft carriers are difficult to fund under the traditional full-funding policy, and that more flexible methods of funding must be found and used. The program of record for CVN-78 has the detail design and construction funding split between two years. This provision would authorize that same funding to be split over four years, thereby allowing needed funding flexibility. The committee directs the Navy to provide an updated funding profile, fully funding the remaining costs of the ship from fiscal years 2007 through 2010, with delivery of the fiscal year 2007 budget request. FY2006 Defense Appropriations Act ( H.R. 2863 / P.L. 109-148 ) House In its report ( H.Rept. 109-119 of June 10, 2005) on H.R. 2863 , the House Appropriations Committee stated, in the section on Navy shipbuilding, that it "supports the LHA(R) [amphibious assault ship] program, and it directs the Navy to reconsider its proposal to request split funding for LHA(R) over the FY2007-08 timeframe, and instead follow the full funding principle for this ship class, to ensure an adequate budget is in hand before contract award." (Page 146) In the section on Air Force aircraft procurement, the report stated: The budget request includes $152,400,000 for procurement of long lead items to support the low rate initial production of five conventional take-off and landing variants of the Joint Strike Fighter. The Committee notes that under the revised aircraft build sequence all of these aircraft do not require full funding prior to the beginning of fiscal year 2008. Accordingly, a request to begin advance procurement of long lead items two years prior, in fiscal year 2006, is funding early to need and contrary to a conventional aircraft procurement strategy. Advance procurement funds should be requested in the Air Force's fiscal year 2007 budget submission. Full funding for these five aircraft should be requested in the fiscal year 2008 budget. (Page 172) Senate In its report ( S.Rept. 109-141 of September 29, 2005), the Senate Appropriations Committee stated, in a section relating to Navy shipbuilding: For fiscal year 2006, the Committee recommends providing the Navy additional reprogramming authority. This authority allows the Navy, through above threshold reprogramming procedures, to increase funding for programs experiencing unforeseen shortfalls. The Committee understands that in fiscal year 2005 after exhausting the $100,000,000 of the transfer authority the Congress provided, the Navy sought to use dollars specifically appropriated for outfitting and post delivery [of completed ships] to address [ship-construction] funding shortfalls. The Committee is concerned about this change in Navy policy as it will only further obscure actual program costs. The new reprogramming authority is provided only with the understanding that this change will not be implemented in the future. The additional reprogramming authority essentially provides the Navy a reactive mechanism or approach to cost management. The Committee believes the situation requires more proactive program, budgetary and contract management and encourages the Department of Defense to consider whether using advance appropriations in future budgets will improve the shipbuilding program. (page 126) The committee also stated: The fiscal year 2006 President's budget requests $225,427,000 for [the]DDG-51 [destroyer program] for what the Navy describes as "program completion requirements and shutdown costs." These funds are requested for a mix of Class and ship specific plan, basic construction, ordnance, certification, and inspection costs. Such costs are traditionally included in the budget request for each ship. However, when signing the multiyear contract for the construction of the final DDGs of the Class, the Department decided to change its policy and budget for these costs after the last ship was appropriated. The Committee finds this decision troubling. First, budgeting for such costs after procurement of the last vessel obscures the actual cost to procure each ship and overstates savings attributable to the multiyear contract authority under which these ships were purchased. The Congress approved the Navy's request for multiyear procurement authority in fiscal year 2002 assuming a level of savings to the taxpayer that are now not being realized. Most disconcerting about this change in policy and resultant budget request is the Navy's assertion that if these costs are not funded, the Navy will not be able to meet its contractual obligations and the Chief of Naval Operations will not be able to accept delivery of these ships. The Committee is alarmed that the Navy would knowingly sign a multibillion dollar contract for ships that would be both non-operational and undeliverable unless additional dollars, outside the contract, were provided. The Committee directs the Secretary of the Navy to provide a detailed report of all the costs required to complete each of the remaining 11 ships and a rationale for such a contractual arrangement by December 1, 2005. Until sufficient explanation is provided, the Committee recommends only providing funds for plans and those costs directly attributable to ships scheduled to deliver in the near-term. As such the Committee recommends reducing the budget request by $195,654,000. (Page 127) Concurrent Resolution on FY2006 Budget ( H.Con.Res. 95 ) Conference Report The conference report ( H.Rept. 109-62 of April 28, 2005) on H.Con.Res. 95 , the budget resolution for FY2006, states: The conference conferees understand the Navy may review whether advance appropriations can improve its procurement of ships and provide savings as it designs its 2007 budget. In addition, the conferees intend to request the Government Accountability Office [GAO] to assess the implications of using advance appropriations to procure ships. The report notes that Section 401 [of H.Con.Res. 95 ] reflects an overall limit on advance appropriations of $23.158 billion in fiscal year 2007, which is the same limit on advance appropriations as has been included in all previous limitations on advance appropriations in past budget resolutions. The report includes the Shipbuilding and Conversion, Navy (SCN) appropriation account in the list of accounts identified for advance appropriations in the Senate. S.Amdt. 146 to S.Con.Res. 18 S.Con.Res. 18 is the earlier Senate version of the budget resolution. Senate Amendment ( S.Amdt. 146 ) to S.Con.Res. 18 was sponsored by Senator Warner, co-sponsored by several other members, and submitted on March 15, 2005. It would amend Section 401 of S.Con.Res. 18 —the section that restricts use of advance appropriations—to increase the amount of advance appropriations in FY2007 and FY2008 by $14 billion, to $37.393 billion. The amendment would also insert a new provision (Section 409) that would include the Shipbuilding and Conversion, Navy (SCN) appropriation account on a list of accounts identified for advance appropriations in the joint explanatory statement of the managers to accompany S.Con.Res. 18 . The amendment was ordered to lie on the table. The Senate passed S.Con.Res. 18 on March 17, 2005. FY2005 FY2005 Defense Authorization Act ( H.R. 4200 / P.L. 108-375 ) House In marking up H.R. 4200 , the House Armed Services Committee included a provision (Section 804) that, as stated in the committee's report on the bill ( H.Rept. 108-491 of May 14, 2004, page 346), "would amend section 2306b(g) and section 2306c(d) of title 10, United States Code [provisions relating to DOD multiyear procurement contracts], to require the head of the agency concerned to provide written notification, to the congressional defense committees, in those instances when cancellation costs that are above $100 million are not fully funded. The written notification would include a financial risk assessment for not fully funding the cancellation ceiling." The section stated: SEC. 804. FUNDING FOR CONTRACT CEILINGS FOR CERTAIN MULTIYEAR PROCUREMENT CONTRACTS. (a) MULTIYEAR CONTRACTS RELATING TO PROPERTY- Section 2306b(g) of title 10, United States Code, is amended— (1) by inserting '(1)' before 'Before any'; (2) by striking 'Committee' through 'House of Representatives' and inserting 'congressional defense committees'; and (3) by adding at the end the following new paragraph: '(2) In the case of a contract described in subsection (a) with a cancellation ceiling described in paragraph (1), if the budget for the contract does not include proposed funding for the costs of contract cancellation up to the cancellation ceiling established in the contract, the head of the agency concerned shall, as part of the certification required by subsection (i)(1)(A), give written notification to the congressional defense committees of— '(A) the cancellation ceiling amounts planned for each program year in the proposed multiyear procurement contract, together with the reasons for the amounts planned; '(B) the extent to which costs of contract cancellation are not included in the budget for the contract; and '(C) a financial risk assessment of not including budgeting for costs of contract cancellation, including proposed funding sources to meet such cancellation costs if the contract is canceled.' (b) MULTIYEAR CONTRACTS RELATING TO SERVICES- Section 2306c(d) of title 10, United States Code, is amended— (1) in paragraphs (1), (3), and (4), by striking 'committees of Congress named in paragraph (5)' and inserting 'congressional defense committees' each place it appears; and (2) by amending paragraph (5) to read as follows: '(5) In the case of a contract described in subsection (a) with a cancellation ceiling described in paragraph (4), if the budget for the contract does not include proposed funding for the costs of contract cancellation up to the cancellation ceiling established in the contract, the head of the agency concerned shall give written notification to the congressional defense committees of— '(A) the cancellation ceiling amounts planned for each program year in the proposed multiyear procurement contract, together with the reasons for the amounts planned; '(B) the extent to which costs of contract cancellation are not included in the budget for the contract; and '(C) a financial risk assessment of not including budgeting for costs of contract cancellation, including proposed funding sources to meet such cancellation costs if the contract is canceled.' Senate In its report ( S.Rept. 108-260 of May 11, 2004) on the FY2005 defense authorization bill ( S. 2400 ), the Senate Armed Services Committee stated: The Future Years Defense Program submitted with the budget request included full funding for the first LHA(R)-class amphibious assault ship in fiscal year 2008. The committee understands that acceleration of this ship, by providing the first increment of SCN funding in fiscal year 2005, would reduce the cost of this ship by $150.0 million. The Chief of Naval Operations and the Commandant of the Marine Corps have included this acceleration on their Unfunded Priority Lists. Therefore, the committee recommends an increase of $150.0 million for advance procurement and advance construction of components for the first amphibious assault ship of the LHA(R)-class. (page 74) The report also stated: To ease the [F-22 fighter] production backlog, while maintaining the production rate at that established for the fiscal year 2004 contract, the committee recommends a decrease in APAF of $280.2 million, for a total authorization of $3.4 billion for the procurement of at least 22 F/A-22 aircraft in fiscal year 2005. The committee is aware that the Department of Defense has approved the F/A-22 program as a "buy to budget" program. If the authorized level of funding is sufficient to procure more than 22 aircraft, the Air Force may do so after the Secretary of the Air Force provides a letter to the Committees on Armed Services of the Senate and the House of Representatives certifying that the contractor is delivering aircraft within the contractual delivery schedule, and that the program is fully funded to include initial spares, logistics, and training requirements. (page 106) FY2005 Defense Appropriations Act ( H.R. 4613 / P.L. 108-287 ) House Section 8008 of H.R. 4613 as reported by the House Appropriations Committee granted permission for multiyear procurement programs, with the following provision, among others: Provided further , That none of the funds provided in this Act may be used for a multiyear contract executed after the date of the enactment of this Act unless in the case of any such contract— (1) the Secretary of Defense has submitted to Congress a budget request for full funding of units to be procured through the contract; (2) cancellation provisions in the contract do not include consideration of recurring manufacturing costs of the contractor associated with the production of unfunded units to be delivered under the contract; (3) the contract provides that payments to the contractor under the contract shall not be made in advance of incurred costs on funded units; and (4) the contract does not provide for a price adjustment based on a failure to award a follow-on contract. The Aircraft Procurement, Air Force, paragraph of the bill made funds available for the procurement of Air Force aircraft and related purposes, with the following provisions: Provided , That amounts provided under this heading shall be used for the procurement of 15 C-17 aircraft: Provided further , That amounts provided under this heading shall be used for the advance procurement of not less than 15 C-17 aircraft: Provided further , That the Secretary of the Air Force shall fully fund the procurement of not less than 15 C-17 aircraft in fiscal year 2006. In its report ( H.Rept. 108-553 of June 18, 2004) on H.R. 4613 , the House Appropriations Committee stated, at the beginning of its discussion of procurement programs: In the Aircraft Procurement, Air Force section of this report the Committee discusses how the Air Force ignored the law and the express intent of Congress by using the current multiyear contract for the C-17 aircraft as a vehicle to support an incremental funding strategy. In so doing, it also has inappropriately committed the government to potential Anti-Deficiency Act violations and unfunded liability costs running in the hundreds of millions of dollars in the event a follow-on contract for this program is not entered into by a date certain, or if certain production levels are not agreed to. Regrettably, the Committee has learned the Air Force has also entered into a similar multiyear contract for the C-130J aircraft. The current production profile includes three aircraft whose manufacture has been approved in the absence of a fully funded appropriation for this purpose. In addition, in this contract the contractor has received a commitment on behalf of the government by the Air Force that the annual production rate will be sustained at 16 aircraft from 2007 through 2009, between Air Force, Navy, and Marine Corps purchases and potential foreign sales. Failure to achieve this rate will significantly increase the cost per plane to the Air Force, representing a contingent liability the government is obliged to pay. At present, current projections suggest this rate will not be met, with shortfalls of 4 aircraft each in 2007 and 2008 and 6 aircraft in 2009. If these projections hold, the Air Force and the taxpayer will foot the bill. In effect, the Air Force has permitted itself to become a de facto sales agent for this program, putting it in a position to insist that other elements of the Department of Defense and the Congress help it find a way to fund this production profile or pay significant penalties. The Committee realizes that properly administered multiyear procurements can result in significant savings. However, the multiple abuses of sound contracting principles and fiscal responsibility by the Air Force in these instances cannot and will not become a model for future multiyear acquisitions. Accordingly, the Committee has recommended several modifications to section 8008 of this bill, and the Committee directs these requirements be met before future multiyear production contracts can be entered into: (1) Multiyear contracts must follow full funding policies and not be used as vehicles for incrementally funding procurement; (2) Contract cancellation ceilings may not include recurring manufacturing costs of unfunded units; (3) Contract payments may not be made in advance of projected manufacturing costs (to include purchase of materials) for funded units; (4) Advance procurement funds may not be used to pay the costs of normal fabrication and assembly of unit components. The use of these funds should be restricted to long-lead items, economic-order quantity buys, and the one-time non-recurring costs of improving manufacturing capabilities; (5) Advance procurement funds are limited to no more than 10 percent of total procurement costs; and (6) Regular procurement funds for units should be requested for the appropriate fiscal year to be obligated to pay for normal fabrication and assembly of funded units and components. The Committee also takes exception to the Air Force's use of a unique provision in the current C-17 multiyear contract that allows the contractor to add charges to the fixed price contract if a follow-on contract is not awarded. The amended general provision further directs that no new multiyear contracts provide for such a price adjustment. (pages 105-107) In the section of the report concerning the C-17 program in particular, the report stated: The Committee is extremely displeased by the Air Force's continued use of a flawed and irresponsible financial strategy for the C-17 multiyear procurement contract. In fiscal year 2003, the Air Force proposed a budget request it referred to as "transformational". The Committee, however, saw it for what it was—an incremental financing scheme that abused the political support for this program and flaunted acquisition regulations and standard practices. In that year, the Congress provided full funding for all 15 aircraft, and directed the Air Force to fully fund the same number in fiscal year 2004. Unfortunately, for fiscal year 2004 and now with the fiscal year 2005 Defense budget request, the Air Force has continued its financial sleight-of-hand on the C-17 program. Based on a recently concluded investigation by the Committee's Surveys and Investigations staff, the Committee learned the Air Force is using a combination of advance procurement funding and exorbitant cancellation ceilings to keep the contractor to a production schedule which has as many as 5 aircraft at any given time in the production line for which funds have not been appropriated. Not once in the past has the Committee indicated its approval for using advance procurement funding to proceed with production of aircraft for which full appropriations have not been approved. Nor is the Committee aware of any change in Department of Defense (DOD) fiscal policy or regulations that would permit this. As both DOD and Office of Management and Budget financial officials put it to Committee investigators, the Air Force had "pushed the envelope." And, in the Committee's view, the 'envelope' has been pushed too far. Moreover, the Air Force also included a provision in the second C-17 multiyear procurement contract that assumes additional funding for aircraft will be approved following the end of the contract. Otherwise, the Department will be liable to pay the contractor significant termination costs. This contingent liability places a burden not just on the current Congress, but on the next Congress as well, and could be interpreted as a violation of the Anti-Deficiency Act. In order to prevent such future financial chicanery on the part of the Air Force or any other military service, the Committee includes a new general provision that significantly amends authority carried in past Defense Appropriations acts regarding multiyear procurement contracts. This provision is discussed elsewhere in this report. With regard to the current funding shortfall in fiscal year 2005, the Committee has added an additional $158,600,000 and one aircraft. Bill language is also included in the Aircraft Procurement paragraph directing that funds provided are for the procurement of 15 aircraft in fiscal year 2005, that advance procurement funds are provided for the procurement of 15 aircraft in fiscal year 2006, and that the Secretary of the Air Force shall fully fund the procurement of 15 aircraft in fiscal year 2006. In placing this requirement upon the Air Force, the Committee would note the commitment of the Secretary of the Air Force, during a public hearing on this matter, to work with the Committee to "set it right". The Committee anticipates that the Secretary will do just that. (page 192) In a follow-on section concerning interim contractor support (ICS) for the C-17 fleet, the report stated: In the preceding part of this report, the Committee expresses its displeasure with the funding strategy the Air Force has employed to execute the C-17 program. That strategy has resulted in an incremental funding scheme for the C-17 that the Committee finds unacceptable. In order to fully fund 15 aircraft in fiscal year 2005, the budget request must be amended to provide for one additional aircraft and $158,600,000. Therefore, the Committee provides increased funding for one additional C-17 in fiscal year 2005, and reduced funding in this account by a like amount. The Committee finds it puzzling that the Air Force refuses to fully fund aircraft in production, yet the fiscal year 2005 request for C-17 ICS includes funding of $176,000,000 in new capability block upgrades and improvements to the existing fleet. In budget justification materials, the Air Force identifies $114,000,000 of this amount as needed to address unfunded requirements. The Committee wishes to send a very clear message—it considers full funding of the aircraft in production to be this program's number one unfunded requirement. Once the Air Force understands this message and provides the resources needed to bring this program in line with a traditional, fully funded procurement program, the Committee will entertain any funding requests for new capability to the existing fleet. (page 193) In its discussion of the Army's proposal for funding the construction a theater support vessel (TSV) through the Army's research and development account, the report stated: Fiscal year 2005 is the first year in which funding has been requested to construct such a vessel. The Committee notes that the total cost of this vessel is approximately $141,600,000, and the Army had planned to incrementally fund its construction over the course of fiscal years 2005 through 2007. The Committee firmly believes that the Department should fully fund major investment items and accordingly has added sufficient funding in the fiscal year 2005 bill to complete this vessel. (pages 254-255; see also page 249) The committee in the above passage is applying the traditional full funding policy to this vessel even though it is being acquired through the Army's research and development account, which falls outside the procurement title of the DOD appropriations act. In its discussion of the Navy's proposal for funding the construction of the lead Littoral Combat Ship (LCS) through the Navy's research and development account, the report stated: The Committee recommendation includes increasing the budget request for the construction of the first Flight 0 LCS by $107,000,000, fully funding this construction effort at $214,000,000. The fiscal year 2005 request included only $107,000,000 for the first increment of the LCS construction. Budget documentation indicates the Navy plans to request an additional $107,000,000 for the second and final increment for the first ship in fiscal year 2006. The Committee strongly opposes incremental funding of ship construction and therefore has provided a total of $214,000,000 in 2005 for construction of the first LCS, fully funding the construction requirement in one year. (page 288-289; see also page 274) The committee in the above passage is applying the traditional full funding policy to this ship even though it is being acquired through the Navy's research and development account, which falls outside the procurement title of the DOD appropriations act. In its discussion of the Navy's newest plan for procuring a new amphibious assault ship known as the LHA(R), or more simply as LHA, in FY2008, the report stated that the Navy's new plan presumes designing a ship that would alter the amphibious nature of the LHA, and then, proposing an incrementally funded construction program.... Should the Navy and Marine Corps determine that the re-structure of the LHA(R) program is the way ahead for the future, a fully funded program for design and construction of a ship to meet this requirement should be included in a future budget request. The Committee will not support a proposal which suggests that construction be incrementally funded. (page 289) In its discussion of the Navy's plan to fund the construction of a planned new class of ships known as Maritime Prepositioning Force (Future) (MPF[F]) ships through the National Defense Sealift Fund (NDSF) starting in FY2007, the report stated: Budget documentation provided to Congress in support of the fiscal year 2005 budget request provided no information detailing how the MPF(F) funds were to be spent. The only information provided states that lead hull construction costs are to be incrementally funded beginning in fiscal year 2007. Requests for additional information yielded no detail of the planned expenditures due to a not yet completed study by the Center for Naval Analysis. The Committee notes that while detail was not provided to Congress, the trade press was provided some information and printed articles quoting senior Navy officials on plans for the possible construction of a fleet of MPF(F) ships. The Committee believes the Navy must provide sufficient justification of its requests for appropriated funds. While the Committee appreciates that the timing inherent in the budget process does not always favor rapid transition to new ideas, it is not reasonable to request Congress provide funds for a program with no justification except that which is printed in the trade press. Furthermore, the Navy is well aware of the Committee's views with respect to incremental funding of programs. The Committee finds little humor in being asked to fund an unjustified request of nearly $100 million, for what is intended upon its maturation to become an incrementally funded program. (page 352) The committee in the above passage is suggesting that it will prefer to apply the traditional full funding policy to these ships even though they are to be acquired through the NDSF, which falls outside the procurement title of the DOD appropriations act. Senate In its report ( S.Rept. 108-284 of June 24, 2004) on the FY2005 defense appropriations bill ( S. 2559 ), the Senate Appropriations Committee stated: The Committee supports the budget request for the Littoral Combat Ship [LCS] and consents to the Navy's request to fund construction of the first prototype ship for each of two ship designs in the Research and Development, Navy account. Approval for funding LCS in the research and development account is strictly based on the acknowledgement of the prototypical nature and high level of technical risk inherent in this program. The Committee finds LCS to be unique and unlike any other shipbuilding program the Navy has previously pursued; and therefore, grants the Navy's request for the increased flexibility that funding within the research and development account affords. However, the Committee directs that all follow-on ships beyond one prototype for each LCS ship design be fully funded in the Shipbuilding and Conversion, Navy account. (Pages 156-157) Conference Report The conference report ( H.Rept. 108-622 of July 20, 2004) on H.R. 4613 contained bill language in the Aircraft Procurement, Air Force section stating that That amounts provided under this heading shall be used for the procurement of 15 C-17 aircraft: Provided further, That amounts provided under this heading shall be used for the advance procurement of not less than 15 C-17 aircraft: Provided further, That the Secretary of the Air Force shall fully fund the procurement of not less than 15 C-17 aircraft in fiscal year 2006: Provided further, That the Secretary of the Air Force shall allocate a reduction of $158,600,000 proportionately to each budget activity, activity group, subactivity group, and each program, project, and activity funded by this appropriation. (Page 13) The conference report stated: The conferees have provided an additional $158,600,000 in funding for the procurement of 15 C-17s in fiscal year 2005. Language has also been included in "Aircraft Procurement, Air Force" requiring the Air Force to procure 15 aircraft in fiscal year 2005; provide advance procurement for 15 aircraft in 2006; and to fully fund 15 aircraft in fiscal year 2006. The conferees agree with the House language regarding the Air Force interpretation of multiyear procurement regulations in this and the C-130J program. The conference report includes a general provision [Section 8008] amending multiyear procurement contract requirements proposed in the House bill to prevent this approach in the future. A general reduction in funding for Aircraft Procurement, Air Force, has been included accordingly with a requirement that the reduction be applied equitably across all elements of this appropriation. (Page 215) Section 8008—the usual section in the DOD appropriations bill that grants authority for multiyear procurement contracts—stated in part That none of the funds provided in this Act may be used for a multiyear contract executed after the date of the enactment of this Act unless in the case of any such contract— (1) the Secretary of Defense has submitted to Congress a budget request for full funding of units to be procured through the contract.... (Page 21) With regard to the Navy's DDG-1000 destroyer program, the report stated: The conferees agree to provide a total of $305,516,000 for advance procurement for the DD(X) class of ships instead of $320,516,000 as proposed by the Senate and no appropriation as proposed by the House. The conferees direct the Navy to include future funding requests for the DD(X) in the Shipbuilding and Conversion, Navy appropriation. Within the funds provided, $221,116,000 is only for design and advance procurement requirements associated with the first ship of the DD(X) class and $84,400,000 is only for design and advance procurement requirements associated with construction of the second ship at an alternative second source shipyard. The conferees direct that no funds shall be available for the procurement of long leadtime material for items that are dependent upon delivery of a DD(X) key technology unless that technology has undergone testing, thereby reducing risk to overall program costs. The conferees direct that full funding of the remaining financial requirement for these ships, not including traditional advance procurement requirements, shall be included in a future budget request. (Page 188) With regard to the Navy's Littoral Combat Ship (LCS) program, the report stated that "The conferees agree with the Senate that all follow-on ships, beyond one of each prototype design, should be fully funded in the Shipbuilding and Conversion, Navy appropriation." (Page 310) FY2004 FY2004 Defense Authorization Act ( H.R. 1588 / P.L. 108-136 ) Conference Report The conference report ( H.Rept. 108-354 of November 7 (legislative day, November 6), 2003) on H.R. 1588 contained a provision (Section 135) that, as stated on page 541 of the report, "would authorize the Secretary of the Air Force to enter into a lease for no more than 20 aerial refueling tanker aircraft, and would further authorize the Secretary of the Air Force to enter into a multiyear procurement program, using incremental funding, for up to 80 aerial refueling aircraft for not in excess of 10 program years beginning as early as FY2004." Section 135 stated, in part: (b) MULTIYEAR PROCUREMENT AUTHORITY.—(1) Beginning with the fiscal year 2004 program year, the Secretary of the Air Force may, in accordance with section 2306b of title 10, United States Code, enter into a multiyear contract for the purchase of tanker aircraft necessary to meet the requirements of the Air Force for which leasing of tanker aircraft is provided for under the multiyear aircraft lease pilot program but for which the number of tanker aircraft leased under the authority of subsection (a) is insufficient. (2) The total number of tanker aircraft purchased through a multiyear contract under this subsection may not exceed 80. (3) Notwithstanding subsection (k) of section 2306b of title 10, United States Code, a contract under this subsection may be for any period not in excess of 10 program years. (4) A multiyear contract under this subsection may be initiated or continued for any fiscal year for which sufficient funds are available to pay the costs of such contract for that fiscal year, without regard to whether funds are available to pay the costs of such contract for any subsequent fiscal year. Such contract shall provide, however, that performance under the contract during the subsequent year or years of the contract is contingent upon the appropriation of funds and shall also provide for a cancellation payment to be made to the contractor if such appropriations are not made. FY2004 Defense Appropriations Act ( H.R. 2658 / P.L. 108-87 ) House In its report ( H.Rept. 108-187 of July 2, 2003) on H.R. 2658 , the House Appropriations Committee stated: The Committee has altered the presentation of the fiscal year 2004 requested Shipbuilding and Conversion, Navy (SCN) appropriation language by merging the appropriation for full funding with the appropriation for advanced procurement. The Committee's intention is to provide a certain level of financial flexibility to better accommodate changes based on cost growth. This recommendation, if properly implemented by the Navy, should allow for managing costs within the program thereby limiting the necessity of reprogramming funds from other high priority programs to accommodate cost growth in a ship class. The Committee reserves the right to revert to the previous method of appropriating funds for SCN should the Navy not properly manage the merging of these appropriations. (page 150) Senate In its report ( S.Rept. 108-87 of July 10, 2003) on the FY2004 defense appropriations bill ( S. 1382 ), the Senate Appropriations Committee stated: The Committee is aware that the Department of the Navy plans to fund the purchase of ships in fiscal year 2005 within the Research and Development, Navy account. These ships—the first in their class—the DD(X) next-generation destroyer and the Littoral Combat Ship [LCS] are currently planned to be procured with research and development dollars with the second ship in each class to be procured with Shipbuilding and Conversion, Navy [SCN] funds in fiscal year 2006. The Committee understands that there are seeming advantages to this approach—reducing prior year shipbuilding costs and providing these programs with the additional flexibility that is inherent in research and development funding. The Committee is concerned, however, that the Department will not reap the benefits it seeks. Central to the argument that supports building the first ship in a class with research and development funding is the necessity to learn lessons from the research, development and testing being done. If the Navy plans, as it currently does, to fund the second ship in each of these classes in fiscal year 2006 in SCN before actual construction even begins on the research and development funded ships, the distinction between funding in research and development and SCN only becomes one of full-funding. Therefore, the Committee directs that if these ships—the DD(X) and LCS—are funded in research and development, all research and development acquisition rules will apply, including technology readiness reviews, milestone decisions, and test and evaluation before these ships may enter Shipbuilding and Conversion, Navy for procurement. If the Navy chooses not to follow the acquisition policies required of research and development programs before they enter procurement, funding for these first ships in their class shall be requested in Shipbuilding and Conversion, Navy, as has been the tradition. (pages 154-155) Conference Report The conference report ( H.Rept. 108-283 of September 24, 2003) on H.R. 2658 stated: The conferees agree with the Senate concerning the Navy's plans to fund the purchase of ships—DD(X) and LCS—in fiscal year 2005 within the Research, Development, Test and Evaluation (RDT&E) appropriation. The conferees believe that the use of research and development funding to procure first ships of a class is not in keeping with budgetary guidelines regarding full-funding. The conferees agree that should the fiscal year 2005 request include these ships—DD(X) and LCS—within RDT&E, all research and development acquisition rules shall apply, including technology readiness reviews, milestone decisions, and test and evaluation before these ships may transition to procurement. (page 292) FY2003 FY2003 Defense Authorization Act ( H.R. 4546 / P.L. 107-314 ) House In its markup of the FY2003 defense authorization bill ( H.R. 4546 ), the House Armed Services Committee included a provision (Section 141) that specifically requires the use of full funding for executing multiyear procurement (MYP) arrangements approved in the future, unless otherwise authorized by Congress. The provision would prohibit, unless specifically authorized by law, the use in future MYP arrangements of, among other things, funding approaches resembling incremental funding—including funding approaches like the one the Air Force proposed, as part of its FY2003 defense budget and FY2003-FY2007 FYDP, for the follow-on MYP arrangement for the C-17 program. Section 141 would not, however, apply to the follow-on C-17 MYP arrangement itself, because the section would cover MYP arrangements that are authorized in the future and the follow-on MYP arrangement for the C-17 program was approved by Congress in 2001 as part of its action on the FY2002 defense budget. The provision read as follows: SEC. 141. REVISIONS TO MULTIYEAR CONTRACTING AUTHORITY. (a) USE OF PROCUREMENT AND ADVANCE PROCUREMENT FUNDS- Section 2306b(i) of title 10, United States Code, is amended by adding at the end the following new paragraph: "(4)(A) Unless otherwise authorized by law, the Secretary of Defense may obligate funds for procurement of an end item under a multiyear contract for the purchase of property only for procurement of a complete and usable end item. "(B) Unless otherwise authorized by law, the Secretary of Defense may obligate funds appropriated for any fiscal year for advance procurement under a multiyear contract for the purchase of property only for the procurement of those long-lead items necessary in order to meet a planned delivery schedule for complete major end items that are programmed under the contract to be acquired with funds appropriated for a subsequent fiscal year.". (b) EFFECTIVE DATE- Paragraph (4) of section 2306b(i) of title 10, United States Code, as added by subsection (a), shall not apply with respect to any multiyear contract authorized by law before the date of the enactment of this Act. Conference Report The conference report ( H.Rept. 107-772 of November 12, 2002) on the FY2003 defense authorization bill ( H.R. 4546 ) contained a provision (Section 820), similar to Section 141 of the House-reported version of H.R. 4546 , that requires the use of full funding for executing multiyear procurement (MYP) arrangements approved in the future: SEC. 820. REVISIONS TO MULTIYEAR CONTRACTING AUTHORITY. (a) USE OF PROCUREMENT AND ADVANCE PROCUREMENT FUNDS.—Section 2306b(i) of title 10, United States Code, is amended by adding at the end the following new paragraph: "(4)(A) The Secretary of Defense may obligate funds for procurement of an end item under a multiyear contract for the purchase of property only for procurement of a complete and usable end item. "(B) The Secretary of Defense may obligate funds appropriated for any fiscal year for advance procurement under a contract for the purchase of property only for the procurement of those long-lead items necessary in order to meet a planned delivery schedule for complete major end items that are programmed under the contract to be acquired with funds appropriated for a subsequent fiscal year (including an economic order quantity of such long-lead items when authorized by law)." (b) EFFECTIVE DATE.—(1) Paragraph (4) of section 2306b(i) of title 10, United States Code, as added by subsection (a), shall not apply with respect to any contract awarded before the date of the enactment of this Act. (2) Nothing in this section shall be construed to authorize the expenditure of funds under any contract awarded before the date of the enactment of this Act for any purpose other than the purpose for which such funds have been authorized and appropriated. In their report, the conferees noted that this section amended the language of the House-reported Section 141 to permit the purchase of economic order quantities of long-lead items where authorized by law. The conference amendment would also clarify that nothing in the section authorizes the use of funds available under contracts awarded prior to the effective date of the provision for any purpose other than the purpose for which such funds were authorized and appropriated. Consequently, although the section would not apply to contracts awarded before the date of enactment, funds available under such contracts could not be used in a manner that would be inconsistent with the requirements of the section unless such funds were authorized and appropriated for such purposes. (page 673) FY2003 Defense Appropriations Act ( H.R. 5010 / P.L. 107-248 ) House In its report ( H.Rept. 107-532 of June 25, 2002) on the FY2003 defense appropriations bill ( H.R. 5010 ), the House Appropriations Committee stated the following regarding the Air Force's FY2003 proposal to procure 60 C-17 airlift aircraft under a follow-on multiyear procurement (MYP) arrangement approved by Congress in FY2002 that would procure at least some of the aircraft with funding profiles that resemble incremental funding rather than full funding: The Air Force has adopted a budgeting approach for the C-17 that delays the need to request $1,500,000,000 in budget authority until 2007 and 2008. Instead of following the traditional method of requesting funding equal to the cost of the planes being built, the Air Force has matched its funding request to when payments are due to the contractor. The Air Force calls this change "transformation". The proper term is incremental funding and it is inconsistent with DOD fiscal policy. Although the planes are delivered on the same schedule and at the same cost under either approach, incremental funding allows programs to push off onto future years costs that should be covered now. Last year, when the Congress was considering multiyear procurement authority for the C-17, the Air Force sought bill language specifically authorizing this new approach. The Congress approved the multiyear, but denied the Air Force's request for special authority. Nevertheless, the Air Force proceeded with the incremental funding and reinterpreted the regulations as permitting this approach. For example, while the DOD Financial Management Regulations (FMR) define Advance Procurement as being for "long leadtime items", the Air Force believes that this can be interpreted to apply to any component of the aircraft or even to final assembly. While the FMR calls for advance procurement to be "relatively low" compared to the cost of the end item, the Air Force proposal would, in some cases, fund half of the cost of the airplane with advanced procurement. The Air Force position is not consistent with any reasonable interpretation of the FMR. Therefore, the Committee has included bill language requiring that the fiscal year 2003 C-17 Advance Procurement be used to support the acquisition in fiscal year 2004 of 15 C-17 aircraft (the planned production rate) and directs the Air Force to include the funds to complete the purchase of those 15 C-17s in its 2004 budget submission. The Committee directs the Under Secretary of Defense (Comptroller) to restructure the outyear funding for the C-17 program to bring it into compliance with the proper use of advance procurement as defined in the FMR. The Committee is fully supportive of the C-17 program and the multiyear procurement of 60 additional airplanes and directs that these changes be implemented in a manner that would not adversely affect the cost or delivery of these planes. (Page 168) Senate In its report ( S.Rept. 107-213 of July 18, 2002) on H.R. 5010 , the Senate Appropriations Committee "recommends several actions to restore fiscal discipline to the Department [of Defense]." (Pages 4-5) Among these were recommendations to fully fund the C-17 multiyear procurement request and to reduce amounts requested for advance procurement for Navy shipbuilding programs. With regard to the C-17 multiyear procurement funding request, the committee stated: The Air Force has not requested sufficient funding in its budget proposal to fully fund the purchase of 15 [C-17] aircraft per year. Instead, it has chosen to request only the amount of funds it expects to obligate each year to start the production of 15 aircraft, and finance the remaining costs in later years. This financing scheme runs counter to the 'full funding' principles which guide Federal Government procurement practice, and thus creates a future liability for the Air Force and Congress. For these reasons, the Committee disapproves the Air Force's C-17 financing proposal. Instead the Committee recommends an increase of $585,900,000 to fully fund the purchase of 15 C-17 aircraft in fiscal year 2003. The Committee intends to work with the Air Force over the coming months to ensure that plans for executing the remainder of the C-17 multi-year procurement program are both cost effective and consistent with full funding principles. (Page 147) With regard to requests for advance procurement funding for Navy shipbuilding programs, the committee stated: The Committee notes that the Navy's requests for advance procurement funding for shipbuilding programs have increased in recent years. Almost universally among programs, the cumulative amount requested for advance procurement funds exceeds 30 percent of the total cost of the vessel. As stated in DOD Directive 7000.14-R, advance procurement requests should be limited to those items whose lead-times are greater than the life of the appropriation and where the lead-time of an item far exceeds the production time of the end item itself. The regulation further states that the amounts budgeted for advance procurement should be relatively low compared to the remaining portion of the cost of the end item. However, based on detailed information received from the Department, the Committee finds countless inconsistencies in the Navy's adherence to this policy. As the Committee endeavors to assist the Navy in increasing funding for shipbuilding programs, in addition to providing increased funding over the budget request, it finds that a portion of the funds requested for advance procurement would be more effectively used to alleviate the costs associated with completion of prior year [Navy shipbuilding] programs.... The Committee's recommendation fully funds the increased costs associated with the "swap" of DDG-51 and LPD-17 class workload among the two main shipbuilders. Further, it fully funds the entire DDG-51 class prior year completion bill throughout the Future Years Defense Plan, pays $150,000,000 towards the LPD-17 class fiscal year 2004 bill and fully funds both the fiscal year 2003 and fiscal year 2004 costs associated with the VA [Virginia] Class submarine program. (Page 127) Conference Report The conference report ( H.Rept. 107-732 of October 9, 2002) on H.R. 5010 stated the following with regard to the C-17 multiyear procurement funding request: In the Department of Defense's fiscal year 2003 budget submission, the Air Force did not request a sufficient amount to fully fund the purchase of 15 C-17 cargo aircraft per year. Instead, it requested only the amount of funds it expected to obligate each year to start production of 15 aircraft, and financed the remaining costs in later years. This financing scheme runs counter to the "full funding" principles which guide Federal government procurement practice, and thereby creates a future liability for the Air Force and Congress. For this reason, the conferees disapprove the Air Force's C-17 financing proposal. As such, the conference agreement includes an increase of $585,900,000 over the budget request to fully fund the purchase of 15 C-17 aircraft in fiscal year 2003. Additionally, the conferees agree to retain House language which directs that funds made available within the "Aircraft Procurement, Air Force" account be used for advance procurement of 15 aircraft. (page 206) Appendix B. Detailed Background on the Policy This appendix provides a detailed discussion of the origins, rationale, and governing regulations of the full funding policy, as well as examples of where Congress, GAO, and DOD have affirmed their support for the policy. Laws and Regulations Antideficiency and Adequacy of Appropriations Acts The full funding policy, also known as up-front funding, is consistent with two basic laws regarding executive branch expenditures—the Antideficiency Act of 1870, as amended, and the Adequacy of Appropriations Act of 1861. As summarized in a 1996 GAO report: The Antideficiency Act, as amended, implements Congress's constitutional oversight of the executive branch's expenditure of funds. The act reflects laws enacted by the Congress since 1870 to respond to abuses of budget authority and to gain more effective control over appropriations. The central provision of the act (31 U.S.C. 1341(a)(1)) prevents agencies from entering into obligations prior to an appropriation or from incurring obligations that exceed an appropriation, absent specific statutory authority. Thus, agencies may not enter into contracts that obligate the government to pay for goods and services unless there are sufficient funds available to cover their cost in full. Instead, agencies must budget for the full cost of contracts up-front. Also, the Adequacy of Appropriations Act (40 U.S.C. 11), established in 1861, prohibits agencies from entering into a contract unless the contract is authorized by law or there is an appropriation to cover the cost of the contract. OMB Circular A-11 (July 2003) Circular A-11 from the Office of Management (OMB) provides guidance to executive branch agencies on the preparation of budget submissions to Congress. The current version of the circular was issued on July 25, 2003. Section 31.4 of the circular, which covers the full funding policy, states in part: Requests for acquisition of capital assets must propose full funding to cover the full costs of the project or a useful segment of the project, consistent with the policy stated in section 300.6(b). Specifically, requests for procurement programs must provide for full funding of the entire cost.... Remember that Administration policy and the Antideficiency Act require you to have sufficient budget authority or other budgetary resources to cover the full amount of unconditional obligations under any contract. Section 300.6(a) of the circular states (italics as in the original): (a) Background. Good budgeting requires that appropriations for the full costs of asset acquisition be enacted in advance to help ensure that all costs and benefits are fully taken into account when decisions are made about providing resources. For most spending on acquisitions, this rule is followed throughout the Government. When capital assets are funded in increments, without certainty if or when future funding will be available, it can and occasionally does result in poor planning, acquisition of assets not fully justified, higher acquisition costs, project (investment) delays, cancellation of major investments, the loss of sunk costs, or inadequate funding to maintain and operate the assets. Section 300.6(b) of the circular states in part (italics as in the original): (b) Full funding policy. The full funding policy (see section 31.4) requires that each useful segment (or module) of a capital investment be fully funded with either regular annual appropriations or advance appropriations. For definitions of these terms, see section 300.4 or the Glossary of Appendix J. Appendix J elaborates on the full funding concept (see Appendix J section C, Principles of Financing). Appendix J, Section C, lists four principles for financing capital assets. Principle 1, on full funding, states (italics as in the original): Budget authority sufficient to complete a useful segment of a capital project (investment) (or the entire capital project, if it is not divisible into useful segments) must be appropriated before any obligations for the useful segment (or project) (or investment) may be incurred. Explanation: Good budgeting requires that appropriations for the full costs of asset acquisition be enacted in advance to help ensure that all costs and benefits are fully taken into account at the time decisions are made to provide resources. Full funding with regular appropriations in the budget year also leads to tradeoffs within the budget year with spending for other capital assets and with spending for purposes other than capital assets. Full funding increases the opportunity to use performance-based fixed price contracts, allows for more efficient work planning and management of the capital project (or investment), and increases the accountability for the achievement of the baseline goals. When full funding is not followed and capital projects (or investments) or useful segments are funded in increments, without certainty if or when future funding will be available, the result is sometimes poor planning, acquisition of assets not fully justified, higher acquisition costs, cancellation of major investments, the loss of sunk costs, or inadequate funding to maintain and operate the assets. DOD Directive 7000.14-R (June 2004) Section 010202(A) of DOD Directive 7000.14-R on budget formulation and presentation (updated June 23, 2004) states (underlining as in the original): Policy for Full Funding. It is the policy of the Department of Defense to fully fund procurements that are covered within the procurement title of the annual DOD Appropriations Act. There are 2 basic policies concerning full funding. 1. The first is to provide funds at the outset for the total estimated cost of a given program so that the Congress and the public can be fully aware of the dimensions and cost when the program is first presented in the budget. 2. The second is to provide funding each fiscal year to procure a complete, usable end item. In other words, an end item budgeted in a fiscal year cannot depend upon a future year's funding to complete the procurement. However, efficient production of major defense systems has necessitated two general exceptions to this policy—advance procurement for long lead-time items and advance economic order quantity (EOQ) procurement. EOQ is normally associated with multiyear procurements but can be requested for annualized procurements on an exception basis for unusual circumstances (such as combined parts buys for a block of satellites). Both efforts must be identified in an Exhibit P-10, Advance Procurement, when the Budget Estimate Submission is submitted to OSD and when the President's budget request is submitted to the Congress. Congressional Hearings and Reports This section presents excerpts from five sources that discuss in some detail the origins of and rationale for the full funding policy. The excerpts also provide examples of how support for the policy has been periodically reaffirmed over the years by Congress, the Government Accountability Office (GAO), and DOD. The documents are a 1969 GAO report, a 1973 House Appropriations Committee report, a 1978 House Budget Committee hearing, a 1996 GAO report, and a 2001 GAO letter report and briefing. 1969 GAO Report A 1969 GAO report on the full funding provision outlined the origins, rationale, and early DOD regulations governing the policy. Although it is a long excerpt (about 4 pages as reprinted here), it is significant as an early and detailed recapitulation of the history of the full funding policy: The concept of full funding was initially applied to Navy shipbuilding authorized by the act of March 10, 1951 (65 Stat. 4). Prior to the execution of the act, the Navy shipbuilding program operated under contract authorizations with funds appropriated in annual increments as estimated to be required for contract expenditures during the budget year. After passage of the act, the Congress appropriated funds for the entire cost of Navy shipbuilding programs as then envisaged on the basis of prevailing prices, regardless of the period of expenditures under the individual contracts. No provision was made for anticipated increases in costs of materials and labor. In a letter dated May 15, 1957, to the Secretary of Defense, Congressman [George Herman] Mahon, as Chairman of the Department of Defense Subcommittee, House Committee on Appropriations, stated, in part, that: "The general prevailing practice of this Committee is to provide funds at the outset for the total estimated cost of a given item so that the Congress and the public can clearly see and have a complete knowledge of the full dimensions and cost of any item or program when it is first presented for an appropriation. "During the course of these hearings, the Committee has learned that one or more contracts have been executed for material on a partially funded basis with the apparent expectation of completing the financing by ultimately fully obligating the transactions with succeeding years appropriations." * * * * * "It is recommended that all necessary action be taken to prevent such practice in the future and to insure that procurement funds are administered so as to accomplish the full program for which the appropriation was justified." On May 21, 1957, the Office of the Secretary of Defense issued DOD Directive 7200.4[,] "Funding of Procurement Contracts and Interdepartmental Requests and Orders for Procurement," which had been in preparation. This directive was responsive to the suggestions expressed by Congressman Mahon in his letter of May 15, 1957. The directive was issued for the purpose of ensuring the orderly execution of the procurement programs within the appropriations and funds available. It states in part, that: "No procurement of material, equipment, or work or services in connection therewith shall be directed or authorized unless adequate appropriations and funds are available under the applicable Department of Defense Financial Plan (1) for obligation, (2) set aside in the form of a commitment, or (3) set aside in a reserve account in an aggregate amount sufficient (a) to complete the procurement of a specified number of end items (including, where applicable, initial spares and spare parts) usable either in service units or for test and evaluation, or (b) when specifically provided for under a current apportionment of funds, to complete a pre-production program or procure components in advance of the fiscal year in which the related programmed end item is directed to be procured." The directive also requires that: "... all estimates shall be based upon the latest available firm prices. In the event firm prices are not available the best current working estimate of cost shall be used and adjustments will be made promptly when evidence of significant variation in costs becomes available." The directive expressed funding policies for all procurement actions subsequent to fiscal year 1957 and requires that all procurements not wholly consummated but entered into up and including fiscal year 1957 be modified to conform to the full funding concept. Procurements from research and development appropriations are not subject to the provisions of the directive, and other procurements may be specifically excepted by the Secretary of Defense from its provisions. Under these provisions, exceptions were granted to the Air Force for activities undertaken under procurement appropriations for development-type projects, such as the intermediate range ballistic missile and the intercontinental ballistic missile. Though the directive does not employ the term "full funding," it states the concepts which express the essentials of full funding. Further, in a letter dated June 22, 1957, to the Chairman of the Subcommittee on the Department of Defense, Senate Committee on Appropriations, the Assistant Secretary of Defense (Comptroller) summarized the answers to certain questions which had arisen during the hearings on DOD appropriations concerning DOD Directive 7200.4. This letter, subsequently placed in the record of the hearings, explained the provisions of the subject directive and its implementation in fulfillment of the full funding principle which, it noted, had been applied generally by the Congress in providing funds for DOD procurement programs. DOD officials still cite the letter as authoritative in describing their procedures. In illustration of the full funding principle, the Assistant Secretary stated in his letter that: "It has the merit of providing, at one time, for the total estimated cost of a given item or program so that the Congress and public can clearly see its full dimensions and costs at the time it is first presented for approval and appropriations. As you are well aware this system provides that when any Department directs a contracting officer to procure a hundred aircraft, tanks, etc., funds must be available (and set aside—some for obligation at once and some for obligation at a later date) to cover the total estimated cost to be incurred in completing delivery of one hundred usable end items plus their initial spares and spare parts when required." The letter from the Assistant Secretary also clarified the use of full funding of preproduction preparations for new items to be procured and placed in production in a subsequent year. The latter clarified also the treatment of advance procurement of long-lead-time components, budget estimating, and cost increases under the full funding concept. The military services issued formal implementation instructions on the full funding concept at different points in time. The Secretary of the Navy Instruction 7043.2 was dated June 22, 1957. Army Regulations 37-42 was [sic] issued on July 1, 1957. A letter from the Deputy Chief of Staff, Material, United States Air Force, to the Commander, Air Force Materiel Command, implementing DOD Directive 7200.4 was dated August 20, 1957. As noted [above], the Air Force was granted exceptions from the full funding requirements for certain programs. In the fiscal year 1963 budget, these included the ATLAS, TITAN, MINUTEMAN, and SKYBOLT missile procurement programs which were incrementally funded to cover only expenditures plus contractor commitments. The Assistant Secretary of Defense (Comptroller) felt, however, that the capability existed in 1962 to develop realistic programs and budgets for Air Force ballistic missiles on a fully funded basis and establish a consistent policy for funding all procurement programs. Subsequently, the Deputy Assistant Secretary of Defense (Comptroller) issued instructions to the military services on March 30, 1962, that the fiscal year 1964 budget be developed on the basis of providing new obligational authority to fully fund all budget line items and specifically the Air Force's ATLAS, TITAN, MINUTEMAN, and SKYBOLT missile procurement programs. It was recognized with the Office of the Secretary of Defense that the implementation of the full funding policy would require a change in Air Force missile contracting from the "work effort" basis to the basis of the total cost of delivery for a specific number of missiles. The exception for Air Force ballistic missiles, which had been in effect for several years, represented a carry-over of research and development funding policies of those items. Shipbuilding has been the procurement program most consistently reviewed and revised within DOD with respect to full funding. This is due to the length of procurement leadtime, 3 to 7 years depending primarily on the type of ship. Procedures have been refined as the need arose from the unique nature of the product. Prior to the fiscal year 1961 budget, ship cost estimates were based on the design concept and labor and material rates existing at the time the estimates were prepared with increases over the initial estimates being provided for by requesting additional funds in subsequent years or by reducing shipbuilding programs. The fiscal year 1961 budget initiated a new policy in financing shipbuilding programs termed "end cost" budgeting. Construction and conversion cost estimates in that budget represented the full amount required to complete all ships in the 1961 fiscal year and prior years' programs and included allowances for such growth factors as design and minor characteristics changes and changes in labor and material rates which would affect costs during construction and conversion periods. Through the fiscal year 1965 budget, the projected costs included estimates for the correction of deficiencies in a new ship through its first overhaul. This period was curtailed by NavShips Instruction 7301.25A, dated November 24, 1967, to a period of 11 months following preliminary acceptance trials or through post shakedown availability, whichever is earlier, for fiscal year 1964 and subsequent ship programs. A recent Navy Program/Budget Decision[,] "SCN [Shipbuilding and Conversion, Navy] Financial Policy and Funding of Prior Year Programs," approved by the Deputy Secretary of Defense on December 9, 1968, refined the definition of full funding as it applied to ships. Estimates for outfitting and postdelivery deficiency corrections would be funded when required, that is funded on a lead-time basis rather than as part of the basic estimate. This change in application of the full funding concept to shipbuilding put shipbuilding procurement on the same basis as aircraft and electronics procurement with respect to postdelivery costs and outfitting. It also resulted in a substantial reduction of fiscal year 1969 and prior years' funding requirements for shipbuilding programs still in process. Bureau of the Budget [now Office of Management and Budget] Circular No. A-11, issued in July 1962, stated that: "Requests for major procurements and construction programs will provide for full financing of the complete cost..." A revision to Circular A-11 on July 25, 1968, stated: "Request for major procurement programs will provide for full financing of the entire cost." Although the Bureau of the Budget uses the terms "full financing," "complete cost," and "entire cost" and the Office, Secretary of Defense, uses the term "total cost of an end-item" as stated in DOD Instruction 5000.8 "Glossary of Terms Used in the Areas of Financial, Supply and Installation Management,: dated June 15, 1961, it is generally understood that all four terms refer to the same concept as does the term "full funding." To supplement the concept of full funding as expressed in DOD Directive 7200.4 quoted [above], we have formulated the following expression of the concept based on our discussions with DOD personnel. Full funding exists when adequate obligational authority is available in the procurement appropriation to meet the currently estimated cost of a budget line item. A budget line item includes a specific quantity of end items, the procurement of which is authorized to be initiated in the program year. 1973 House Appropriations Committee Report In its report (H.Rept. 93-662 of November 26, 1973) on the FY1974 DOD Appropriation Bill (H.R. 11575), the Committee on Appropriations affirmed the full funding policy and issued a warning against the abuse of the exception permitting advance procurement funding: The Committee is concerned that there is a growing tendency in the Department of Defense (DOD) to abuse the advance procurement exception to the long-established principle of "full funding" the procurement appropriations. It is important to understand that the technique of "advance procurement" is intended to be a well defined and narrowly-applied exception to a general rule. The basic rule of financing procurement appropriations, commonly known as "full funding", is that each annual budgetary request for a quantity of end items of military equipment will contain all of the obligational authority required to deliver those end items in a complete and militarily useful fashion. Said another way, no procurement budget request should be dependent upon future year appropriations to make it whole. This general rule of "full funding" is well defined in DOD's own Directive 7200.4. This same directive also clearly defines and limits the one recognized exception to "full funding", i.e., the advance procurement technique. Where an end item of military hardware contains components meeting specified criteria, it is permissible for those components to be budgeted in the year prior to the year in which their intended end items will be budgeted.... The foregoing rules have been carefully drawn after extensive discussions between Congressional staff members and representatives of the DOD. They represent sound policy. Unfortunately, the Department of Defense has not always adhered to these rules.... The Secretary of Defense is requested to personally review advance procurement funding requests proposed for the fiscal year 1975 budget in light of the foregoing direction and DOD Directive 7200.4. If there are future abuses of the advance procurement funding concept, the Committee will have to reconsider the advance procurement technique itself. 1978 House Budget Committee Hearing The full funding policy was reviewed at a 1978 hearing before a House Budget Committee task force on budget process. The hearing focused on the Carter Administration's proposal to expand the application of the full funding policy to additional programs in the Federal budget. At this hearing, John R. Quetsch, Principal Deputy Assistant Secretary (Comptroller), Department of Defense, provided DOD's perspective on the full funding policy. He began by summarizing the history of the policy in a fashion very similar to the above excerpt from the 1969 GAO report: He stated that the policy was first applied to the Navy shipbuilding program authorized by the act of March 10, 1951, and "That once the principle was established for shipbuilding it was gradually applied to procurement programs in general." He cited the May 15, 1957 letter to the Secretary of Defense from Representative Mahon and the Secretary's issuance on May 21, 1957, of DOD Directive 7200.4, which he, like GAO, characterized as "responsive to the suggestions expressed by Congressman Mahon in his letter of May 15, 1957." He stated that In 1961, because of the problems that were developing as a result of the exception for shipbuilding wherein costs for changes and escalation were not being included in the original budget request, the Department [of Defense] proposed, and both the House Appropriations Committee and the Senate Appropriations Committee concurred the funds should be included for all predicted costs through completion of ship construction. He stated that as a result of GAO's 1969 report, "DOD directive 7200.4 was updated and strengthened on October 30, 1969. This version of the directive continues in full force and effect today." He then noted the endorsement of the policy in the 1973 House Appropriation Committee report. As part of a list of "some considerations which are derivative from the policy," he stated: Once funds are appropriated by the Congress, the principle creates an incentive for us to try to manage the program within our estimate.... The whole system for the reprogramming of funds for procurement and military construction programs, a system which has been carefully worked out with the Congress over many years, is predicated on the full funding principle. If we were able to apply all current year funds to current year requirements and defer consideration of cost growth to the year in which the expenditure would be required, the Congress and the public would lose substantial visibility.... If major procurement and construction programs were incrementally funded, future Congresses would be committed to financing the balance of incremental starts.... Incremental funding would inject more uncertainty into our planning and cause the defense industry to be more skeptical of the stability of DOD procurement and construction programs. This, we believe, would translate into higher costs because long-term, cost-saving capital investments are highly dependent upon perceived program stability. Comparing full funding to incremental funding in terms of its effects on unobligated balances, he stated: Now, if the objective were to reduce unobligated balances, this incremental approach does that. However, some unobligated balances would still be required to cover contingencies, termination liabilities, and other uncertainties. The key point, in my judgment, centers on the fact that the expenditures, under both approaches, are the same. It is expenditures and not unobligated balances which influence the Government's need to borrow money. Since the approaches are equal in this regard, the Department of Defense continues to prefer full funding for procurement and military construction because of the stronger management control and discipline inherent in this policy. While there is the temptation to reduce a given fiscal year's budget by abandoning the full funding policy and applying prior year unobligated balances, this temptation should be resisted. The net result would be little change in our annual requests for appropriations. Instead of dealing with the full cost of new starts in our procurement and construction programs, the Congress would have to address not only the incremental costs of new starts, but also the incremental requirements of previously approved programs. In the absence of any advantages of incremental funding in the areas of reduced expenditures or requirements for budget authority, the advantages of full funding in the other areas I mentioned are evident. When asked whether DOD has experienced any operational or procedural problems with the full funding policy, he replied: We have. We like the policy, but nothing is free. There are two kinds of problems, basically—those internal and those external. The external ones I think you are familiar with; primarily the criticism of our unobligated balances. We basically feel if you go for the principle which is good you have to accept the unobligated balances. I will discuss the internal ones. Basically, they are the human resistance to discipline. We expect a fully funded program to be some sort of commitment on the part of the program manager that he can produce that program, that end result, that thing, at that price and what often happens is people do not like to do that. They want to get their foot in the door—they want to get us; they want to get OMB; they want to get the Congress committed to programs to the point where we have to bail them out. Almost all the internal procedure problems stem from that. We have to review, as almost every level in DOD does, the cost estimates to make sure they are realistic and achievable. We have not always been successful. Again, going back to the shipbuilding program which is most dramatic, we have to include line items for cost growth and escalation because our original estimates were not adequate particularly in a period of high and unpredicted inflation. We have resisted that in recent years successfully but it can be a problem when you run into unexpected inflation or any other unexpected amounts. When asked whether he thought DOD has saved any money by using the full funding approach, he replied: Yes, sir, sometimes at some expense to other programs, that is in enforcing the discipline. In some cases, rather than come back to the Congress for the [additional needed] money, we have had to cancel programs in order to complete others, or have had to reduce some programs in order to complete others, but we certainly feel the discipline on the program manager has paid off substantially because he does know that he has made a commitment and he will have to live with it and that he or some fellow program manager will suffer if he does not come in at the budgeted price. Later in the hearing, he stated: By appropriating the money on a full finding basis, you automatically subject it to the reporting and accounting discipline of the agencies involved. In addition, you have an obligated balance to look at under full funding. You do not have any unobligated balances to look at under incremental funding. You have no measure on the books. You have no original plan which you can hold the agency to and actually expect them to reflect on the books. They can come up every year and explain what happened in the preceding year, but not by month [sic]. You cannot see how the project manager is spending against his original estimate and his obligation against his original estimate. It [full funding] gives you on the books of the Government, a record. At this same hearing, W. Bowman Cutter, Executive Associate Director for Budget at OMB, testifying in support of the Carter Administration's proposal to apply the full funding concept more comprehensively through the federal budget, stated: The President believes that full funding is desirable because it: Provides a clearer understanding of the total effect of budget proposals , since full funding requires appropriations in terms of total costs for an entire project at the time any funding is provided. Increases flexibility in programming and the ability of the Government to speed up the project if changes in economic conditions warrant acceleration. Permits construction progress at more economic rates with resulting savings to the Government by providing program continuity and eliminating uneconomic start-up and stop costs that sometimes accompany incremental funding. Donald Scantlebury, Director of Financial and General Management Studies at GAO, stated at the hearing: The significance of the full-funding concept is that it permits an agency to contract for the full cost of an item or items, such as ships, with the knowledge that full obligational authority is available to complete the item or items and that completion of the work will not be held up or stretched out by budget cuts or funding delays. Prior to the institution of full funding, funds were provided in annual increments. Shipbuilding has often been used as an example of explaining the full-funding concept because of the length of procurement lead which ranges from 3 to 7 years depending primarily on the type of ship.... Each year authority was granted for only a portion of the ship or ships being contracted for. Over the length of the contract budget reductions and constraints could delay timely completion of the ships and result in additional cost of the total ship.... We believe that full funding has the advantage of permitting agencies to complete long-term projects at optimum efficiency and reduces delays caused by funding restraints. 1996 GAO Report A 1996 GAO report on budgeting for federal capital assets stated: Despite the potential problems for individual agencies, up-front funding is critical to safeguarding Congress's ability to control overall federal expenditures and to assess the impact of the federal budget on the economy. Without up-front funding, projects may be undertaken without adequate attention being given to their overall costs and benefits. Moreover, failure to fully funding projects before they are undertaken can distort the allocation of budge resources and obscure the impact of federal budgetary action on the private sector. Only a few agencies, including the Army Corps of Engineers (one of our case studies) have been exempted from the up-front funding requirement. Despite these agencies' use of incremental funding, OMB has taken steps to encourage consistent application of up-front funding across government in the future. The report amplified on these points two pages later: Although possibly problematic for individual agencies, up-front funding has long been recognized as an important tool for maintaining governmentwide fiscal control. The requirement that budget authority be provided up-front, before the government enters into any commitment, was established over 100 years ago in the Adequacy of Appropriations Act and the Antideficiency Act. These acts responded to past problems in which agencies committed the government to payments that exceeded the resources made available to them by Congress. The importance of the principle was reinforced by the 1967 Report of the President's Commission on Budget Concepts, which emphasized the primary purposes of the budget as being the efficient allocation of resources and the formulation of fiscal policy to benefit the national economy. The up-front funding requirement advances both. It is essential for efficient resource allocation decisions because it helped ensure that the Congress considers the full cost of all proposed commitments and makes trade-offs based on full costs. To be useful in the formulation of fiscal policy, the budget must be able to highlight the impact of the federal budget on the economy. For this purpose, the requirement for up-front funding also serves the Congress well. The point at which capital spending has the largest and most direct economic impact on the private sector occurs at the point the commitment is made—that is, up-front—not over the expected lifetime of a long-lived asset. Failure to recognize the full cost of a particular type of expenditure when budget decisions are being made could lead to distortions in the allocation of resources. In other words, if particular types of spending, such as for physical assets, were given preferential treatment in the budget by virtue of recognizing only a fraction of their total cost, then it is likely that relatively more spending for those types of assets would occur. While advocates for purchasing some federal assets may see this as a desirable end, such an outcome may not accurately reflect the nation's needs. In particular, other types of federal spending that also provide long-term benefits but that are not physical assets (including research and development and spending for human capital) would be arbitrarily disadvantaged in the budget process, even if national priorities remain unchallenged. Furthermore, failure to fully fund capital projects at the time the commitment is entered into can force future Congresses and administrations to choose between having an unusable asset and continuing projects' funding for years even after priorities may have changed. For example, if the Congress provides funding for only part of a project and that part is not usable absent completion of the entire project, then the Congress and the administration may feel compelled to continue funding in the future to avoid wasting the initial, partial funding that was already spent. Thus, if capital projects are begun without full funding, future Congresses and administrations may, in effect, be forced to commit a greater share of their annual resources to fulfilling past commitments and thus have less flexibility to respond to new or changing needs as they arise. In the final chapter of its report, GAO stated: Full up-front funding is one of the tools that has been important to facilitating fiscal control and comparisons of the long-term costs of spending alternatives. An essential part of prudent capital planning must be an adherence to full up-front funding. When full up-front funding is not practiced, the Congress risks committing the government to capital acquisitions without determining whether the project is affordable over the long-term. Incremental funding also compels future Congresses to fund a project in order to prevent wasting resources previously appropriated. As budget constraints continue, incremental funding may lock the Congress into future spending patterns and reduce flexibility to respond to new needs. In the budget process, fully funded projects may be disadvantaged in competition with incrementally funded projects—even when the fully funded projects actually cost less in the long run. However, full up-front funding can impede agencies' ability to economically acquire capital in an environment of resource constraints. Full up-front funding of relatively expensive capital acquisitions can consume a large share of an agency's annual budget, thereby forcing today's decision-makers to pay all at once for projects with long-lived benefits. While various capital budgeting proposals have been advanced to address this, the proposals themselves have raised significant concern because of their potential diminution of fiscal accountability and control. Consequently, agencies need financing tools that can provide the fiscal control of up-front funding and can enable them to make prudent capital decisions within the current unified budget frame work. GAO observed and concluded the following: The requirement of full up-front funding is an essential too in helping the Congress make trade-offs among various spending alternatives. However, in an environment of constrained budgetary resources, agencies need tools that can help facilitate these trade-offs and that enable them to accommodate up-front funding. Furthermore, to successfully implement GPRA's requirement for program performance measures, managers will also need to know the full costs of their programs—including capital usage. Some have recommend that the government adopt a full-scale capital budget, but this raises major budget control issues and may not be necessary to address agency-identified impediments to capital spending. Rather, our case studies demonstrate that more modest tools, such as revolving funds, investment components, and budgeting for stand-alone stages, can help accommodate up-front funding without raising the congressional or fiscal control issues of a separate capital budget. As a "matter for congressional consideration," the GAO report recommended the following: Although requiring that budget authority for the full cost of acquisitions be provided before an acquisition is made allows the Congress to control capital spending at the time a commitment is made, it also presents challenges. Because the entire cost for these relatively expensive acquisitions must be absorbed in the annual budget of an agency or program, fixed assets may seem prohibitively expensive despite their long-term benefits. This report describes some strategies that a number of agencies have used to manage this dilemma. The Congress should consider enabling agencies to use more flexible budgeting mechanisms that accommodate up-front funding over the longer term while providing appropriate oversight and control. For agencies having proven financial management and capital planning capabilities and relatively small ongoing capital needs, these techniques could include revolving funds and investment components. Such techniques enable agencies to accumulate resources over a period of years in order to finance certain capital needs, promote full costing of programs and activities by including costs related to capital usage in program budgets, and provide a degree of funding predictability to aid in long-range planning. As GPRA move toward full implementation, these and other tools may take on increasing importance in helping managers and the Congress to identify program costs and to more efficiently manage capital assets. 2001 GAO Letter Report and Briefing In response to an August 2000 request from the Senate Budget Committee, the GAO prepared a briefing on incremental funding of capital asset acquisitions, including an assessment of "the implications for future DOD budgets if the Navy's shipbuilding and conversion account were to change from incremental to full funding...." The briefing was given to the staff of Senate Budget Committee in December 2000, and was subsequently given to staff from the Senate Armed Services Committee, the Senate Appropriations Committee, and the House Appropriations Committee. In February 2001, GAO prepared a letter to the Senator Pete Domenici, the chairman of the Senate Budget Committee, and other congressional recipients, summarizing the briefing and enclosing the briefing slides. As summarized in the letter, the GAO briefing concluded the following, in part: If the Navy shipbuilding and conversion account were to be moved from full to incremental funding for a given period of time, this would not allow the Navy to procure more ships for a given amount of funding. Additional ships would require additional funding. After the initial year, incremental funding reduces the amount of budget authority available to fund new ships in any given fiscal year because a portion of the funding must be devoted to completing ships partially funded in prior years. In addition, there is risk of cost growth associated with all capital projects—cost growth has occurred with fully funded projects as well as incrementally funded projects. Any cost growth on ships partially funded in prior years would further reduce the funding available for new ships. In addition, costs and commitments continue beyond the year depicted in the briefing slides in all scenarios. There are several other budgetary implications as well as acquisition management issues related to incremental funding for the Navy and for agencies in general. In general, full funding ensures that the full estimated costs of decisions are recognized at the time that the commitment is made. Incremental funding erodes future fiscal flexibility for programs such as shipbuilding because funding is dedicated to completing procurements begun in previous years. According to DOD and OMB officials, incremental funding also limits cost visibility and accountability. These officials believe that acquisition estimates are likely to increase because there would be an incentive to "low ball" the estimate at the beginning. Additionally, contractors may hedge their bets on pricing because they may not be able to take advantage of economies of scale that can come with longer-term and more certain commitments. The use of incremental funding and lease-purchase arrangements in the past has had some negative consequences. For example, a 1996 GAO report cited incremental funding as a key factor underlying Department of Energy project cost overruns and schedule delays. Another GAO report found that the use of long-term leases for auxiliary ships in the 1970s and 1980s resulted in higher costs per ship. Promoting effective management of capital asset acquisitions is important. We recognize that some incremental funding for high technology acquisitions is justified because, while such projects are intended to result in a usable asset, they are closer in nature to research and development activities. However, for other capital projects, as we have previously reported, full funding is an important tool for maintaining governmentwide fiscal control. Failure to recognize the full costs of proposed commitments when budget decisions are made could lead to distortions in the allocation of resources.
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The full funding policy is a federal budgeting rule imposed on the Department of Defense (DOD) by Congress in the 1950s that requires the entire procurement cost of a weapon or piece of military equipment to be funded in the year in which the item is procured. Although technical in nature, the policy relates to Congress's power of the purse and its responsibility for conducting oversight of DOD programs. Support for the policy has been periodically reaffirmed over the years by Congress, the Government Accountability Office, and DOD. In recent years some DOD weapons—specifically, certain Navy ships—have been procured with funding profiles that do not conform to the policy as it traditionally has been applied to DOD weapon procurement programs. DOD, in recent budget submissions and testimony, has proposed or suggested procuring ships, aircraft, and satellites using funding approaches that do not conform to the policy as traditionally applied. DOD's proposals would establish new precedents for procuring other DOD weapons and equipment with non-conforming funding approaches. Such precedents could further circumscribe the full funding policy. This, in turn, could limit and complicate Congress's oversight of DOD procurement programs, or require different approaches to exercise control and oversight. A principal effect of the full funding policy is to prevent the use of incremental funding, under which the cost of a weapon is divided into two or more annual portions. Incremental funding fell out of favor because opponents believed it could make the total procurement costs of weapons and equipment more difficult for Congress to understand and track, create a potential for DOD to start procurement of an item without necessarily stating its total cost to Congress, permit one Congress to "tie the hands" of future Congresses, and increase weapon procurement costs by exposing weapons under construction to uneconomic start-up and stop costs. Supporters of incremental funding, however, could argue that its use in DOD procurement programs could produce certain advantages in terms of reducing disruption to other programs, avoiding investment bias against very expensive items, improving near-term production economies of scale, and preserving flexibility for future Congresses to halt funding for weapons under construction that have become unnecessary or inappropriate. Congress has several options for responding to recent proposals for procuring DOD ships and aircraft with funding mechanisms that do not conform to the full funding policy. These options could have the effect of terminating, modifying, maintaining, or strengthening the full funding policy. In weighing these options, Congress may consider several factors, including Congress's power of the purse, its ability to conduct oversight of DOD procurement programs, the impact on future Congresses, DOD budgeting discipline, and the potential impact on weapon costs. The process of weighing options may involve balancing a need to meet DOD procurement goals within available funding against the goal of preserving Congress's control over DOD spending and its ability to conduct oversight of DOD programs. This report will be updated as events warrant.
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Recent years have been times of significant changes in the income tax treatment of the family. For lower-income families, the most important of these have been the expansion of the earned income credit (EIC) in 1990, 1993, and 2009. For middle-income families, the introduction of the child credit in 1997 and its expansion in 2001, along with the expansion of rate brackets and standard deductions to address the marriage penalty, have been important features. For higher-income families, the lowering of tax rates in 2001 are important changes. In December 2010, the 2001-2003 tax cuts, which were set to expire after 2010, were extended for an additional two years ( P.L. 111-312 ). The American Taxpayer Relief Act of 2012, P.L. 112-240 , made these provisions permanent for all except a tiny fraction of taxpayers. The American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ) contained temporary provisions that are aimed at middle-class and lower-income families. These provisions included a refundable payroll tax credit based on earnings limited to $800 for joint returns ($400 for singles) and phased out as income rises. It also includes an increase in the earned income tax credit, with a higher rate of 45% for families with three or more children and an increase in the phase-out level for joint returns, aimed at reducing the marriage penalty. It also included a provision increasing the refundability of the child credit by allowing some refundability for incomes over $3,000. A jobs bill passed in the House in December ( H.R. 2847 ) temporarily eliminated the $3,000 floor for 2010. These provisions expired after two years, although P.L. 111-312 extended the $3,000 child credit floor and earned income credit provisions for two additional years. These provisions were extended through 2017 by the American Taxpayer Relief Act of 2012 ( P.L. 112-1240 ) and made permanent at the end of 2015 by the Protecting Americans from Tax Hikes (PATH) Act ( P.L. 114-113 ). The child credit and the earned income credit have their largest relative impact on low-income taxpayers. Although an array of issues might be considered in discussing tax rules and their effects, this paper considers two questions in detail: (1) to what extent does the tax code provide an equitable treatment of families of different sizes, and (2) what are the effects of the tax code on marriage penalties and bonuses? The first section summarizes the major features of the tax law affecting families and family choices, and how they developed over time, including the relatively recent introduction of large benefits for children at low and moderate income levels, a reversal of a trend in the past that tended to reduce these benefits through the erosion of the real value of the personal exemptions. It also summarizes the origin of the marriage penalty and marriage bonus. The following two sections first discuss general equity issues, and then apply the ability-to-pay standard to examine how tax burdens vary by family size, across the income spectrum. The final section examines the marriage penalties and bonuses. Current federal income tax law differentiates among families by type and structure in several ways. This differentiation has changed considerably over the years and includes personal exemptions, standard deductions, rate schedules, and various other features such as child care credits, age exemptions, and earned income credits. A number of rules are differentiated by the type of tax return. Joint returns are filed by married couples, head-of-household returns by single heads with dependents, and single returns by singles without dependents. Personal exemptions allow a certain amount per person to be exempt from tax. Combined with standard deductions, which vary by family type, they exclude a minimum level of income from tax. In 1986, these combined amounts were roughly set at the poverty level. Personal exemptions can also play a part in marriage bonuses when only one spouse works: a single individual cannot claim an unmarried companion as a dependent, whereas a husband can claim a wife (and vice versa). The tax laws have always allowed some relief for family size through exemptions, although the original 1913 act allowed deductions only for the individual taxpayer ($3,000) and spouse ($1,000). These amounts were very large relative to incomes, but the initial income tax was not intended to reach a broad group of individuals. Even when dependent exemptions were allowed in 1917, they were only $200, small relative to the basic exemptions. The practice of allowing an equal exemption for each family member began in the early 1940s. Personal exemptions were reduced in the initial years of the tax, then increased, then reduced again; they were last reduced in the early 1940s. The real value of the exemptions was also affected by inflation. For example, the personal exemption remained constant at $600 from 1948 through 1969, while its real value was heavily eroded through inflation. It was gradually increased over the next 10 years to $1,000, where it again remained constant until 1985. From 1948 through 1984, the personal exemption lost 63% of its purchasing power. In large part due to diminution of the real value of personal exemptions, the tax burden had shifted over time to fall more heavily on larger families. In 1986, personal exemptions were increased and indexed, so that today the personal exemption of $4,050 has lost only about 21% of its purchasing power. This shift of burden to families with children was changed dramatically by the adoption of the $500 child credits in the Taxpayer Relief Act of 1997 and by the increase in that credit to $1,000 in the Economic Growth and Tax Relief Reconciliation Act of 2001. The $500 increase in the credit (to $1,000) has been made permanent. In the cases where these credits apply (for children under 17), they cause the personal exemption plus the deduction equivalent of the $1,000 credit to be 110% larger than its 1948 value for families in the 15% rate bracket. The credit is not, however, indexed for inflation, and absent indexation its real value will diminish. The $500 increase in the credit has been made permanent. Not all taxpayers receive the credit. It is phased out for higher incomes at 5% of adjusted gross income (for 2016) over $110,000 for joint returns and $75,000 for head-of-household returns. The initial credit was not generally refundable, and therefore families with no tax liability or insufficient liability to use the full credit would not receive the full benefit. An exception was made for families with three or more children, where the credit could offset payroll tax in excess of the earned income tax credit. When the child credit was doubled under the temporary provisions of the 2001 tax, an additional refundability provision was allowed for all families for income in excess of $10,000 (beginning at 10% and rising to 15%), indexed for inflation. The additional child credit was phased in initially, but accelerated in legislation adopted in 2003 and 2004. The current rule, adopted initially in 2009 and made permanent in 2015, allows refundability for 15% of income over $3,000. The personal exemption is also phased out for higher incomes, although that phaseout now applies only to very high income taxpayers. For 2016, the personal exemption is phased out between $311,300 and $433,800 for joint returns, between $285,350 and $407,850 for head-of-household returns, and between $259,400 and $381,900 for single returns. Standard deductions, which vary across the types of returns (single, joint, and head of household), also affect tax burdens across families. Standard deductions are beneficial when itemized deductions (such as taxes, mortgage interest, and charitable contributions) are smaller than the standard amount. Prior to the 2001 tax revision, the standard deductions for singles and heads of household were 60% and 80%, respectively, of the size of the deduction for joint returns. The standard deduction can contribute to a marriage penalty if it is larger than half the deduction for married couples: two singles who both work and marry will have a smaller combined deduction. It can also contribute to a marriage bonus, if there is only one earner in the couple, because the joint deduction is larger than the single deduction. In 2001, joint standard deductions were increased, so as to eliminate the marriage penalty relative to singles without children and reduce it relative to heads of household (where the deduction is 73% as large). These changes increased the marriage bonus. Current standard deductions (for 2016) are $12,600 for joint returns, $9,300 for head-of-household returns, and $6,300 for single returns. Virtually from its inception, the tax law allowed itemized deductions for taxes, interest, charitable contributions, and certain other personal expenses. In 1944, a standard deduction of 10% of adjusted gross income with a ceiling of $500 was allowed as a substitute for these itemized deductions. A major reason for this exemption was to reduce the number of itemizers and make tax filing less complex. In 1964, a minimum standard deduction of $200 plus $100 for each exemption with a $1,000 ceiling was added. Beginning in 1969, these standard deductions were increased substantially. The percentage standard deduction was gradually increased to 16% and the ceiling increased to $2,000. A low-income allowance of $1,100, to be reduced by $50 in each of the next two years, was substituted for the minimum standard deduction. (These reductions were included because of the rise in the personal exemption that was increasing total exempt amounts.) The low-income allowance was increased to $1,300 in 1972. In 1975, the low-income allowance was once again differentiated, but based on family type (joint, head of household, single) rather than size. Joint returns received a $2,100 allowance by 1976. The ceiling on the percentage standard deduction was also differentiated by family type and was raised to $2,800 for joint returns by 1976. In 1977, the low-income allowance and the percentage standard deduction were consolidated into a single flat allowance called the zero-bracket amount, which was set at $3,200 in 1977 and at $3,400 in 1978. This zero-bracket amount was indexed in 1981, so that it would rise with inflation. The Tax Reform Act of 1986 raised the flat deduction amount, but continued to differentiate it with respect to family status (but not family size). The 2001 act increased the standard deduction for joint returns to twice that of single returns. In comparing the relative benefits over time, it is important to consider the changes in all flat allowances as well, not just the personal exemption. For example, while the real value of the personal exemption has declined about 21% since 1948, the exempt amount for a family of four (joint return) was very close to the exempt amount had 1948 values been indexed for inflation (using the GDP deflator) prior to the 2001 tax changes. Current levels are about 27% larger than those that would have occurred had the exempt level in 1948 been indexed. Ignoring the child credit, most families have more generous exempt levels today, with smaller families having larger relative amounts. For example (again, ignoring the child credit), exempt allowances are larger in real terms today for singles (83% larger), for heads of households with one child or two children (53% and 26% larger, respectively), and for joint returns with one to four children (46%, 27%, 16%, and 9% larger, respectively). Real levels are larger for heads of household with four and five members (12% and 4%) and about the same for a six-person family. Heads of household and joint returns with children eligible for the child credit, however, have greater exempt levels, although the size depends on the imperfect refundability of the child credit and the phaseout. But the effects are large. For example, a married couple with an eligible child can have income of $24,450 (standard deduction plus three personal exemptions) plus another $10,000 to generate a $1,000 child credit at a 10% tax rate, for a total exempt level of $34,400, which is 104% larger in real terms than the 1948 value. This family will also receive an earned income credit and thus pay a negative tax rate. Note, however, that changes in benefits compared with past levels do not necessarily have implications for the appropriate treatment of different families. If past family differentiation was not due to a theory about equitable treatment of differing families, there is no economic reason that current tax treatment should conform to any past standards. Most taxpayers take the standard deduction but about a third itemize, largely at the higher-income levels. Itemized deductions tend to keep pace with income levels. They are technically subject to a phaseout but the effect of the phaseout is to increase marginal tax rates, since it is triggered by income and not deductions and since it is unlikely to exhaust deductions, which rise with income. The phaseout is 3% of income in excess of the same starting point as the phaseout of personal exemptions. The most significant itemized deductions in dollar terms are the deduction for state and local taxes, the mortgage interest deduction, and the deduction for charitable contributions. Two important aspects of the rate structure are the unit of taxation and the progressivity of the rate structure (i.e., how tax rates rise as increments of income increase). Current tax rates are imposed at 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. Under the provisions of the 2001 tax cut, the 39.6% rate had been eliminated, and the top rate was 35%; those provisions were originally scheduled to expire in 2010, with the 10% rate rising to 15% and the top four rates rising to 28%, 31%, 36%, and 39.6%. The American Taxpayer Relief Act of 2012 ( P.L. 112-240 ) made the lower rates permanent except for the highest rate for joint returns with over $466,950 of taxable income in 2016 and single returns with over $415,050 of taxable income in 2016. Taxes are imposed on family units. Married couples cannot use the single rate schedules (although they can file separately with a rate structure that offers no advantage over joint filing). Most taxpayers have income that is not adequate to generate any tax (24% of returns) or taxes them at no more than 10% (18% of returns), no more than 15% (29% of returns), and no more than 25% (17% of returns). The width of the brackets is greatest for joint returns and smallest for singles, although all types of returns reach the 35% rate at the same point. For single returns the 10% and 15% brackets are half the width of joint returns, the 25% bracket is 70% as large, and the next two brackets are about 124% as large (longer brackets at the top being necessary to get to the same income for the top bracket). For heads of household the 10% and 15% brackets are 72% and 66% as wide, the next two about the same length and the final bracket 111% as wide. There are also, as noted earlier, phaseouts of itemized deductions, personal exemptions, and child credits at higher-income levels. The higher rates and the phaseouts apply to only a small fraction of taxpayers. Less than 17% of taxpayers had adjusted gross income over $100,000 in 2014, and less than 6% had incomes over $200,000. In the original 1913 tax law, a single rate structure was applied to all taxpayers as individuals. In 1948, joint returns were allowed that effectively permitted income splitting. This change had little to do with any theory regarding the tax treatment of the family. Rather, it occurred because married couples in community property states were successfully claiming the right to divide their income evenly for tax purposes. Under a graduated rate structure, this income-splitting reduces the total tax burden by reducing the amount of income subject to higher rates. Income-splitting was adopted to equalize treatment across the states and to forestall a major tax-induced disruption in state property laws. This move created the familiar joint and single returns. Both the community property treatment and the legislated income-splitting resulted in a tax subsidy for marriage. Individuals who married would experience lower tax liabilities due to the rate structure as long as their incomes were unequal. Shortly after, in 1951, a head-of-household schedule for unmarried taxpayers with dependents was introduced, which allowed half the benefits from income-splitting (i.e., wider tax brackets). This treatment could, in theory, create a marriage penalty for families with children, although this point received virtually no attention. Criticism from singles, arguing that their taxes were too high, led in 1969 to a singles rate schedule with wider brackets. This difference in rate schedules, however, also created a marriage penalty for certain types of families, including those without children. If both spouses worked, tax bills could increase with marriage. Many people were uncomfortable with a tax provision that encouraged couples to live together without benefit of matrimony. Coupled with increasing female labor force participation and a changing social structure, the marriage penalty created considerable concern. For this reason, a capped deduction for the secondary earner in a family was adopted in 1981. The provision allowed 10% of income to be deducted, subject to a cap of $3,000. This deduction was an imperfect device that partly alleviated the problem of the marriage penalty and, for individuals below the cap, reduced the marginal tax rate on the secondary worker. It was repealed in 1986, when the flatter rate structure caused the marriage penalty to be less severe. The marriage penalty was increased for very high-income individuals in 1993 with the addition of higher tax rates. These changes affected, however, only a very small fraction of the population. The degree of progression in the rate structure interacts to affect the tax burden that applies to taxpayers in different circumstances. The rate structure has varied significantly over time, but a major revision in the 1986 act reduced the brackets to two (15% and 28%) as well as lowering the top bracket. Certain benefits were phased out. In 1990, the "bubble" due to these phaseouts was eliminated in exchange for adding a new tax rate of 31%. (Capital gains were held to a 28% rate.) However, personal exemptions were still phased out. Itemized deductions were also phased out, on a temporary basis, reduced by 3% of adjusted gross income (AGI) above a limit. Because itemized deductions tend to rise with income faster than the reductions due to the phaseout, this phaseout is the equivalent of increasing taxable income by 3%, and an additional percentage point or so in tax. (Each dollar of adjusted gross income taxed leads to a reduction in deductions of $0.03, and if the marginal tax rate is around a third, then the additional tax per dollar of income is around $0.01.) In 1993, two marginal tax rates were added at the upper income levels, 36% and 39.6%; this legislation made the itemized deduction and personal exemption phaseouts permanent. The 2001 tax cut, in addition to lowering the top tax rates and introducing a new 10% rate, eliminated the marriage penalty for most taxpayers by increasing the standard deduction, new 10% rate bracket, and the 15% rate bracket to make these values twice as large as for singles, returning to the pre-1969 treatment for most taxpayers. That tax cut also prospectively eliminated the personal exemption phaseout (to begin in 2006 and be complete in 2010) and the itemized deduction phaseout (in 2010). Later legislation in early 2013 ( P.L. 112-240 ) eliminated these phaseouts for all but the highest-income taxpayers. The earned income tax credit (EIC) is a refundable credit (or negative tax) that provides a wage subsidy for low-income working individuals. The credit is a percentage of earned income, which reaches a maximum fixed amount that continues over a segment of income and then is eventually phased out. The permanent credit rates are currently 7.65% for families without children, 34% for families with one child, 40% for families with two children, and 45% for families with three or more children. The phase-out rate is 7.65% for families with no children, 15.98% for families with one child, and 21.06% for families with two or more children. The phase-out levels are higher for families with children than for those without children. In 2016, the year data were analyzed, the credit reached its maximum value of $506 for families with no children at an income of $6,610; the credit was phased out at incomes between $8,270 and $14,880 for singles and between $13,820 and $20,430 for joint returns. For families with one child, the maximum credit of $3,373 is reached at $9,920; the credit is phased out between $18,190 and $39,296 for single heads and between $23,740 and $44,846 for married couples. For families with two children, the maximum credit of $5,572 is reached at $13,930 and is phased out between $18,190 and $44,648 for single heads and between $23,740 and $50,198 for married couples. For families with three or more children, the maximum credit of $6,269 is reached at $13,930 and is phased out between $18,190 and $47,955 for single heads and between $23,740 and $53,505 for married couples. These values are indexed for inflation. Unlike some other provisions, there is no differentiation by family type except for the phase-out ranges; rather, the differences, like the child credit, depend on the number of children. The EIC plays a role in creating a marriage penalty for lower-income families. If individuals with low earnings marry, the couple's higher combined income may phase out more of the earned income tax credit. At the same time, marriage can reduce taxes if a single individual marries someone with children but with little or no income, because he or she becomes eligible for the larger credit for families with children. The EIC has also been found to encourage single parents to enter the workforce. The EIC was first enacted in the Tax Reduction Act of 1975 ( P.L. 94-12 ). This provision provided a refundable tax credit for 10% of earned income, phased out at a rate of 10% of income over $4,000. Because the credit was refundable, individuals who paid no income tax were nevertheless eligible for a benefit. There were a variety of rationales for the EIC: to provide a work incentive, to offset the Social Security tax burden, and to provide relief for recent price increases in food and fuel. The credit was, however, only allowed to individuals who maintained a household for dependent children; thus, like the major welfare program of the time, AFDC (Aid to Families with Dependent Children), the EIC as originally enacted was not extended to singles and childless couples. The EIC has been revised in various ways, and in 1990 was differentiated between families with one or with two or more children. In 1993, the credits were increased substantially and a small credit was added for families without children. The 2001 tax cut expanded the phase-out range for married couples, which slightly reduced the marriage penalty in the EIC. The American Recovery and Reinvestment Act ( P.L. 111-5 ) made two temporary changes to the credit beginning in 2009: an increase in the credit rate to 45% for families with three or more children and an increase in the phase-out level for married couples. These provisions were extended on two occasions and were made permanent by the PATH Act ( P.L. 114-113 ). These provisions benefit large low-income families and reduce the marriage penalty. Another provision allows for credits for paid child care expenses for children under 13 and disabled dependents. A deduction for these costs was first allowed in 1954 and converted to a credit in 1976. The credit is 35% of eligible expenses but is phased down to 20% as income rises from $15,000 to $43,000. Eligible expenses are limited to $3,000 for one child and $6,000 for two or more children. The credit is available only to single parents or married couples where both parents work and is limited to the smaller earned income. It is not indexed for inflation. The alternative minimum tax (AMT) calculates a tax on a broader income base with a large flat exemption (in 2016, $83,800 for married couples and $53,900 for singles) and at rates of 26% and 28%. Exemptions are phased out by 25% of AMT taxable income greater than $159,700 for joint returns and $119,700 for other returns. The 28% rate applies at AMT taxable income greater than $186,000. If the AMT tax is higher than the regular tax, the difference in tax is added to the taxpayer's liability. Currently, the AMT does not affect very many taxpayers. Because its effect grows over time unless legislative changes are made, including an increase in the exemption and indexing of the exemptions, numerous temporary "patches" have been enacted. The American Taxpayer Relief Act of 2012 ( P.L. 112-240 ) made this patch, which indexes exemptions for inflation and prevents the spread of AMT coverage into lower incomes, permanent. The AMT originated in 1969 as an add-on tax on tax preferences, and the most important preference was capital gains. At that time, there was an exclusion for a share of capital gains, and the excluded share was taxed under the add-on tax. The add-on tax was eventually paired with and then displaced by the AMT. In 1986 the capital gains preference was ended, and the number of individuals affected by the tax, already small, fell further. Over time, however, the coverage of the AMT began to grow as rates increased and because the exemption was not indexed, while exemptions in the regular tax were. The potential coverage was also increased with the 2001 tax cut, which cut regular rates but not AMT rates. The focus of preferences has also changed. The preference for capital gains enacted in 1997 and extended in 2003, and for dividends enacted in 2003, was not included in the AMT. The major preference items are personal exemptions and certain itemized deductions. (The child credit was allowed against the AMT after it became clear that failure to do so would push many families onto the tax.) In addition to these basic provisions—rate structures, personal exemptions, standard allowances, and credits—several other provisions related to family structure are summarized here, although the subsequent analysis focuses on these basic provisions. First, there are specific provisions that relate to family structure or characteristics. There are additional standard deductions for elderly and blind taxpayers (provisions that give little benefit to high-income individuals who tend to itemize deductions). In addition, there is a 15% tax credit for the elderly and disabled that is phased out; because the base for the credit is offset by Social Security, it tends to benefit elderly and disabled individuals who do not receive Social Security. Another explicit family tax provision, originally adopted in 1986, is the "kiddie tax," which taxes unearned income of children under the age of 14 at the parents' tax rate; this provision expanded to apply to those under the age of 18 in 2006 and under the age of 19 in 2008. A taxpayer might have a variety of exclusions (some Social Security benefits, welfare payments, in-kind benefits, employer-provided fringe benefits such as health insurance or employer-provided child care) and deductions or credits (medical expenses, educational expenses), which benefit families of certain income levels and characteristics. Moreover, because the tax law does not apply to certain imputed income, families who prefer owner-occupied homes or in-home provision of goods and services, or the consumption of leisure over other goods, have greater tax benefits. These benefits are, in some cases, associated with family characteristics. For example, families with higher incomes and at certain ages are more likely to live in owner-occupied homes. One-earner married couples benefit from the services provided in the home by the nonworking spouse, which are not subject to tax. Investment income may be treated favorably for a variety of reasons, not only because of the benefits of imputed rent on owner-occupied housing, but also because of various benefits such as tax-exempt retirement accounts and tax preferences such as accelerated depreciation. These provisions largely affect upper-middle and higher-income taxpayers. In the structural analysis that follows, all income is treated as subject to ordinary rates. Finally, the payroll tax can alter the relative net tax burden between different types of families, with consequences that could matter for concerns of equity and efficiency (such as work choice). The Social Security system may confer a marriage bonus that can increase the implicit tax on work effort for second earners. Spouses receive a benefit, without necessarily paying any payroll taxes of their own; a second-earner spouse pays additional Social Security taxes but his or her benefit is only the net of a benefit based on the individual earnings record and the benefit for spouses—and this amount may not be positive. That is, the spouse's benefit based on the partner's earning record may be better than the benefit a spouse receives on his or her own earnings record, and there is, therefore, no return to payroll taxes paid. Thus, the net tax on a second-earner spouse is effectively larger than it would be in the absence of a benefit for spouses, because little or no additional benefits occur as a result of those payments. There are also implicit taxes that affect behavior in the transfer system, where increases in income through work or marriage may cause a reduction in benefits, thereby discouraging these behaviors. Tax proposals can be evaluated on many grounds, but one issue is that of fairness. This issue of fairness can involve two elements: vertical equity, or the equity of changes in tax burdens as income rises for an otherwise identical family; and horizontal equity, or how taxes should be fairly differentiated between families of different sizes and structures. This analysis focuses primarily on the issue of horizontal equity, because this is an issue that can be addressed in a more analytical framework. First, however, the issue of vertical equity is briefly discussed. The individual income tax is progressive in rate structure and in actual outcomes: higher-income taxpayers pay larger shares of their income than do lower-income taxpayers, and at the lowest income levels taxpayers received overall subsidies through the EIC. Because the desired degree of redistribution cannot be easily established, issues of vertical equity involve value judgments to a considerable degree. By and large, overall effective tax rates are about the same for the top 20% of taxpayers compared to 1980, but rates for the remaining families have fallen. This reduction in effective tax rates for most taxpayers that began in the early 1990s probably reflects the changes in the earned income credit (which more than offset the growth in payroll taxes) and the child credit, as well as the introduction of a lower 10% tax rate bracket. How different tax revisions affect the progressivity of the income tax depends on several factors. First, a significant fraction of taxpayers do not have income tax liability. Positive income taxes do not apply in most cases until individuals are above the poverty line. In the Tax Reform Act of 1986, the combination of standard deductions and personal exemptions was set to roughly approximate the poverty line—the income levels above which families of different sizes are not considered poor. The allowances for single individuals are below the poverty line and cause some poor single individuals to be taxed. The expansion of the earned income credit and the addition of the child credit mean that taxpayers with qualifying children well above the poverty line would not be subject to tax. These taxpayers would not be affected by a tax cut. An exception is when tax cuts are refundable. An expansion of the EIC, which is a refundable credit (or negative tax), would affect low-income individuals. The child credit is also refundable in some circumstances. Certain types of revisions tend to benefit higher-income individuals, whereas others tend to provide little benefit to that group. For example, although lowering the top rates clearly benefited higher-income individuals in 2001, it is also clear that widening the 15% rate bracket for joint returns also benefited higher-income individuals. In 2000, prior to the tax cut, according to the Internal Revenue Service's statistical data, of 129 million returns, approximately 69 million returns paid tax at the 15% rate and another 25 million had no tax liability. Thus, the widening of the 15% bracket, which helped only those paying tax above that rate, benefited approximately the top 25% of taxpayers. Higher-income individuals are also more likely to itemize deductions, and changes that increase the standard deduction will tend to focus more benefits to moderate-income taxpayers than high-income taxpayers. Similarly, expansions of benefits that are phased out, such as the child credits, would not benefit high-income individuals. The 10% bracket also favored lower-income families. Horizontal equity has to do with equal treatment of equals and is an important focus of this analysis. For the income tax, this standard might mean that families of the same size with the same income should pay the same tax. But it could also be taken to mean that two individuals with the same income should pay the same tax. In a progressive tax system, these two standards can be incompatible, and indeed this incompatibility causes marriage penalties and bonuses in a system where the family is the tax unit. Thus, the basic challenge of assessing standards of horizontal equity is to determine how to treat different taxpayers equitably. First, the economic principles that could be used in that assessment are reviewed. Second, considered in further detail is the ability-to-pay concept, which seems most consistent with the equal-sacrifice principles of horizontal equity. As the recent history of the tax law suggests and the following discussion reveals, tax policy has not generally been guided by a consistent theory of fairness or equity across different types of families. Indeed, it is clear that many of the structural changes in the treatment of the family were haphazard. Income splitting, perhaps one of the most important aspects of family tax differentials, was adopted in reaction to a legal situation. Other changes were contemporary reactions to a set of complaints or concerns about behavioral response (such as the singles rate schedule or attempts to fix the marriage penalty). For taxation purposes, there are two fundamental attributes of families: the type of head (a married couple or a single individual) and the size. Families can be composed of single persons, single parents with children, childless couples, and married couples with children. And, in turn, there are two important features of the tax system that relate to these differences. First, should the unit of taxation be the individual, or the family? The U.S. tax system imposes taxes on families and differentiates in its rate structure between singles, head of households (single parents with children), and married couples. However, an alternative would be to apply a single rate schedule to each individual on his or her own earnings. Although some preference for this view of individual taxation may have to do with philosophical matters, one argument for treating the individual rather than the family as a taxpaying unit has to do with marriage neutrality and efficiency, discussed subsequently. That is, if individuals could be taxed solely on their own earnings, there would be no tax consequences of being married, and the married state would not affect incentives to work via tax differentials. The second issue is how one should adjust for family size, or, in the case of individual taxation, for the number of dependents. Despite the thrust of recent legislation that added substantial tax credits for children, some of the debate over differentiating by taxpayer characteristics has been over whether personal exemptions for dependents should be allowed at all. Under some theories of how the family should be taxed, no differentiation should be allowed for dependents; indeed, arguments are made that individuals should be taxed on their income without regard to their family arrangements. For that matter, individual taxation does not preclude allowances for number of dependents; rather, its focus is on treating working adults, even though married, as separate entities. (In practice, such a tax system must always deal with the possibility of income splitting of capital income by transfers of assets within the family, as well as the allocation of deductions.) Clearly, the family involves a social and economic unit that differs from unrelated groupings. Although taxation of the family has received limited attention in the economics literature, various principles have been advanced about how to treat family characteristics. Three such approaches are outlined here: treating living arrangements and children as personal choices that should not be addressed by the tax law, equating post-tax standards of living for families with the same pretax standard of living, and family assistance. This analysis does not consider another alternative principle of taxation, the benefit principle, which would set taxes to reflect the amount of government services received. It could be argued that large families, particularly families with children, are greater beneficiaries of public spending, such as education. Although some taxes are explicitly formulated as benefit taxes (e.g., the gasoline tax that is used to build roads), the individual income tax has generally been based on other principles, such as the ones described here. People are relatively free to choose whether to marry and have children, and an argument can be made that such choices should not lead to tax relief. From this perspective, if they choose to have children, they are not worse off, because the enjoyment they receive from their children outweighs any cost. Thus, one could think of children as part of the consumption of the parents. At a minimum, this approach suggests that no allowance be made for the additional cost of supporting children, treating the choice to have children as a consumption item, no different from the decision to consume food or clothing. Similarly, the choice of a spouse could be seen as a consumption or investment choice, which should not alter the tax paid by the individual or the combined tax of the two spouses. In this case, the individual should be the tax unit. Although the argument that children constitute consumption to their parents may be a defensible one, using this view as a guide to making tax policy is problematic. Even if the adults have made a choice, a troublesome aspect of this treatment of children as consumption is that it considers only the well-being of the parent or parents. Parents' tastes for children aside, the material level of consumption for children as well as for adults is affected by the number of others in the family. Some theories have suggested that children could be seen as an investment, perhaps for support in old age. There is some justification for this theory of parental motivation, although it must surely be less than universal because many parents leave bequests to their children, rather than being supported by them in old age. If investment were the objective of having children, then there would be some justification for tax relief, because the cost of such an investment should, in theory, be recovered; at the same time, returns (such as help in old age) should be taxed to the parents. Our tax system is not designed along these lines, and, in any case, the children-as-investment theory also suffers from a lack of focus on the well-being of the children. Another approach is simply that of ability to pay, which is the cornerstone of progressive taxation. Applying this ability-to-pay standard of taxation is straightforward in theory if one begins with the proposition that families with equal standards of living before tax should have equal standards of living after tax. If all family members were more or less identical in their needs and if all goods consumed were purely private in nature, this standard would suggest full income splitting of total family income among all members of the family. Merely, all family income could be divided evenly and then subject each share to an identical rate structure. In a progressive tax system, larger families would pay smaller taxes than smaller families with the same total income. One difficulty with this straightforward prescription is the existence of "club" goods within the family. Some goods are more or less purely private goods, such as food. If one person consumes food, it is not available to anyone else. Other goods have elements of a club nature (one person can consume the good without interfering with another's consumption). Such club goods include housing and some furnishings, reading materials, and the family car. None of these goods are pure shared goods because individual preferences may not be identical and congestion may occur, but they do provide scale advantages in consumption within a family. These scale advantages in family consumption are recognized in construction of the poverty line, which varies with family size, yet does not increase in full proportion to it. Another problem is that adults and children may differ in the amount of private goods they need or desire. If correct scaling of ability to pay by family size and characteristics were known, design of the income tax would be theoretically straightforward. The method would be as follows. Choose a representative family (e.g., a family of two). Devise the tax rate schedule to achieve the desired degree of progression, setting the exempt level at the poverty level or whatever other level is desired. The solution to horizontal equity is then, simply, an averaging approach. For example, consider a larger family that needs 50% more income than the basic reference family. This means that a larger family that has $75,000 of income should have the same average tax rate as a smaller (reference) family with $50,000 of income. Simply apply the basic tax rate schedule to two-thirds of the larger family's income and multiply the resulting tax liability by 1.5. This approach will produce the same effective tax rate for the larger family as for the reference family. (The larger family, which has more income, will still pay more taxes, but the fraction paid will be the same as that of the smaller family.) The two families will have the same (although smaller) standard of living after tax just as they had the same standard of living before tax. When exempt levels of tax are set roughly at the poverty rate, as was the intent of the 1986 Tax Reform Act, families whose income falls within the first rate bracket (the 15% tax bracket at that point) tend to have equal effective tax rates, if the relative poverty measures across families are correct (ignoring the earned income tax credit). These effects will not hold, however, when higher-income families are considered or when other provisions, such as the child credit and the earned income credit, are considered, or with a new small bracket such as the 10% bracket introduced in 2001. Moreover, families with one earner are better off than families with two earners at the same income because of the expenses of working, including child care, and the benefits of home production of the nonworking spouse. Thus, credits for child care expenses or allowances for working spouses can move the system toward more equitable treatment, at least vis-a-vis one-earner couples. At the opposite end of the spectrum is the notion of targeted family assistance, especially for lower-income families, and often targeted toward children. To accomplish this targeting, allowances for family size differentials (e.g., personal allowances) are often made refundable, they take the form of a credit rather than an exemption, and benefits are often phased out as incomes rise. Several of these features, including the EIC and the child credit, have made their way into current law. This view of family allowances differs from the philosophy that personal exemptions, along with other exclusions, should be used to exempt a minimum subsistence amount from the income base, the philosophy underlying the 1986 revisions, and one which is more in line with the ability-to-pay standard. Similarly, a benefit for child care would be more appropriately made through a deduction, if child care were viewed as one of the costs of working under an ability-to-pay approach. Proposals that are driven by this philosophy are often simultaneously addressing differentiation across family types and a vertical distribution objective. This objective is not necessarily inconsistent with the ability-to-pay objective addressed previously, even though it often appears to be because of the mechanisms chosen, such as credits that are phased out. For a given family size, any degree of vertical equity can be obtained through either exemptions or credits or by arranging the tax rate schedule appropriately. But, the differentiation across families at the same income level (or ability-to-pay) can be achieved only by selecting the sizes of personal exemptions for different family members. An ability-to-pay approach would include differentiation of families of different sizes at either high or low income levels. When a vanishing exemption or credit is chosen in the interest of vertical equity, the actual result is to allow no differentiation for family size at higher-income levels. Finally, it is important to recognize that the income tax system exists side-by-side with a welfare system, and many conclude that targeted family assistance might be better addressed through the welfare system. The ability-to-pay approach seems the most consistent and, to many, appealing of the three approaches to dealing with tax differentiation based on family size. This method considers the welfare of all in society rather than focusing exclusively on adults or children. One study used this approach to estimate effective tax rates in 2005, and how various provisions of the tax law affected these rates, using an equivalency scale similar to the variations in poverty lines across family types. Because the tax system has been indexed, the findings of this study, published in 2006, remain largely applicable, although income levels refer to 2005 values (excluding temporary provisions but including the alternative minimum income tax patch). This 2006 analysis, however, does not include the temporary benefits from the earned income credit and child credit that were adopted in 2009 and are now permanent. The remainder of this section updates the effective tax rate calculations to reflect 2016 income and tax law (including the changes in the earned income credit and child credit). In defining families that have the same ability to pay, an adjustment based on a research study used in the 2006 study and similar to that of adjusting for official poverty levels for different family sizes was used, which has a smaller adjustment for children than for adults. Under this standard, a single person requires about 62% of the income of a married couple; a couple with four kids requires about three times the income. Thus, for a married couple with no children with $20,000 of income, an equivalent single person would need slightly over $12,000, and a married couple with four children would need $60,000. Provisions included in the calculations are the rate structure, the most beneficial of standard deductions or itemized deductions (the latter are assumed to be 15% of income, with 5% of income reflecting state and local taxes included in the alternative minimum tax base), personal exemptions, the earned income credit, the child credit, and the alternative minimum tax. Table 1 reports the 2016 effective tax rates for low- and middle-income taxpayers at different levels of income, for family sizes of up to seven individuals, and for the three basic types of returns—single, joint, and head of household. Table 2 reports the tax rates for higher-income families. The column heading indicates the income level for married couples. Families in each column have the same estimated ability to pay, so that larger families have more income and singles and a head of household with one child have less. The rates across families should be compared by looking down the columns. For example, in Table 1 , a married couple with $25,000 in income pays 1.7% of income in taxes, but a married couple with one child with the same ability to pay receives a subsidy of 8.5%, whereas a single with an equivalent before-tax standard of living pays 3.3%. These numbers assume that dependents are children eligible for the child credit and that the families are eligible for the earned income tax credit (a provision not allowed for those over the age of 65 or for those without children under the age of 25). These are illustrative calculations that do not account for any other tax preferences and are designed to show how the basic structural, family-related features of the tax law affect burdens. Tax rates for returns paying the AMT are bolded. These tables suggest that the pattern of tax burden by family size varies across the income scale, as it reflects the complications of the earned income credit, the child credit, and graduated rates, including phase-out effects. Moreover, the variation across families that have the same ability to pay is substantial. At low incomes, families with children, whether headed by a married couple or a single parent, are favored because of the earned income tax credit and the child credit. The largest negative tax rates tend to accrue to returns with around three children, because the largest EICs are available for three or more children and the child credits increase with the number of children. The rate declines because larger families need more income, which may phase them out of the EIC. As incomes rise, families with children are still favored, but it is the largest families that have the largest subsidies or the smallest tax rates, because the combination of the personal exemptions and the child credit lowers taxes so much for these families. Eventually, large families began to be penalized because the value of the child credit and personal exemptions relative to income declines and larger families that require more income are pushed up through the rate brackets. That effect is increased because more families with children are subjected to the AMT since the personal exemptions are not allowed under the AMT rules. At higher-income levels, credits and exemptions begin to be phased out. As incomes reach very high levels, however, the rates converge as the tax becomes a flat tax. Note that itemized deductions are assumed to be a constant fraction of income, and so is a proportional exclusion. The AMT does not apply at the highest income levels because eventually ordinary tax rates are higher than the AMT rates. Also, the AMT is more likely to raise taxes for head-of-household families because the exemptions are smaller and are not differentiated by family size. Overall, these calculations suggest, first, that singles are taxed more heavily than childless couples in the middle-income ranges but less heavily at very high and some low income levels, but these differences are small. The higher tax rates for joint returns at high income levels occur because the brackets above 15% are not relatively as wide, and the smaller amount of income needed by a single person places them in overall lower rate brackets. At lower-income levels—for example, at $15,000—joint returns are phased out of the earned income credit more quickly. Second, when the child credit and EIC are available, families with children tend to be favored over families without children at low and moderate income levels. Third, the number of children in a family sometimes causes more beneficial treatment and sometimes less depending on how the EIC and child credit are being phased out. Finally, the graduated rate structure causes large families at higher-income levels to be taxed at higher effective tax rates, an effect exacerbated by the AMT. These effects result from the fundamental structural effects of phase-out provisions and rate brackets. Phase-out points and rate brackets should be based on family size if the ability to pay criterion is being used to determine the tax structure. The flat amount of the child credit and personal exemption also causes them to have little effect on relative tax liabilities at high income levels; phasing them out increases the over-taxation of large families relative to small ones at higher-income levels. At low income levels, however, the family comparisons are affected by the earned income tax credit, and differences in tax burdens by family size can be striking. If there were no earned income credit or refundable child credit, effective tax rates would be relatively uniform at the lower-income levels, at zero or a small positive percentage amount. The EIC introduces disparities. First, the EIC rate is much lower for single taxpayers or two-member joint returns where there are no qualifying children than it is for families with children. Second, if one accepts the ability-to-pay standard, the EIC has an inappropriate adjustment for family size. There is no reason to vary the rate of the EIC by family size, but the base (or maximum creditable wage) and the phase-out levels should be varied according to the ability-to-pay standard. That is, both dollar amounts—the amount on which the EIC applies and the income at which the phaseout begins—should be tied to family size according to the ability-to-pay standard, whereas the EIC rate should be the same for all families. To make the EIC neutral across families, using the ability-to-pay standard, would require, in addition to allowing it at a common rate for all families, changing the base levels and the phase-out levels for family size. Changing the rate, as was done in 1990 and retained when the EIC was expanded in 1993, does not accomplish equal treatment across families of different sizes, providing too much adjustment for some families and not enough for others. The child credit also contributes to the favorable treatment of families with children, including in the middle and upper middle income levels where it is not phased out. The increased refundability of the credit enacted into recent law increases the relatively beneficial treatment of larger families at lower-income levels. The 2005 study previously cited also considered the effects of other aspects of the tax system. One is the availability of the child care credit. The analysis in that paper indicated that including the child care credit (at the maximum) does not have very important effects. The dependent care credit is not effectively available to low-income families who do not have sufficient tax liability to use the credit, and is capped and unimportant in a relative sense for high-income taxpayers. In the middle-income levels, it lowers the tax rate for families with children. Another issue has to do with the treatment of married couples where only one individual works outside the home. These families are better off because the spouse not employed outside the home can perform services at home that result in cost savings, perform household tasks that increase leisure time for the rest of the family, or enjoy leisure. The value of this time, which is not counted in the measured transactions of the economy, is referred to as "imputed income." This imputed income is not taxed, and it would probably be impractical to tax it. Nevertheless, the tax burden as a percentage of cash plus imputed income is lower for such a family. Imputed income is not easily valued, and this issue is explored in the 2005 study by limiting the imputed income to the value of child care using the cap for the expenses eligible for a child care credit and excluding this amount from income. For low-income families, this change actually increased taxes by reducing earned income credits. At moderate and middle incomes, it benefited married couples with children, who already tend to be favored. The authors also considered some of the potential changes and whether those changes would increase horizontal equity or exacerbate it. In the interest of increased horizontal equity, the analysis would support an increase in the earned income credit for those without children; a reduction of the AMT; and an elimination of phaseouts for child credits, personal exemptions, and itemized deductions. Making the child credit fully refundable would increase disparities in tax rates at the lower-income levels. These calculations should be considered with caution, as they depend on the precision of the family equivalency scales, which do not take into account the heterogeneity of the cost of rearing children, and are aimed at measuring cash needs to attain a given standard of living. Lower-income families with younger children who need child care may find their standard of living in material matters lower than other types of families, because of the higher cost of that care relative to their income. In that case, the lower rates due to child care credits or exclusion of imputed income may be appropriate. At higher-income levels, child care costs are probably much smaller relative to income, even if more is spent on care. The child care credit, however, has little effect on effective tax rates at these income levels. Concerns about the marriage penalty reflect a reluctance to penalize marriage in a society that upholds such traditions. As the tax law shifts to reduce the marriage penalty, as it did in 2001, it also expands marriage bonuses. These choices have consequences not only for incentives but for equitable treatment of singles and married couples. As shown above in Table 1 and Table 2 , in the middle-income brackets, where the marriage penalty was largely eliminated, singles with the same ability to pay are subject to higher taxes than married couples. Singles benefit at lower-income levels because their lower required incomes do not phase them out of the earned income credit. And at very high incomes married couples may pay a larger share of their income because of marriage penalties that remain in the AMT and the upper brackets of the rate structure. This section explores the treatment of married couples and singles in an additional dimension by assuming that singles live together and share the same economies of scale that married couples do. These individuals could be roommates, but they could also be partners who differ from married couples only in that they are not legally married. Single individuals who live together in the same fashion as married couples have the same ability to pay with the same income. However, remaining single can alter their tax liability. Remaining single can cause tax liability either to rise or fall, depending on the split of income between the two spouses. If one individual earns most of the income, tax burdens will be higher for two individuals who are not married than for a married couple with the same total income, because the standard deductions are smaller and the rate brackets narrower. If income is evenly split between the two individuals, there can be a benefit from remaining single. Married individuals have to combine their income, and the rate brackets for joint returns at the higher-income brackets, whereas wider than those for single individuals, are not twice as wide. At all levels they are not wider than those for heads of household. In addition, the earned income credit contains marriage penalties and bonuses. The marriage penalty or bonus might, in the context of the measures of household ability to pay, also be described as a singles bonus or penalty. In any case, in considering both the incentive and equity dimension to this issue, the tax rates of these families should be compared with the tax rates of other households. Table 3 and Table 4 show the effective tax rates for married couples and for unmarried couples with the same combined income, both where income is evenly split and where all income is received by one person. In one case there is no child and in the other a single child. These income splits represent the extremes of the marriage penalty and the marriage bonus. The same reference income classes and equivalency scales in Table 1 and Table 2 are used. Note that uneven income splits in the case of a family with a child can yield different results depending on whether the individual with the income can claim the child and therefore receive the benefits of the head-of-household rate structure, the higher earned income credit, the dependency exemption, and the child credit. If not, that individual files as a single. The tables indicate that both marriage penalties and bonuses persist. In the case of families without children, however, penalties do not exist in the middle-income ranges, only bonuses. In this case, singles who live together and who have uneven incomes would see their tax rates fall if they got married. Both bonuses and penalties exist at the lower-income levels because of the earned income tax credit. If income is evenly split, the phase-out ranges are not reached as quickly for singles because each of the partners has only half the income. If all of the income is earned by one of the singles in the single partnership, phase out of the credit still occurs and the individual also has a smaller standard deduction, and thus pays a higher tax. The smaller deductions and narrower rate brackets also cause the higher tax rates through the middle-income brackets. At very high-income levels, marriage penalties can also occur. Some of the penalty is due to not doubling the rate brackets after the 15% bracket, but some is due to the marriage penalties in the AMT. The provisions that increase the phase-out level for the earned income credit reduce tax burdens for low-income joint returns and further reduce marriage penalties and increase marriage bonuses. Matters are more complex for families with one child. At the lowest income level, and a 50/50 split, one of the singles files a single return with a very small negative rate because of the small earned income credit for those without children, while the other claims a child and has a much higher negative tax rate than a married couple because there is no phaseout of benefits. The combination also involves a smaller child credit because it is not completely refundable. The combined result is a lower benefit than that of a married couple, and thus there is a marriage bonus. This eventually becomes a marriage penalty because of the favorable head-of-household standard deduction and rate structure. The AMT contributes to this penalty at some point. With one of the pair earning all of the income, the results depend on whether the partner with the income can claim the child. If that person cannot, the tax burden is higher throughout the income scale, reflecting the loss of benefits from the child and the rate structure. If the person with the income can claim the child, joint returns are still favored (except at the lowest income levels), but not by nearly as much. Which of these last two assumptions seems more likely depends on the circumstances. When couples divorce, they typically move to different residences, and the most usual outcome is that the mother, who typically has lower earnings, would have the child. According to the Census Bureau, 83% of children who live with one parent live with their mother. In that case there would likely be a marriage bonus. If the couple divorce but live together, presumably the higher-income spouse would claim the child. However, if a couple never married and the child is only related to one parent, that person, more likely the mother and more likely to have low income, would claim the child. If such a couple married and had low incomes, they could obtain the earned income credit, and a study of low-income families indicates that this latter effect, the bonus, is the most common effect of the EIC. Which circumstances are more characteristic of the economy? Note first that, although people refer to the marriage penalty for a particular family situation or the aggregate size of the marriage penalty, it is really not possible, in many cases, to determine the size of the penalty or bonus. The effect of assignment of a child is demonstrated in Table 3 and Table 4 , but other features matter. Only when a married couple has only earned income, no dependent children, and no itemized deductions or other special characteristics, and only if it is assumed that their behavior would not have been different if their marital status had been different, can one actually measure the size of the marriage penalty or bonus. There is no way to know who would have custody of the children and therefore which of the partners might be eligible for head-of-household status and for the accompanying personal exemptions and child credits. There is reason to expect that unmarried individuals are penalized in the aggregate. Prior to the 2001 tax cut, which increased bonuses and reduced penalties, using an allocation that reflects typical behavior of married couples with respect to child custody, the Congressional Budget Office (CBO) estimated that 37% of married couples had penalties ($24 billion), 3% were unaffected, and 60% had bonuses ($73 billion). (Itemized deductions and earned income were assigned in proportion to earnings.) The net bonus was $49 billion. However, in most of its analysis, the CBO study relied on a measure of marriage penalties and bonuses that assumed child custody would be based on a tax-minimizing strategy. For example, if parents of two children had similar individual earnings, each would be assumed to have custody of one of the children so that both would be eligible for head-of-household status. Even using that standard, net bonuses occurred: 43% of married couples had penalties amounting to $32 billion, and 52% had bonuses of $43 billion, for a net bonus of $11 billion. Nevertheless, a significant proportion of married taxpayers—between 37% and 43%—paid marriage penalties. A study using Treasury data and other assumptions produced different measures of the marriage bonus or penalty. Using an assumption that divorced parents occupied the same residence, and thus only one could qualify for head-of-household status, the authors found that 48% had a penalty ($28.3 billion) and 41% had a bonus ($26.7 billion), for a net penalty of $1.6 billion. This study also provided several other ways of measuring penalties and bonuses, including estimating $30.2 billion in singles penalties because these individuals could not use joint return rate schedules. Some of the penalty applied to families with children because of the benefits of head-of-household status. Without head-of-household status, the Treasury found that 46% of couples had bonuses ($36.6 billion) while 43% had penalties ($20.8 billion), and the net effect was a bonus of $15.8 billion. Treasury researchers did a subsequent study using the standard assumption for the effects of the 2001 tax cut and for 2004 income levels. As before, they essentially found a penalty (of $3.7 billion) without the 2001 tax cut, but found a $30 billion bonus with 2004 tax law (which included explicit marriage relief provisions and other provisions such as rate reductions). About 60% of couples have bonuses, and 23% have penalties (while some have no effect). The study also warned that penalties will grow substantially if the AMT continues to grow as projected; however, the AMT has been continually patched so that these general results should still be largely correct. Given the shift away from penalties and toward bonuses in 2001, it seems clear that the current situation is characterized by bonuses rather than penalties. An alternative measurement is the bonuses and penalties of single individuals who are cohabitating, a much smaller group of people. In 2005, according to the Census Bureau, there were 58 million married households, but only 5 million unmarried couple households (with partners of the opposite sex). (There were 77 million households altogether.) Thus, assuming that these households were similar to married households, the "single penalties and bonuses" measured by looking at unmarried cohabitating households would be about 9% of the size of "marriage bonuses and penalties" measured by looking at married households. A study has been made of penalties and bonuses for existing cohabiting couples with children, which assign the children to the biological parent, or, if both partners are biological parents, to the higher earner. This study found that under 2003 law, 42% of these couples would experience a bonus averaging $1,893, whereas 50.7% would experience a penalty of $1,497. Under 2003 law, 48.5% receive an average bonus of $2,236, and 44.1% receive a penalty of $1,513. Bonuses are more prevalent in low-income households because marriage often increases the earned income credit. These bonuses should increase with the increase in the additional phase-out amounts for married couples enacted in 2009. However, a study using data on low-income families in urban areas with young children found that penalties were more common. That study also examined the effect of increasing the earned income credit for childless workers, as has been proposed by the President and some Members of Congress, and found small effects on marriage penalties. The study also contains references to mixed evidence of the effect of marriage penalties on marriage. The marriage penalty cannot be easily addressed because the tax rules cannot simultaneously achieve three apparently desired income tax objectives: a progressive tax, a marriage neutral tax, and equal treatment of couples with the same total incomes, but with different income shares. Moreover, even if horizontal equity were chosen, the achievement of that system would require information on living arrangements of unmarried individuals that is not available to the tax authorities. The current system, however, appears to lean toward benefiting marriage overall. The analysis of equity across families suggests that, based on an ability-to-pay standard, families with children are paying lower rates of tax (or receiving larger negative tax rates) than single individuals and married couples at lower and middle incomes, while families with children are being taxed more heavily at higher-income levels. At the lowest income levels, the EIC plus child credits provide the largest tax subsidies to families with two to four children. The smallest subsidies go to childless couples or individuals. At middle-income levels, families with many children will have the most favorable treatment because of the effect of the child credit, which has a very large effect relative to tax liability. At higher-income levels, large families are penalized because the adjustments for children such as personal exemptions and child credits are too small or are phased out, while graduated rates cause larger families that need more income to maintain a given living standard to pay higher taxes. Tax rates are more variable at lower-income levels. At all but the lowest and highest income levels, singles pay higher taxes than married couples without children. After the 2001 tax cut, the vast majority of taxpayers without children receive a marriage bonus rather than a penalty, with penalties occurring only at the bottom and at the top—the latter due partly to the AMT. The comparison of families with children is less easily defined. Overall, marriage appears to be rewarded, but there is some conflict in the evidence for lower-income families. There has been continuing interest in increasing the earned income credit for singles and childless couples, which would increase the equity of the current tax system measured by ability to pay, and apparently have small effects on marriage penalties.
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Individual income tax provisions have shifted over time, first in increasing the burden on larger families, and then in decreasing it. These shifts were caused by changing tax code features: personal exemptions, standard and itemized deductions, rates, the earned income credit (EIC), the child credit, and other standard structural aspects of the tax. Some of these features reflect changes made by the 2001 Bush tax cuts, which were extended for an additional two years by P.L. 111-312 and largely made permanent by the American Taxpayer Relief Act (P.L. 112-240). The most recent legislative change was making the temporary provisions liberalizing the child credit and earned income credit enacted in the American Recovery and Reinvestment Act of 2009 (P.L. 111-5), and subsequently extended, permanent. These provisions were made permanent at the end of 2015 by the Protecting Americans from Tax Hikes (PATH) Act (P.L. 114-113). Taxes as a share of income have decreased for lower-income families and to a lesser extent for middle-income families, while remaining at approximately the same level for higher-income families. While several standards may be considered in determining equitable treatment of families over family type and size, a standard approach is based on ability to pay, so that large families with the same income as small ones pay less tax. Based on this standard, the analysis of equity across families suggests that families with children are paying lower rates of tax (or receiving larger negative tax rates) than single individuals and married couples at lower and middle incomes. However, families with children are being taxed more heavily at higher-income levels. At the lowest income levels, the EIC provides the largest tax subsidies to families with three children. The smallest subsidies go to childless couples. At middle-income levels, families with many children will have the most favorable treatment, due to the effect of the child credit, which has a very large effect relative to tax liability. At higher-income levels, large families are penalized because the adjustments for children, such as personal exemptions and child credits, are too small or are phased out, while graduated rates cause larger families that need more income to maintain a given living standard to pay higher taxes. Tax rates are more variable at lower-income levels. At all but the lowest and highest income levels, singles pay higher taxes than married couples. The analysis of the marriage penalty indicates that marriage penalties have largely been eliminated for those without children throughout the middle-income range, but this change has inevitably expanded marriage bonuses. Marriage penalties remain at the high and low income levels and could also apply to those with children, where the penalty or bonus is not very well defined. But by and large, the current system is likely to encourage rather than discourage marriage and favors married couples over singles. The analysis of equity across families suggests that increases in earned income tax credits for those without children would lead to more equal treatment based on the ability to pay approach, while full refundability of the child credit would exacerbate inequalities. At the higher end of the scale, eliminating phase outs of provisions that differentiate across families would probably lead to more equitable treatment, and limiting or repealing the alternative minimum tax would reduce the burden of taxes on families with children at upper middle-income levels as well as marriage penalties.
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The Safe Drinking Water Act (SDWA), Title XIV of the Public Health Service Act, is the key federal law for protecting public water supplies from harmful contaminants. First enacted in 1974 and substantially amended in 1986, 1996, and 2016, the act is administered through programs that establish standards and treatment requirements for public water supplies, finance drinking water infrastructure projects, promote water system compliance, and control the underground injection of fluids to protect underground sources of drinking water. The 1974 law established the current federal-state arrangement in which states may be delegated primary implementation and enforcement authority for the drinking water program. The state-administered Public Water Supply Supervision (PWSS) Program remains the basic program for regulating the nation's public water systems, and 49 states have assumed this authority. In the SDWA amendments of 1996, Congress reauthorized appropriations for most SDWA programs through FY2003. Although the authorization of appropriations has expired for most provisions, Congress has continued to appropriate funds for the ongoing SDWA programs. Enacted in December 2016, the Water Infrastructure Improvements for the Nation (WINN) Act, P.L. 114-322 , made numerous amendments to the SDWA, with significant focus on addressing lead in public water systems and increasing compliance assistance for small or disadvantaged communities. Table 1 identifies the original enactment and subsequent amendments. This report summarizes the act's major provisions, programs, and requirements and provides statistics on the universe of regulated public water systems. Located at the end of the report, Table 2 cross-references sections of the act with the major U.S. Code sections of the codified statute, and Table 3 identifies authorizations of appropriations under the act. As indicated by Table 1 , the SDWA has been amended several times since enactment of the Safe Drinking Water Act of 1974 ( P.L. 93-523 ). Congress passed this law after nationwide studies of community water systems revealed widespread water quality problems and health risks resulting from poor operating procedures, inadequate facilities, and uneven management of public water supplies in communities of all sizes. The 1974 law gave the EPA substantial discretionary authority to regulate drinking water contaminants and gave states the lead role in implementation and enforcement. The first major amendments ( P.L. 99-339 ), enacted in 1986, were largely intended to increase the pace at which the EPA regulated contaminants and to increase the protection of ground water. From 1974 until 1986, the EPA had regulated just one additional contaminant beyond the 22 standards previously developed by the Public Health Service. The 1986 amendments required the EPA to (1) issue regulations for 83 specified contaminants by June 1989 and for 25 more contaminants every three years thereafter, (2) promulgate requirements for disinfection and filtration of public water supplies, (3) limit the use of lead pipes and lead solder in new drinking water systems, (4) establish an elective wellhead protection program around public wells, (5) establish a demonstration grant program for state and local authorities having designated sole-source aquifers to develop ground water protection programs, and (6) issue rules for monitoring underground injection wells that inject hazardous wastes below a drinking water source. The amendments also increased the EPA's enforcement authority. Congress again amended SDWA with the Lead Contamination Control Act of 1988 ( P.L. 100-572 ). These provisions were intended to reduce exposure to lead in drinking water by requiring the recall of lead-lined water coolers and requiring the EPA to issue a guidance document and testing protocol for states to help schools and day care centers identify and correct lead contamination in school drinking water. After the regulatory schedule mandated in the 1986 amendments proved to be unworkable for the EPA, states, and public water systems, the 104 th Congress made sweeping changes to the act with the SDWA Amendments of 1996 ( P.L. 104-182 ). As over-arching themes, the amendments targeted resources to address the greatest health risks, increased regulatory flexibility, and authorized funding for federal drinking water mandates. Congress revoked the requirement that the EPA regulate 25 new contaminants every three years and created a risk-based approach for selecting contaminants for regulation. Among other changes, Congress added some flexibility to the standard-setting process, required the EPA to conduct health risk reduction and cost analyses for new rules, authorized a drinking water state revolving loan fund (DWSRF) program to help water systems finance infrastructure projects needed to comply with SDWA regulations and protect public health, added programs to improve small system compliance, expanded consumer information requirements, increased the act's focus on pollution prevention with a state source water assessment program, and streamlined the act's enforcement provisions. P.L. 104-182 authorized appropriations under the act through FY2003. Authorizations of appropriations under the SDWA are identified in Table 3 . In 2002, several drinking water security provisions were added to the SDWA through the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 ( P.L. 107-188 ). Title IV of that act included requirements for community water systems serving more than 3,300 individuals to conduct vulnerability assessments and prepare emergency response plans. The law increased criminal and civil penalties for tampering with water supplies and required the EPA to conduct research on preventing and responding to terrorist or other attacks. Signed into law on January 4, 2011, the Reduction of Lead in Drinking Water Act, P.L. 111-380 , tightened the SDWA definition of "lead free" and added specific exemptions from the ban on the use or sale of lead pipes and plumbing fittings and fixtures that are not lead free. (A subsequent amendment [ P.L. 113-64 ] explicitly exempted fire hydrants from coverage under the act's lead plumbing restrictions. ) Enacted August 7, 2015, the Drinking Water Protection Act ( P.L. 114-45 ) directed EPA to develop a strategic plan to assess and manage the risks associated with algal toxins in public drinking water supplies. Enacted December 11, 2015, the Grassroots Rural and Small Community Water Systems Assistance Act ( P.L. 114-98 ) revised and reauthorized the small system technical assistance program and extended the authorization of appropriations for the program through FY2020. In December 2016, Congress made numerous revisions to the SDWA through the WIIN Act ( P.L. 114-322 ; Title II, the Water and Waste Act of 2016). Among other amendments, the WIIN Act authorized new grant programs to (1) help public water systems serving small or disadvantaged communities meet SDWA requirements; (2) support lead reduction projects, including lead service line replacement; and (3) establish a voluntary program for testing for lead in drinking water at schools and child care programs. Federal drinking water regulations apply to the approximately 152,700 privately and publicly owned water systems that provide piped water for human consumption to at least 15 service connections or that regularly serve at least 25 people. These water systems vary greatly in size and type, ranging from large municipal systems to homeowner associations, schools, and campgrounds. Some 51,350 of the regulated public water systems are community water systems (CWSs) that serve the same residences year-round. These water systems provide water to more than 299 million people. All federal regulations apply to these systems. Most community water systems (82%) are relatively small, serving 3,300 or fewer individuals. Despite this large percentage, these systems provide water to just 9% of the total population served by community water systems. Fully 92% of CWSs serve populations of 10,000 or fewer, and 55% serve populations of 500 or fewer. In contrast, 8% of CWSs serve populations of 10,000 or more but provide water to 82% of the population served (more than 246 million individuals). Among the community water systems, 71% rely on ground water, and 29% rely on surface water. Another 18,178 public water systems are non-transient non-community water systems , such as schools or factories, which have their own water supplies and generally serve the same individuals for more than six months but not year-round. Most drinking water regulations apply to these systems. Of these water systems, 99% serve populations of 3,300 or fewer and provide water to 83% of the population served by these systems. Nearly 83,200 other public water systems are transient non-community water systems , such as campgrounds and gas stations, which provide their own water to transitory customers. Only regulations for contaminants that pose immediate health risks apply to these systems. Approximately 95,800 of the nearly 101,400 non-community water systems (transient and non-transient systems combined) serve 500 or fewer people. These statistics give some insight into the scope of financial, managerial, and technological challenges small public water systems may face in meeting federal drinking water regulations and maintaining water infrastructure to ensure the delivery of safe and sufficient water supplies. ( Figure 1 provides statistics on community water systems, non-transient non-community water systems, and transient non-community water systems.) A key component of SDWA is the requirement that EPA promulgate national primary drinking water regulations for contaminants that may pose health risks and are likely to be present in public water supplies. Section 1412 instructs EPA on how to select contaminants for regulation and specifies how and when the EPA must establish regulations once a contaminant has been selected. The regulations apply to privately and publicly owned "public water systems" that provide piped water for human consumption to at least 15 service connections or that regularly serve at least 25 people. The EPA has issued regulations for more than 90 contaminants, including regulations setting standards or treatment techniques for drinking water disinfectants and their byproducts, microorganisms (e.g., Cryptosporidium and Legionella ), radionuclides, organic chemicals (e.g., benzene and many pesticides), and inorganic chemicals (e.g., arsenic and lead). The SDWA, as amended in 1996, directs EPA to promulgate a drinking water regulation for a contaminant if the Administrator determines that the following three criteria are met: the contaminant may have adverse health effects; it is known, or there is a substantial likelihood, that the contaminant will occur in public water systems with a frequency and at levels of public health concern; and its regulation presents a meaningful opportunity for health risk reduction for persons served by public water systems. Every five years, EPA must publish a list of unregulated contaminants that are known or anticipated to occur in public water systems and that may require regulation (known as a contaminant candidate list [CCL]). The SDWA further directs EPA to administer a monitoring program for unregulated contaminants to facilitate the collection of occurrence data for contaminants that are not regulated but are suspected to be present in public water supplies. Every five years, EPA must publish a rule (Unregulated Contaminant Monitoring Rule [UCMR]) listing no more than 30 unregulated contaminants to be monitored by public water systems. This list is based on the contaminant candidate lists as well as other data. Every five years, EPA is required to make a regulatory determination (whether or not to regulate) for at least five of the contaminants included on the CCL. For each contaminant that EPA determines requires regulation, EPA must set a nonenforceable maximum contaminant level goal (MCLG) at a level at which no known or anticipated adverse health effects occur and allows an adequate margin of safety. EPA must then set an enforceable standard, a maximum contaminant level (MCL), as close to the MCLG as is "feasible" using best technology, treatment techniques, or other means available (taking costs into consideration). Once the Administrator makes a determination to regulate a contaminant, EPA must propose a rule within 24 months and promulgate a "national primary drinking water regulation" within 18 months after the proposal. EPA may set a standard at other than the feasible level if the feasible level would lead to an increase in health risks by increasing the concentration of other contaminants or by interfering with the treatment processes used to comply with other SDWA regulations. In such cases, the standard or treatment techniques must minimize the overall health risk. Also, when proposing a regulation, EPA must publish a determination as to whether or not the benefits of the standard justify the costs. If EPA determines that the benefits do not justify the costs, the agency may, with certain exceptions, promulgate a standard that maximizes health risk reduction benefits at a cost that is justified by the benefits. Referencing legislative history, the agency generally sets standards based on technologies that are affordable for large communities; however, as amended by P.L. 104-182 , the act requires EPA, when issuing a regulation for a contaminant, to list any technologies or other means that comply with the MCL and are affordable for small public water systems serving populations of 10,000 or fewer. If EPA does not identify "compliance" technologies that are affordable for small systems, then the agency must identify small system "variance" technologies or other means that may not achieve the MCL but are protective of public health. New regulations generally become effective three years after promulgation. Up to two additional years may be allowed if EPA (or a state in the case of an individual system) determines the time is needed for capital improvements. EPA is required to review and strengthen, as appropriate, each drinking water regulation every six years. (Section 1448 outlines procedures for judicial review of EPA actions involving the establishment of SDWA regulations and other final EPA actions.) In the 1996 amendments, Congress added risk assessment and risk communication provisions to SDWA. When developing regulations, EPA is required to (1) use the best available, peer-reviewed science and supporting studies and data; and (2) make publicly available a risk assessment document that discusses estimated risks, uncertainties, and studies used in the assessment. When proposing drinking water regulations, EPA must publish a "health risk reduction and cost analysis." For each drinking water standard and each alternative standard being considered, EPA must publish and take comment on quantifiable and nonquantifiable health risk reduction benefits and costs and also conduct other specified analyses. EPA may promulgate an interim standard without first preparing a health risk reduction and cost analysis or making a determination as to whether the benefits of a regulation would justify the costs if the Administrator determines that a contaminant presents an urgent threat to public health. In anticipation that some systems, particularly smaller ones, could have difficulty complying with every regulation, Congress included in the SDWA provisions for variances and exemptions. Section 1415 authorizes a state to grant a public water system a variance from a standard if raw water quality prevents meeting the standard despite application of best technology and the variance does not result in an unreasonable risk to health. Subsection 1415(e) authorizes variances specifically for small systems, based on application of best affordable technology. When developing a regulation, if EPA cannot identify a technology that meets the standard and is affordable for small systems, EPA must identify variance technologies that are affordable but do not necessarily meet the standard. In cases where EPA has identified variance technologies, then states may grant small system variances to systems serving 3,300 or fewer persons if the system cannot afford to comply with a standard (through treatment, an alternative water source, or restructuring) and the variance ensures adequate protection of public health. A state may then grant a variance to a small system, allowing the system to use a variance technology to comply with a regulation. With EPA approval, states may also grant variances to systems serving between 3,301 and 10,000 persons. Variances are not available for microbial contaminants. The EPA has determined that affordable compliance technologies are available for all existing standards. Thus, small system variances are not available. Section 1416 authorizes states to grant public water systems temporary exemption s from standards or treatment techniques if a system cannot comply for other compelling reasons (including costs). An exemption is intended to give a water system more time to comply with a regulation and can be issued only if it will not result in an unreasonable health risk. A qualified system may receive an exemption for up to three years beyond the compliance deadline. Systems serving 3,300 or fewer persons may receive a maximum of three additional two-year extensions for total exemption duration of nine years. Section 1413 authorizes states and Indian tribes to assume primary oversight and enforcement responsibility (primacy) for public water systems when EPA determines that statutory criteria are met. Currently, 55 of 57 states and territories have primacy authority for the public water system supervision (PWSS) program. Too assume primacy, a state must adopt regulations at least as stringent as national requirements, develop adequate procedures for enforcement (including conducting monitoring and inspections), adopt authority for administrative penalties, conduct inventories of water systems, maintain records and compliance data, and make reports as EPA may require. Further, a state must develop a plan for providing safe drinking water under emergency circumstances. To help states cover the costs of administering the PWSS program, Congress authorized to be appropriated $100 million annually (FY1997-FY2003) for EPA to make grants to the states (Section 1443). EPA is required to allot the sums among the states "on the basis of population, geographical area, number of public water systems, and other relevant factors." Additionally, states may use a portion their annual DWSRF grant under Section 1452 to cover the costs of administering the PWSS program. The SDWA requires public water systems to monitor their water supplies to ensure compliance with drinking water standards and to report monitoring results to the states. States review monitoring data submitted by public water systems, and also conduct their own monitoring, to determine system compliance with drinking water regulations. EPA monitors public water system compliance primarily by reviewing the violation data submitted by the states. Section 1414 requires that, whenever EPA finds that a public water system in a state with primary enforcement authority does not comply with regulations, the agency must notify the state and the system and provide assistance to bring the system into compliance. If the state fails to commence enforcement action within 30 days after the notification, EPA is authorized to issue an administrative order or commence a civil action. In a nonprimacy state, EPA must notify an elected local official (if any has jurisdiction over the water system) before commencing an enforcement action against the system. The 1996 amendments strengthened enforcement authorities, streamlined the process for issuing federal administrative orders, increased administrative penalty amounts, made more sections of the act clearly subject to EPA enforcement, and required states (as a condition of primacy) to have administrative penalty authority. The amendments also provided that no enforcement action may be taken against a public water system that has a plan to consolidate with another system. Enforcement provisions also require public water systems to notify customers of violations of drinking water standards or other requirements, such as monitoring and reporting requirements. Under Section 1414, systems must notify customers within 24 hours of any violations that have the potential to cause serious health effects. The WIIN Act, Section 2106, added public notification requirements for water system exceedances of the lead action level under EPA's Lead and Copper Rule (or subsequent promulgated lead level). Notification requirements previously applied to violations of standards and other applicable requirements but not to exceedances. Water systems must now notify the public, the state, and EPA of system lead action level exceedances. Further, for an exceedance that has potential to cause serious adverse health effects from short-term exposure, a water system must notify the public, the state, and EPA within 24 hours. If the state or water system does not provide the required notice, EPA must notify the public within 24 hours after the Administrator is notified. The WIIN Act further amended the SDWA to address lead action level exceedances at households. EPA is required to develop a strategic plan for providing targeted outreach, education, and technical assistance to populations affected by lead in the water system. Also, if EPA develops or receives data indicating that a household's water exceeds the lead action level, EPA is required to forward the data and testing information to the water system and the state. The water system is required to provide the data and other specified information to the affected households. Within 24 hours of learning that a water system has failed to do so, EPA is required to consult with the governor and, using the strategic plan, provide the information to the households no later than 24 hours after the end of the consultation period. Section 1414 also requires community water systems to mail to all customers an annual "consumer confidence report" on contaminants detected in their drinking water. States are required to prepare annual reports on the compliance of public water systems and to make summaries available to EPA and the public; EPA must prepare annual national compliance reports. Section 1449 provides for citizens' civil actions. Citizen suits may be brought against any person or agency allegedly in violation of provisions of the act or against the EPA Administrator for alleged failure to perform any action or duty that is not discretionary. Under Section 1431, the Administrator has emergency powers to issue orders and commence civil action if (1) a contaminant likely to enter a public drinking water supply system poses a substantial threat to public health, and (2) state or local officials have not taken adequate action. The Bioterrorism Act amended this section to specify that the EPA's emergency powers include the authority to act when there is a threatened or potential terrorist attack or other intentional act to disrupt the provision of safe drinking water or to impact the safety of a community's drinking water supply. Several SDWA provisions specifically address lead in drinking water. In addition to the public notification provisions discussed above, the SDWA strictly limits the amount of lead in pipes and plumbing materials used to provide drinking water, imposes public notice and education requirements on states and EPA, and includes two grant programs (authorized in the WIIN Act). These provisions are outlined below. Section 1417 broadly prohibits the use of any pipe, pipe or plumbing fitting or fixture, solder, or flux in the installation or repair of public water systems or plumbing in residential or other facilities providing drinking water that is not "lead free" (as defined in the act). This section also makes it unlawful to sell solder or flux that is not lead-free (unless it is properly labeled) or pipes, plumbing fittings, or fixtures that are not lead-free, with the exception of pipes used in manufacturing or industrial processing or other specific exceptions. Added in 1986, Section 1417(d) defined "lead free" to mean not more than 0.2% lead for solders and fluxes and not more than 8% lead for pipes and pipe fittings. The law gives states, not EPA, the responsibility to enforce the prohibitions. In 1996, Congress added Section 1417(e), directing the EPA to issue regulations setting health-based performance standards limiting the amount of lead that may leach from new plumbing fittings and fixtures unless a voluntary industry standard was established within one year of enactment. An industry standard was established. Enacted January 4, 2011, the Reduction of Lead in Drinking Water Act ( P.L. 111-380 ) amended Section 1417 to revise the SDWA definition of "lead free" and to add new exemptions from prohibitions on the use or sale of lead pipes, plumbing, and fittings and fixtures. The act reduced the allowable level of lead in products in contact with drinking water from 8.0% to 0.25% (weighted average) and exempted from the general prohibitions (A) "pipes, pipe fittings, plumbing fittings, or fixtures, including backflow preventers, that are used exclusively for nonpotable services such as ... industrial processing, irrigation, outdoor watering or any other uses where the water is not anticipated to be used for human consumption" (emphasis added); and (B) various specified products including tub fillers, shower valves, service saddles, or water distribution main gate valves at least 2 inches in diameter. P.L. 111-380 removed the reference to Section 1417(e), which required that plumbing fittings and fixtures "intended by the manufacturer to dispense water for human ingestion" must comply with the industry standard. Rather, these products became subject to the definition of "lead free" in Section 1417(d). The provisions of P.L. 111-380 became effective on January 4, 2014, and any product that does not meet the 0.25% lead limit may no longer be sold or installed unless it is exempt from the general prohibitions. EPA proposed a rule to revise existing regulations to conform to the provisions of P.L. 111-380 on January 17, 2017. Added in 1986, Section 1417(a)(2) requires owners or operators of public water systems to provide notice to persons that may be affected by lead contamination of their drinking water if the source of contamination results from the construction materials of the water system or from corrosivity of the water. Subsection 1417(f), added in the WIIN Act, requires EPA to make educational information regarding lead in drinking water broadly available to the public. Also added by the WIIN Act, SDWA Section 1459B directs EPA to establish a grant program for projects and activities that reduce lead in drinking water, including replacement of lead service lines and corrosion control. Grants may be used to provide assistance to low-income homeowners to replace their portions of lead service lines. Eligible recipients include community water systems, tribal systems, schools, states, and municipalities. EPA must give funding priority to disadvantaged communities for projects that address lead action level exceedances, lead in water at schools and day care facilities, or other EPA priorities. EPA may waive the 20% nonfederal cost share requirement. This section authorizes to be appropriated $60 million per year for FY2017 through FY2021. The WIIN Act, Section 2107, replaced SDWA Subsection 1464(d) to require EPA to establish a voluntary program for testing for lead in drinking water at schools and child care programs under the jurisdiction of local education agencies (LEAs). States or LEAs may apply to EPA for grants. To support this grant program, Congress authorized to be appropriated $20 million per year for FY2017 through FY2021. The 1996 amendments added two state-administered programs aimed at improving public water system compliance with drinking water regulations: the operator certification program and the capacity development program. Section 1419 required states to adopt programs for training and certifying operators of community and non-transient non-community systems (e.g., schools and workplaces that have their own wells). EPA is required to withhold 20% of a state's annual DWSRF grant unless the state adopts and implements an operator certification program. Relatedly, Section 1420 required states to establish capacity development programs, also based on EPA guidance. Congress specified that the programs must include (1) legal authority to ensure that new systems have the technical, financial, and managerial capacity to meet SDWA requirements; and (2) a strategy to assist existing systems that are experiencing difficulties to come into compliance. EPA is required to withhold a portion of SRF grants from states that do not have capacity development strategies. The agency has not had to withhold funds under either of these programs. In addition to the above compliance assistance programs, the act authorizes EPA and states to provide compliance assistance to public water systems and particularly to small systems (serving from 25 to 10,000 customers). Accounting for 92% of community water systems, these small systems frequently lack both economies of scale and the financial, managerial, and technical capacity to meet SDWA requirements. Added in 1996, Subsection 1442(e) authorizes EPA to provide technical assistance to small public water systems. In this subsection, Congress authorized to be appropriated $15 million annually for FY1997 through FY2003 for EPA to provide technical assistance to small water systems through nonprofit organizations or other means. The Grassroots Rural and Small Community Water Systems Assistance Act ( P.L. 114-98 ), enacted December 11, 2015, revised this program and extended the authorization of appropriations through FY2020. The technical assistance is intended to enable small systems to achieve and maintain compliance with drinking water regulations and may include circuit-rider and multi-state regional technical assistance programs, training, and assistance in implementing regulations, source water protection plans, monitoring plans, water security enhancements, etc. The WIIN Act amended Section 1442 to specify that technical assistance grants to tribes may be used for operator training and certification. Relatedly, SDWA Section 1452, establishing the DWSRF program, authorized another source of funding for this technical assistance. SDWA Section 1452(q) authorized EPA to set aside up to 2% of the total funds appropriated for the DWSRF program for each of FY1997 through FY2003 to carry out the provisions of Section 1442(e) (relating to technical assistance for small systems, not to exceed the amount authorized in Section 1442(e)). In the WINN Act ( P.L. 114-322 , Section 2110), Congress extended this set-aside authority through FY2021. Another provision added by the WIIN Act to the SDWA (Section 1459A) directs EPA to establish a grant program to assist disadvantaged communities and also small communities that are unable to finance projects needed to comply with SDWA. Eligible projects include investments needed for SDWA compliance, household water quality testing, and assistance that primarily benefits a community on a per-household basis. EPA must give funding priority to projects and activities that benefit underserved communities (i.e., communities that lack household water or wastewater services or that violate or exceed a SDWA requirement). EPA may make grants to public water systems, tribal water systems, or states on behalf of an underserved community. EPA may waive all or some of the 45% nonfederal share of project costs. Section 1459A(j) authorizes to be appropriated $60 million per year for FY2017 through FY2021. Most public water systems rely on ground water as a source of drinking water, and Part C of the act focuses on ground water protection. Section 1421 authorized the establishment of state underground injection control (UIC) programs to protect underground sources of drinking water (USDWs). In 1977, EPA issued mandated regulations that contained minimum requirements for state UIC programs to prevent underground injection that endangers drinking water sources and required states to prohibit any underground injection not authorized by state permit. The law specified that the regulations could not interfere with the underground injection of brine from oil and gas production or recovery of oil unless USDWs would be affected. Section 1422 authorized affected states to submit plans to EPA for implementing UIC programs and, if approved, to assume primary enforcement responsibility. If a state's plan has not been approved, or the state has chosen not to assume program responsibility, then EPA must implement the program. For oil and gas injection operations only, states with UIC programs are delegated primary enforcement authority without meeting EPA regulations under Section 1421, provided that states demonstrate that they have an effective program that prevents underground injection that endangers drinking water sources. EPA has delegated primacy for all classes of wells to 35 states; it shares implementation responsibility with seven states and two Indian tribes and implements the UIC program for all well classes in nine states. To implement this program, EPA has established six classes of UIC wells based on similarity in the fluids injected, construction, injection depth, design, and operating techniques and issued regulations that establish performance criteria for each class. Most recently, EPA issued regulations for Class VI wells establishing requirements for the underground injection of carbon dioxide (CO 2 ). Class VI wells are intended to be used for the long-term geologic sequestration of CO 2 as a tool for mitigating greenhouse gas emissions from coal-fired power plants and other large stationary sources of carbon dioxide. The act contains four other state programs aimed specifically at protecting groundwater. 1. Sole Source Aquifer Protection Program . Included in the Safe Drinking Water Act of 1974 ( P.L. 93-523 ), Section 1424(e) authorizes EPA to make determinations—either on EPA's initiative or upon petition—that an aquifer is the sole or principal drinking water source for an area. In areas that overlie a designated sole-source aquifer, no federal funding may be committed for projects that EPA determines may contaminate such an aquifer. Any person may petition for sole source aquifer designation. Nationwide, EPA has designated 77 sole source aquifers. 2. Sole Source Aquifer Demonstration Program . Section 1427, added in 1986, established procedures for demonstration programs to develop, implement, and assess critical aquifer protection areas already designated by the Administrator as sole source aquifers. 3. State Wellhead Protection Program s. Section 1428, also added in 1986, established an elective state program for protecting wellhead areas around public water system wells. If a state established a wellhead protection program by 1989 and EPA approved the state's program, then EPA may award grants covering between 50% and 90% of the costs of implementing the program. 4. State Groundw ater Protection Grants. Section 1429, added in 1996, authorizes EPA to make 50% grants to states to develop programs to ensure coordinated and comprehensive protection of ground water within the states. For these programs, appropriations were authorized through FY2003 as follows: $15 million per fiscal year for Section 1427, $30 million per fiscal year for Section 1428, and $15 million per fiscal year for Section 1429. Additionally, states may use a portion of their DWSRF capitalization grant under Section 1452(k) for certain groundwater protection activities. The 1996 amendments expanded the act's pollution prevention focus to embrace protection of surface water as well as ground water. Section 1453 required EPA to publish guidance for states to implement source water assessment programs that delineate boundaries of the areas from which systems receive water and identify the origins of regulated contaminants (and also any contaminants selected by the state) in those areas to determine systems' susceptibility to contamination. States with approved assessment programs may adopt alternative monitoring requirements for water systems as provided for in Section 1418. Section 1452 (k)(1)(C) authorized states to use up to 10% of their DWSRF capitalization grant for FY1996 and FY1997 to delineate and assess source water protection areas. Section 1454 authorized a source water petition program based on voluntary partnerships between state and local governments. States may establish a program under which a community water system or local government may submit a petition to the state requesting assistance in developing a voluntary source water quality protection partnership to (1) reduce the presence of contaminants in drinking water, (2) receive financial or technical assistance, and (3) develop a long-term source water protection strategy. This section authorized $5 million each year for grants to states to support petition programs. Also, states may use up to 10% of their DWSRF grant to support various source water protection activities, including the petition program. In 1996, Congress authorized the DWSRF program to help systems finance improvements needed to comply with SDWA regulations. EPA is authorized to make grants to states to capitalize DWSRFs, which states may then use to make loans to public water systems. States must match 20% of the federal grant. Grants are allotted based on the results of needs surveys. Each state and the District of Columbia must receive at least 1% of the appropriated funds. Drinking water SRFs may be used to provide loans for expenditures that EPA has determined will facilitate compliance or significantly further the act's health protection objectives. States must make available 15% of their annual allotment for loan assistance to systems that serve 10,000 or fewer persons to the extent that funds can be obligated for eligible projects. States may use up to 30% of their DWSRF grant to provide loan subsidies (including forgiveness of principal) to help economically disadvantaged communities. Also, Section 1452(g) authorizes states to use a portion of funds for technical assistance, source water protection and capacity development programs, and operator certification. The law authorized appropriations of $599 million for FY1994 and $1 billion per year for FY1995 through FY2003 for DWSRF capitalization grants. EPA was directed to reserve, from annual DWSRF appropriations, 0.33% for financial assistance to several trusts and territories, $10 million for health effects research on drinking water contaminants, $2 million for the costs of monitoring for unregulated contaminants, and up to 2% for technical assistance. The EPA may use 1.5% of funds each year for making grants to Indian tribes and Alaska Native villages. The WIIN Act ( P.L. 114-322 ; Section 2113) made several amendments to the DWSRF provisions. Among other changes, the amendments increased the portion of the annual DWSRF capitalization grant that states may use to cover program administration costs. Further, the WIIN Act amended Section 1452(a) to require, with some exceptions, that funds made available from a state DWSRF during FY2017 may not be used for water system projects unless all iron and steel products to be used in the project are produced in the United States. The 107 th Congress passed the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 ( P.L. 107-188 ) to address a wide range of security issues. Title IV of the Bioterrorism Act amended the SDWA to address threats to drinking water security. Key provisions are summarized below. Under new SDWA Section 1433, each community water system serving more than 3,300 people was required to conduct an assessment of the system's vulnerability to terrorist attacks or other intentional acts intended to disrupt the provision of a safe and reliable drinking water supply. This provision established deadlines, based on system size, for community water systems to certify to the EPA that they had conducted a vulnerability assessment and to submit to the EPA a copy of the assessment. Section 1433 exempted the contents of the vulnerability assessments from disclosure under the Freedom of Information Act (except for information contained in the certification identifying the system and the date of the certification), and it provides for civil and criminal penalties for inappropriate disclosure of information by government officials. Section 1433 further required each of these community water systems to prepare an emergency response plan incorporating the results of the vulnerability assessment. EPA was directed to provide guidance to smaller systems on how to conduct vulnerability assessments, prepare emergency response plans, and address threats. Section 1433(e) authorized the appropriation of $160 million for FY2002, and such sums as may be necessary for FY2003 through FY2005, to provide financial assistance to community water systems to conduct vulnerability assessments and prepare response plans and for expenses and contracts to address basic security enhancements and significant threats. The Bioterrorism Act also added Sections 1434 and 1435 to SDWA, directing the EPA Administrator to review methods by which terrorists or others could contaminate or otherwise disrupt the provision of safe water supplies. These provisions require the EPA to review methods for preventing, detecting, and responding to such disruptions and methods for providing alternative drinking water supplies if a water system is destroyed or impaired. Section 1435(e) authorized $15 million for FY2002 and such sums as may be necessary for FY2003 through FY2005 to carry out Sections 1434 and 1435. Section 1432 provides for civil and criminal penalties against any person who tampers, attempts to tamper, or makes a threat to tamper with a public water system. Amendments made by the Bioterrorism Act increased criminal and civil penalties for tampering, attempting to tamper, or making threats to tamper with public water supplies. The maximum prison sentence for tampering increased from 5 to 20 years. The maximum prison sentence for attempting to tamper, or making threats to tamper, increased from 3 to 10 years. The maximum fine that may be imposed for tampering increased from $50,000 to $1 million. The maximum fine for attempting to tamper, or threatening to tamper, increased from $20,000 to $100,000. Relatedly, see " Emergency Powers " section. SDWA Subsection 1442(b) authorizes EPA to provide technical assistance and make grants to states and public water systems to assist in responding to and alleviating emergency situations. The Bioterrorism Act amended Subsection 1442(d) to authorize appropriations for such emergency assistance of not more than $35 million for FY2002 and such sums as may be necessary for each fiscal year thereafter. Congress has not appropriated funds for this purpose. Section 1442 authorizes EPA to conduct research, studies, and demonstrations related to the causes, treatment, control, and prevention of diseases resulting from contaminants in water. The agency is directed to provide technical assistance to the states and municipalities in administering their public water system regulatory responsibilities. This section authorized $15 million annually for technical assistance to small systems and Indian tribes and $25 million for health effects research. (Title II of P.L. 104-182 , the 1996 amendments, authorized additional appropriations for drinking water research not to exceed $26.6 million annually for FY1997 through FY2003.) The WIIN Act amended Section 1442(a) to authorize EPA to conduct research on innovative water technologies and provide technical assistance to public water systems to facilitate use of such technologies. New Section 1442(f) authorizes to be appropriated $10 million for each of FY2017 through FY2021. The Administrator may make grants to develop and demonstrate new technologies for providing safe drinking water and investigate health implications involved in the reclamation/reuse of waste waters. Section 1445 states that persons subject to requirements under the SDWA must establish and maintain records, conduct water monitoring, and provide any information that the Administrator may require by regulation to carry out the requirements of the act. Section 1445(b) authorizes the Administrator or a representative, after notifying the state in writing, to enter and inspect the property of water suppliers or other persons subject to the act's requirements to determine whether the person is in compliance with the act. Failure to comply with these provisions may result in civil penalties. This section also directs EPA to promulgate regulations establishing the criteria for a monitoring program for unregulated contaminants. Beginning in 1999 and every five years thereafter, EPA must issue a list of not more than 30 unregulated contaminants to be monitored by public water systems. States are permitted to develop representative monitoring plan to assess the occurrence of unregulated contaminants in small systems, and the section authorized $10 million to be appropriated for each of FY1999 through FY2003 to provide grants to cover the costs of monitoring for small systems. All monitoring results are to be included in a national drinking water occurrence data base created under the 1996 amendments. The act established a National Drinking Water Advisory Council, composed of 15 members (with at least two representing rural systems), to advise, consult, and make recommendations to the Administrator on activities and policies derived from the act. Any federal agency having jurisdiction over federally owned public water systems must comply with all federal, state and local drinking water requirements as well as any underground injection control programs. The act provides for waivers in the interest of national security. Added in 1996, Section 1456 authorized EPA and other appropriate federal agencies to award grants to Arizona, California, New Mexico, and Texas to provide assistance (not more than 50% of project costs) to colonias where the residents are subject to a significant health risk attributable to the lack of access to an adequate and affordable drinking water system. Congress authorized appropriations of $25 million for each of fiscal years 1997 through 1999. (See also " Wastewater Assistance to Colonias .") Section 1457 authorized EPA to use the estrogenic substances screening program created in the Food Quality Protection Act of 1996 ( P.L. 104-170 ) to provide for testing of substances that may be found in drinking water if the Administrator determines that a substantial population may be exposed to such substances. Section 1458 directed EPA to conduct drinking water studies involving subpopulations at greater risk and biological mechanisms. EPA was also directed to conduct studies to support specific regulations, including those for disinfectants and disinfection byproducts and Cryptosporidium . The Drinking Water Protection Act ( P.L. 114-45 ), enacted August 7, 2015, added Section 1459. It directs EPA to develop—and submit to Congress in 90 days—a strategic plan to assess and manage the risks associated with algal toxins in public drinking water supplies. Section 1459 requires EPA to include in the plan steps and schedules for EPA to (1) assess health risks of algal toxins in drinking water, (2) publish a list of toxins likely to pose risks and summarize their health effects, (3) determine whether to issue health advisories for listed toxins, (4) publish guidance on feasible methods to identify and measure the algal toxins in water, (5) recommend feasible treatment and source water protection options, and (6) provide technical assistance to states and water systems. The new provisions also call for the Government Accountability Office to report to Congress on federal funds expended for each of FY2010 through FY2014 to examine toxin-producing cyanobacteria and algae or address public health concerns related to harmful algal blooms. The 104 th Congress included a variety of drinking-water-related provisions in the 1996 SDWA amendments that did not amend the SDWA. Several of these provisions are described below. Section 302 authorized states to transfer as much as 33% of their annual drinking water state revolving fund grant to the Clean Water Act (CWA) SRF or an equivalent amount from the CWA SRF to the DWSRF through FY2001. In several subsequent conference reports for EPA appropriations, Congress authorized states to continue making transfers between the two funds, and in P.L. 109-54 , Congress made this authority permanent. Section 303 of the 1996 amendments authorized EPA to make grants to the state of Alaska to pay 50% of the costs of improving sanitation for rural and Alaska Native villages. Grants are for construction of public water and wastewater systems and for training and technical assistance programs. Appropriations were authorized at $15 million for each of FY1997 through FY2000. (In P.L. 106-457 , Congress reauthorized appropriations for these rural sanitation grants at a level of $40 million for each of FY2001 through FY2005.) Section 305 revised Section 410 of the Federal Food, Drug, and Cosmetic Act to require the Secretary of Health and Human Services to issue bottled drinking water standards for contaminants regulated under SDWA within 180 days after EPA promulgates the new standards unless the Secretary determines that a standard is not necessary. Section 307 authorized EPA to make grants to colonias for wastewater treatment works. Appropriations were authorized at $25 million for each of FY1997 through FY1999. (See also " Drinking Water Assistance to Colonias .") Section 401 authorized additional assistance, up to $50 million for each of FY1997 through FY2003, for a grant program for infrastructure and watershed protection projects.
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This report summarizes the Safe Drinking Water Act (SDWA) and its major programs and regulatory requirements. It reviews revisions to the act since its enactment in 1974, including the drinking water security provisions added to the SDWA by the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (P.L. 107-188) and lead reduction provisions as amended by P.L. 111-380 (including amendments made by P.L. 113-64 to explicitly exempt fire hydrants from coverage under the act's lead plumbing restrictions). It also reviews P.L. 114-45, enacted August 7, 2015, directing the Environmental Protection Agency (EPA) to develop a strategic plan to assess and manage the risks associated with algal toxins in public water supplies; P.L. 114-98, the Grassroots Rural and Small Community Water Systems Assistance Act, enacted December 11, 2015; and P.L. 114-322, the Water Infrastructure Improvements for the Nation (WIIN) Act, enacted December 16, 2016. The SDWA, Title XIV of the Public Health Service Act, is the key federal law for protecting public water supplies from harmful contaminants. First enacted in 1974 and substantially amended and reauthorized in 1986 and 1996, the act is administered through programs that establish standards and treatment requirements for public water supplies, promote compliance capacity of public water systems, provide technical assistance to small water systems, control the underground injection of fluids, finance infrastructure projects, and protect sources of drinking water. The 1974 law established the current federal-state arrangement in which states may be delegated primary implementation and enforcement authority (primacy) for the drinking water program and the underground injection control (UIC) program. The state-administered Public Water Supply Supervision (PWSS) Program remains the basic program for regulating the nation's public water systems, and 49 states have assumed this authority. In the Safe Drinking Water Act Amendments of 1996 (P.L. 104-182), Congress reauthorized appropriations for most SDWA programs through FY2003. As with other EPA-administered statutes having expired funding authority, Congress has continued to appropriate funds for the ongoing SDWA programs. In addition to reviewing key programs and requirements of the SDWA, this report includes statistics on the number and types of regulated public water systems and lists all major amendments with the year of enactment and public law number. Located at the end of the report, Table 2 cross-references sections of the act with the major U.S. Code sections of the codified statute, and Table 3 identifies authorizations of appropriations under the act. This report expands on a brief discussion of the SWDA in CRS Report RL30798, Environmental Laws: Summaries of Major Statutes Administered by the Environmental Protection Agency. That report provides summaries of the principal environmental statutes administered by EPA.
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The National Park Service (NPS) administers the National Park System for both recreational use and preservation of park resources, a mission that can be contradictory. Increased recreation on NPS lands has fueled disagreements over this dual mission and over the optimum extent of motorized versus nonmotorized recreational activities. The National Park System, with 401 units covering approximately 85 million acres of land, received more than 268 million recreational visits in 2013. Use of off-highway vehicles (OHVs) in the parks—including all-terrain vehicles (ATVs), snowmobiles, personal watercraft, and others—along with recreational activities such as mountain biking, snow biking, heli-skiing, and aircraft tours, have evolved and gained in popularity. These newer forms intersect with more traditional, nonmotorized forms of recreation, including land-based activities such as hiking, camping, hunting, birdwatching, horseback riding, and rock climbing, and water-based pursuits such as fishing, canoeing, kayaking, and rafting. OHV use in the parks has been particularly contentious, although NPS has fewer lands open to OHVs than do other federal land management agencies such as the Bureau of Land Management (BLM) and the Forest Service (FS). OHV supporters contend that the vehicles allow visitors access to hard-to-reach natural areas; bring economic benefits to communities serving riders; provide outdoor recreation opportunities for the disabled, senior citizens, and others with mobility limitations; and, in the case of snowmobiles, allow increased access to sites during winter. They assert that technological advances will continue to limit noise and pollution. By contrast, opponents of OHVs in the National Park System assert that these vehicles damage the environment and cultural artifacts, pose safety concerns, and conflict with other forms of recreation. NPS staffing levels, they contend, are inadequate to effectively monitor motorized use and its impact on park resources. Opponents also cite the availability of other federal lands, such as BLM and FS lands, where OHV use may be permitted. Among environmental concerns raised by OHV critics are potential damage to wildlife habitat and land and water ecosystems; the impact of dust on winter snow melts and water supply; noise, air, and water pollution; and a diminished experience for recreationists seeking quiet and solitude and/or hunting and fishing opportunities. Critics also point to the beneficial economic impact of nonmotorized recreation on local communities. The 113 th Congress has addressed motorized recreation in the National Park System through legislation and oversight. Bills concerning motorized recreation at NPS units include H.R. 819 , H.R. 2954 , and S. 486 , all of which would change regulations for OHVs at Cape Hatteras National Seashore; and H.R. 3590 , as amended ( H.Amdt. 538 ), which would prohibit NPS from altering regulations that allow the use of motorized vessels for fishing at Ozark National Scenic Riverways. In its oversight role, the House Natural Resources Committee has held hearings on outdoor recreation, including motorized and nonmotorized uses, on federal lands. A May 2013 hearing addressed outdoor recreation issues such as insurance and permitting problems for outfitters and guides. A June 2013 hearing discussed federal, state, and local interactions regarding outdoor recreation and addressed problems of coordination, trail and travel planning, conflicts between motorized and nonmotorized uses, and local input into agency planning. Two executive orders define and generally guide OHV use on federal lands. The first (E.O. 11644, February 8, 1972) defines an off-road vehicle, now commonly referred to as an off-highway vehicle, as "any motorized vehicle designed for or capable of cross country travel on or immediately over land, water, sand, snow, ice, marsh, swampland, or other natural terrain," with exceptions for any registered motorboat or authorized or emergency vehicles. It was issued to "establish policies and provide for procedures that will ensure that the use of off-road vehicles on public lands will be controlled and directed so as to protect the resources of those lands, to promote the safety of all users of those lands, and to minimize conflicts among the various uses of those lands." The order directed each agency to develop and issue regulations to carry out this purpose and to provide for the designation of areas and trails on which OHVs may be permitted, and areas in which such vehicles would not be permitted. Agencies were to monitor the effects of OHV use and amend or rescind area designations or other actions taken pursuant to the order as needed to further the policy of the executive order. A subsequent executive order (E.O. 11989, May 24, 1977) amended the 1972 order to exclude military, emergency, and law enforcement vehicles from the definition of off-road vehicles (to which restrictions would apply). It provided authority to immediately close areas or trails if OHVs were causing or would cause considerable damage to the soil, vegetation, wildlife, wildlife habitat, or cultural or historic resources of particular areas or trails. Areas could remain closed until the manager determined that "the adverse effects have been eliminated and that measures have been implemented to prevent future recurrence." Also, each agency was authorized to adopt the policy that areas could be closed to OHV use except for those areas or trails that are specifically designated as open to such use. This meant that only open areas would have to be marked, a lesser burden on the agencies. While the executive orders apply to federal lands generally, other authorities concerning OHVs are specific to the National Park System. In particular, NPS regulations generally limit OHV use in the park system to four types of NPS units—national recreation areas, national seashores, national lakeshores, and national preserves. The regulations also require special rulemaking, with environmental impact analysis and public comment, to designate routes and areas for OHVs in these park units. NPS's management policies provide additional guidance, stating that OHV use "may be allowed only in locations where there will be no adverse impacts on the area's natural, cultural, scenic, and esthetic values, and in consideration of other existing or proposed recreational uses." In general, the management policies emphasize the conservation of park resources in conservation/use conflicts. Although the executive orders cited earlier include oversnow vehicles in the definition of OHVs, the NPS regulations that permit OHV use only at certain types of park units do not apply to snowmobiles. Instead, snowmobile use in the National Park System is governed by separate regulations that limit such vehicles to designated routes and water surfaces that are used by motor vehicles or motorboats during other seasons. The regulations prohibit snowmobiles except "when their use is consistent with the park's natural, cultural, scenic and aesthetic values, safety considerations, [and] park management objectives, and will not disturb wildlife or damage park resources." NPS management policies further state that snowmobile use can be authorized only where it will not result in unacceptable impacts. The enabling legislation for individual NPS units may establish specific activities as an appropriate use (e.g., water-oriented recreation, snowmobiling for subsistence or recreational purposes, or OHV travel to reach hunting or fishing areas). Additional unit-level direction for designated routes (such as temporary route closures) may be included in a park's general management plan and/or determined by the park superintendent. Excluding Alaska, 13 NPS units allow off-road use of ATVs, four-wheel drive vehicles, and/or dune, sand, and swamp buggies by the general public. Environmental groups have alleged that these vehicles damage wildlife habitat and disturb nonmotorized activities, both in the units that permit their use and in other areas where, they claim, unauthorized use occurs. Users of the vehicles, by contrast, have sought more routes and areas for off-road recreation and increased motorized access to hunting and fishing sites. They assert that NPS restrictions harm communities surrounding parks, which depend on business generated by OHV users. NPS is in the process of issuing special regulations to designate routes and areas for off-road use in those units that permit ATVs and oversand vehicles. Eleven of the 13 park units have special regulations in place: Big Cypress National Preserve; Apostle Islands National Lakeshore; Curecanti, Gateway, and Lake Meredith National Recreation Areas (NRAs); and Assateague, Cape Cod, Cape Hatteras, Fire Island, Gulf Islands, and Padre Island National Seashores. Two additional units are open to public use while NPS completes OHV management planning: Glen Canyon NRA and Cape Lookout National Seashore. Also, Lake Meredith and Curecanti NRAs and Big Cypress National Preserve are developing regulations to change the current boundaries for OHV riders. Other areas that once allowed public off-road use of ATVs and oversand vehicles are now closed to such use, including Little River Canyon National Preserve and Big South Fork National River and Recreation Area. Some of NPS's regulatory actions respond to a 2005 lawsuit by environmental organizations. The groups alleged that ATVs and other off-highway vehicles constituted a "serious threat" to NPS resources that the agency failed to address. The parties settled in 2008. NPS is still addressing some requirements of the settlement, such as the requirement that the agency develop environmental impact statements and special rules governing OHV use at Glen Canyon NRA and Cape Lookout National Seashore. (Cape Lookout has completed public scoping and is developing a draft alternative OHV management plan and environmental assessment; Glen Canyon released a draft plan in January 2014.) Also in response to the settlement agreement, NPS is encouraging education via the websites of units permitting OHV use. As use of ATVs and other off-highway vehicles on federal lands has grown in recent decades, unauthorized use has also been reported in some areas, including NPS units. The extent of unauthorized OHV use in the National Park System is unclear. A 1999 survey from Bluewater Network found 40 park units with unauthorized use, but a 2004 NPS survey found unauthorized use in "several parks" and generally "less than significant" resource damage. NPS has addressed unauthorized OHV use through public outreach, education, and enforcement activities such as officer training and increased fines and penalties. The agency also encourages units with illegal OHV use to pursue enforcement actions. However, some believe NPS budgetary and staff constraints limit enforcement effectiveness. NPS's regulation of ATVs and oversand vehicles has sparked protest, including legal action, by both OHV supporters and opponents. Recent controversy has centered on actions at Florida's Big Cypress National Preserve and North Carolina's Cape Hatteras National Seashore. There is ongoing disagreement over OHV trail designation at Big Cypress National Preserve. Conservation groups cite potential harm by ATVs and similar off-highway vehicles to the endangered Florida panther, the endangered red-cockaded woodpecker, and the threatened eastern indigo snake, and to their habitat and prey. In contrast, those concerned about access to areas for hunting, fishing, and trapping have opposed limitations on OHV use in the preserve. The preserve's enabling act authorizes motorized vehicles and hunting, fishing, and trapping, but also authorizes NPS to limit those activities to "assure [the area's] natural and ecological integrity." Recent conflict has centered on the preserve's "addition lands," some 147,000 acres added to the site in 1988. NPS released a management plan for the addition lands that establishes 130 miles of OHV trails and allows up to 650 off-road permits annually; it also proposes 47,067 acres for wilderness designation. Hunters oppose the plan's limitations on OHV use, including the proposed wilderness acreage and approximately 50,000 additional acres to be zoned "primitive backcountry." Both designations would ban OHVs from these lands. Conservationists, however, oppose the 130 miles of new OHV trails, asserting that OHV use is "fragmenting the landscape" and causing air, water, and soil pollution. Conservation groups filed lawsuits against NPS challenging the addition lands management plan in October and November 2011. Oral arguments were held in June 2013. OHV use has also been at issue in the original preserve. In July 2012, the U.S. District Court for the Middle District of Florida held that NPS violated the National Environmental Policy Act and the Endangered Species Act when it reopened OHV routes in the preserve's Bear Island area. The ruling closed approximately 25 miles of off-highway trails that had been opened in the area. Separately, in 2011 NPS banned "dispersed" OHV access (outside of designated trails) in Big Cypress National Preserve. All use of ATVs and other off-highway vehicles within the original preserve must be only on designated primary and secondary trails. Preserve Superintendent Pedro Ramos called the designated trail network "a big and positive step" in achieving resource protection while providing traditional access for sportsmen. However, the Big Cypress Sportsmen's Alliance as well as environmental groups have criticized the designated trail network for providing too little or too much OHV access to preserve lands. At Cape Hatteras National Seashore, management planning has addressed potential harm by beach buggies and other oversand vehicles to endangered species such as the piping plover and three species of sea turtles. OHV users, fishermen, and local businesses have opposed vehicle restrictions as harmful to the local economy. The balance of preservation and use at the seashore is further weighted by its enabling act, which provides that the area shall be a "recreational area for the benefit and enjoyment of the people," but also states that the "area shall be permanently reserved as a primitive wilderness," except for those portions "especially adaptable for recreational uses." In January 2012, after public scoping and environmental review, NPS published special regulations for the use of motorized vehicles at the seashore. The regulations designate 28 of the 67 seashore miles as year-round OHV routes, with 13 additional miles to be OHV-accessible seasonally, but the remaining 26 miles are designated as vehicle-free areas. To further protect wildlife, the regulations provide for night-driving restrictions during sea turtle nesting season. They also establish vehicle standards and require a fee-based weekly or seasonal OHV permit. The 2012 regulations contrast with NPS's 2007 interim OHV management plan for the seashore, which had allowed greater access for motorized vehicles. The interim plan was the subject of a lawsuit by environmental groups against NPS, alleging that the plan failed to provide adequate protection for seashore resources, including rare turtle, avian, and plant species. In the 113 th Congress, H.R. 819 and H.R. 2954 propose to overturn the 2012 regulations at Cape Hatteras and reinstate the 2007 interim management plan. H.R. 2954 has passed the House. Supporters of the bills contend that the 2012 regulations reduce visitor access to local stores, hotels, and restaurants and are unnecessary for wildlife protection. Opponents assert that OHV restrictions have already helped the seashore's endangered species and have not reduced visitation to the site. A Senate bill, S. 486 , also would address OHV management at Cape Hatteras, but with a different strategy than the House bills. The Senate bill, which has been reported, would not reinstate the 2007 interim plan, but would reduce wildlife buffers at the seashore, mandate new vehicle access points, and require a public process to consider opening more beaches, extending seasonal off-road routes, and modifying the extent and location of vehicle-free areas. No broader legislation has been introduced in the 113 th Congress on the use of ATVs and similar vehicles in the National Park System, and no such bills were introduced in the 112 th Congress. Proposals to regulate recreational snowmobile use in NPS units have been controversial, with debate often mirroring the preservation/use conflict within the NPS mission. User groups contend that snowmobile use is necessary to access park sites in winter and helps support local communities and industry. Opponents are concerned about emissions, noise pollution, and wildlife damage from snowmobiles on parklands. In 2000, NPS announced the enforcement of long-standing regulations that would have banned snowmobile use throughout almost all of the National Park System; later it modified its enforcement stance to allow snowmobile use to continue in the 43 park units that had permitted it prior to the announcement. To date, NPS has taken no further action on a general policy for snowmobiles. However, NPS's management policies state that, outside Alaska, special regulations are required to designate snowmobile and oversnow vehicle routes after park planning determines such use to be appropriate. Designated routes are limited to those used by motorboats and motorized vehicles in other seasons. Since 2000, regulatory and judicial actions to restrict or allow snowmobile use have been park-specific, centering on Yellowstone National Park and units near it, including the John D. Rockefeller Jr. Memorial Parkway and Grand Teton National Park. The Clinton Administration issued final rules in 2001 to incrementally eliminate snowmobile use in these parks (with limited exceptions) and substitute the use of multi-passenger "snowcoaches." The George W. Bush Administration took a different approach, replacing the Clinton rules with regulations in December 2003 that eliminated the snowmobile ban in favor of daily entry limits, use of trained guides, snowmobile emission standards, and monitoring by park managers for impacts from air and noise pollution. The Clinton plan would not have allowed any snowmobiles at Yellowstone; the Bush plan would have allowed 950 per day. Both plans, as well as most subsequent revisions, were vacated by different federal courts. Conflicting rulings in subsequent legal challenges created confusion for park visitors, local communities, and businesses, with many unsure what winter use rules were in effect at Yellowstone. Regulations by the Obama Administration allowed snowmobile use to continue, although at lower levels than in previous years. Through the 2012-2013 winter season, Yellowstone operated under winter use rules promulgated in November 2009, allowing daily entry to 318 commercially guided, best available technology (BAT) snowmobiles and 78 commercially guided snowcoaches. This contrasted with earlier years when up to 720 snowmobiles and 78 snowcoaches had been allowed. (Although the 2003 plan would have allowed 950 snowmobiles per day in Yellowstone, it never went into effect.) Starting with the 2013-2014 winter season, NPS has issued new regulations intended to govern future snowmobile use in the park. The new regulations are to take effect through a phased transition. For the 2013-2014 season, the 2009 interim rules will continue, with 318 snowmobiles and 78 snowcoaches per day allowed. Starting with the 2014-2015 seasons, Yellowstone will measure winter use in a new way, through "transportation events" instead of vehicle limits. The regulations allow up to 110 transportation events per day, defined as the use of one snowcoach or one group of an average of seven snowmobiles. Most but not all of the vehicles are to be commercially guided, with tour operators allocating the "events" among snowmobiles and snowcoaches. No later than the 2016-2017 winter season, vehicles will have to meet "new best available technology" requirements. The governor of Wyoming and the Wyoming congressional delegation have supported the plan's balance between economic and conservation priorities. For example, the regulations increase the maximum number of snowmobiles per day (from the current 318 to potentially up to 480, depending on the distribution of snowcoach and snowmobile use), but also anticipate reductions in noise and pollution because snowmobile trips will be packaged together and guides have incentives to achieve environmental performance standards. Some snowmobile user groups, as well as some environmental groups, have also expressed support for the plan. However, conservation groups have also challenged claims by snowmobile advocates that vehicle technology is evolving to produce a "cleaner, quieter" experience for park visitors. They point to a recent NPS report finding some new snowmobile models to have higher emissions than the same companies' earlier models. Actual snowmobile use in Yellowstone diminished over the past decade while the winter use rules evolved. During the years when 720 snowmobiles were permitted per day, the average daily use was 266 snowmobiles, with the average use on the year's peak day being 493 snowmobiles. After the allowed limit changed to 318 snowmobiles, the average daily use dropped to 191 snowmobiles, with the average peak day dropping to 279. Factors other than the NPS regulations also contribute to fluctuations in snowmobile usage, including yearly snowfall, gas prices, and the state of the economy. No legislation pertaining to snowmobiles in NPS units has been introduced in the 113 th Congress as of January 2014, and none was introduced in the 112 th Congress. Some earlier Congresses included language on snowmobiles in Yellowstone in appropriations bills, generally to ensure that judicial rulings could not deny snowmobiles entry during a specified winter use season. NPS is to provide for the public enjoyment of parklands while protecting resources, including natural quiet, while the Federal Aviation Administration (FAA) controls airspace and aircraft overflights. This has created a conflict between resource management and aviation access authorities and their constituencies. Grand Canyon National Park has been the focal point of a conflict between groups seeking to limit overflights of national parks due to concerns about noise and safety, and air tour operators whose economic stability may depend on providing overflights, with ripple effects on local businesses. The National Parks Overflights Act of 1987 ( P.L. 100-91 ) prohibited flights below the canyon's rim and directed NPS to recommend a flight control plan for Grand Canyon that would provide a "substantial restoration of the natural quiet." It required an NPS study of the effects of all aircraft overflights, which was submitted to Congress in 1994. Aircraft overflights are also a concern for other park units. The National Parks Air Tour Management Act of 2000 ( P.L. 106-181 , Title VIII, hereinafter "Air Tour Act") regulates commercial air tours at other park units. It requires the FAA and NPS to create management plans for air tours at individual park units and within a half-mile of their boundaries. Each plan could prohibit or limit air tours, such as by route and altitude restrictions. The Air Tour Act also requires FAA to establish "reasonably achievable" requirements for quiet aircraft technology for Grand Canyon within one year of enactment and to designate, by rule, Grand Canyon routes or corridors for aircraft and helicopters using quiet technology. Quiet aircraft would not be subject to existing caps on canyon overflights. Several actions have been taken to achieve the substantial restoration of natural quiet at Grand Canyon in furtherance of P.L. 100-91 , enacted more than 25 years ago. First, an FAA limitations rule capped the annual number of commercial air tour overflights at Grand Canyon. Second, the airspace rule expanded flight-free zones and restrictive routing over the canyon. Third, the FAA issued a final rule establishing a standard for quiet technology for certain aircraft in commercial air tour operations over Grand Canyon. The rule identifies which aircraft meet the standard. Fourth, data on natural ambient sound levels were collected by NPS and are being used, together with air tour reported flight operations data and radar tracking data, to model air tour traffic and aircraft noise at Grand Canyon. The model is being used to measure success in restoring natural quiet, and the noise impact of various alternatives. On February 4, 2011, NPS published a notice of availability of a draft environmental impact statement (DEIS) on options that could be taken to restore natural quiet at Grand Canyon. The agency had anticipated issuing a final environmental impact statement in the summer of 2012, but postponed that action in light of the enactment on July 6, 2012, of P.L. 112-141 , which contains provisions pertaining to the determination and restoration of natural quiet at the park. Those provisions generally have been viewed as potentially resulting in curtailment of NPS planning actions to impose stricter noise standards. NPS is continuing to assess the provisions to determine how they will affect its planning effort. (For additional information on P.L. 112-141 , see " Legislative Activity ," below.) In the DEIS, the "substantial restoration of natural quiet" was defined as being achieved when reduction of noise from aircraft at or below 17,999 feet resulted in at least 50% of the park having natural quiet for 75% to 100% of the day. NPS regards 50% as the minimum restoration goal. The DEIS presented four alternatives, including the status quo, with a goal of restoring natural quiet while allowing for a viable air tour industry. According to NPS, among other provisions, the preferred alternative would: restore natural quiet in 67% of the park during the peak season 10 years after implementation (up from 53% under 2011 management), allow for 65,000 annual air tour operations (an increase over actual use of approximately 57,000, but a decrease from the current annual allocation of 93,971), limit daily air tours to 364 (up 50 from the peak day of 316 in 2005, but currently with no daily cap), move most non-air tour operations outside the park, establish higher flight altitudes near the North Rim, provide incentives for quiet technology aircraft and require full conversion to quiet technology over 10 years, provide an hour of quiet before sunset and after sunrise, and raise flight-free zone ceilings to 17,999 feet (up from 14,499 generally; 7,999 at Sanup zone). No general legislation pertaining to air tour management at Grand Canyon National Park has been introduced in the 113 th Congress as of January 29, 2014. The 112 th Congress enacted broad transportation legislation, P.L. 112-141 , which contains provisions on air tour management at Grand Canyon. Some provisions set out standards to be used by NPS in restoring natural quiet at the park. Another provision states that the "substantial restoration of natural quiet" would be considered achieved if 50% of the park is free of sound from commercial air tours for at least 75% of each day. This standard is viewed as essentially maintaining the status quo, while the NPS preferred alternative had sought to expand substantial restoration of natural quiet to 67% of the park. Advocates of the legislation sought to set standards for air tours as an alternative to the planning efforts underway by NPS, which they viewed as too restrictive and likely to have adverse effects on the air tour industry. Opponents of the legislation expressed concern that it would limit NPS's ability to protect Grand Canyon resources and visitors from noise. Like the NPS preferred alternative, the law requires conversion to quiet aircraft technology and incentives for conversion to quiet aircraft. However, the provisions and approaches of NPS and the law are not identical. For instance, the law requires all commercial air tour aircraft operating in the park to convert to quiet aircraft technology within 15 years of enactment, while the NPS preferred alternative provided for conversion to quiet technology over 10 years. Other regulatory actions have affected commercial air tours at park units generally, particularly in furtherance of the Air Tour Act. The Air Tour Act final rule requires air tour operators to apply for authority to fly over national parks and abutting tribal lands. FAA received applications for commercial air tours over more than 100 of the 401 park units, and has granted interim operating authority to all applicants. Application triggers development of an Air Tour Management Plan (ATMP) by FAA and NPS for each unit where none exists. The purpose of a plan is to mitigate or prevent any harm by commercial air tours to natural and cultural resources, visitor experiences, and tribal lands. Development of an ATMP requires an environmental review under the National Environmental Policy Act of 1969 (NEPA, 42 U.S.C. §§4321-4370f). The FAA and NPS began developing ATMPs at about a dozen areas. Development of ATMPs has been proceeding much more slowly than had been expected, and to date none have been completed. The agencies also are taking actions in furtherance of P.L. 112-95 , discussed below under "Legislative Activity." For instance, they are nearing completion of voluntary agreements for a few areas, in lieu of ATMPs, and are assessing whether other areas are candidates for voluntary agreements under the law. Further, they published an initial list of more than 30 park units that are exempted from the requirement to develop an ATMP or voluntary agreement, based on a provision in the law that exempted park units with 50 or fewer commercial air tours. Based on the same provision, development of an ATMP for Petrified Forest National Park has been terminated. The agencies have been determining the ambient sound levels at park units for which ATMPs are being developed, as a baseline for measuring noise sources and impacts. In general, acoustic data are being collected for comparison during the two seasons with the most and least overflights—summer and winter. In park units with year-round overflights, sound data generally are being collected in all seasons. Data usually are obtained during at least a 25-day period, at various locations throughout a park. Both the sound pressure level (i.e., intensity) and the frequency (i.e., pitch) are recorded. On October 24, 2013, the FAA announced intent to seek approval for the collection of information on the human response to aviation noise in protected natural areas. The agency called the data from this research "critically important for establishing the scientific basis for air tour management policy decisions" in park units under the Air Tour Act, and stated that the research would expand on previous work "by using a wider variety of survey methods, by including different site types and visitor experiences from those previously measured, and by increasing site type replication." On August 9, 2013, NPS announced intent to seek approval for a public survey about the value of natural quiet in park units. The agency seeks to obtain information on how human-caused sounds affect park visitation. Some park units are developing soundscape management plans to manage sound, in part caused by overflights and other aircraft, as well as other human-caused noises such as from cars, buses, machines, and voices. For instance, Zion National Park (UT) issued a Soundscape Management Plan to address the increase in sources and intensity of noises in recent decades that could adversely impact visitor enjoyment and the health of ecosystems. The plan seeks in part to identify sources of sound, develop soundscape standards and ensure that standards are being met, eliminate or mitigate sounds incompatible with park purposes, and restore degraded soundscapes. No general legislation pertaining to air tour management at park units has been introduced in the 113 th Congress as of January 2014. The 112 th Congress enacted broad aviation legislation with provisions affecting commercial air tours over park units generally ( P.L. 112-95 ). The provisions seek to expedite and streamline agency actions, in part because of the slow progress in completing ATMPs. They provide that, in lieu of an ATMP, the NPS director and FAA administrator may enter into a voluntary agreement with a commercial air tour operator that would govern commercial air tours over a park unit. Before implementing a voluntary agreement, the agencies must provide for an opportunity for public review and consult with Indian tribes on affected tribal lands; agreements may be implemented "without further administrative or environmental process" beyond that described in the law. Voluntary agreements may contain provisions to establish conditions for the conduct of commercial air tours, ensure compliance, provide for fees for commercial air tours, and provide incentives for the adoption of quiet aircraft technology by commercial tour operators. Park units with 50 or fewer annual air tour flights are exempt from the requirement for an ATMP or voluntary agreement. However, the NPS director can withdraw an exemption in order to protect park resources and values or visitor use and enjoyment. The law also allows agencies to modify interim operating authority, which could provide for additional authority because interim conditions have prevailed for longer than had been anticipated. It also establishes reporting requirements for commercial air tour operators on the number of air tours over each national park unit. Another provision of P.L. 112-95 pertains only to Crater Lake National Park. It allows the NPS director to deny an application to begin commercial air tours at the park before the establishment of an air tour management plan. Subsequently, P.L. 112-141 extended the provision to Great Smoky Mountains National Park, and to applications to expand operations at both park units. Personal watercraft (PWC) are high-speed, very shallow-draft, and highly maneuverable watercraft "operated by a person or persons sitting, standing, or kneeling on the vessel rather than within the confines of the hull" (36 C.F.R. §1.4). Often used to perform stunt-like maneuvers, PWC include watercraft known by brand and generic names such as Jet Ski ® , Sea-Doo ® , Surf-jet ® , water sled, wet jet, Wavejammer, Wetbike, and WaveRunner ® . PWC represent a small segment of the recreational boat market—the National Marine Manufacturers Association (NMMA) estimated that 1.3 million PWC were in use in 2012, about 8% of 16.67 million recreational boats. However, the number of PWC accidents has raised concerns. There were 721 PWC injuries and 58 deaths reported for 2012, constituting 19% of reported accidents among all recreational boats. In addition to safety issues, critics of PWC use cite environmental concerns, including noise, air, and water pollution, as well as damage to land, plants, and wildlife. Supporters of access for PWC contend that technological advances enable manufacturers to produce cleaner, more efficient machines, and they point to economic benefits generated by the industry. Recent controversies have focused on regulatory actions that would restrict recreational use of or access for these vehicles, often in specific park units. NPS has evaluated PWC use in units where motorized boats are allowed, and has issued park-specific regulations, partly in response to a lawsuit settlement that prohibited PWC in park units until these steps were taken. For 13 units, the agency has authorized PWC use in designated areas: Lake Mead, Glen Canyon, Lake Meredith, Lake Roosevelt, Amistad, Chickasaw, Bighorn Canyon, and Curecanti National Recreation Areas; Assateague, Fire Island, Gulf Islands, and Cape Lookout National Seashores; and Pictured Rocks National Lakeshore. One unit, Big Thicket National Preserve, is closed to PWC pending completion of environmental assessments and rulemaking. In May 2008, a coalition of environmental groups filed a lawsuit in the U.S. District Court for the District of Columbia seeking reinstatement of PWC bans at two units: Gulf Islands National Seashore and Pictured Rocks National Lakeshore. In July 2010, the court held that NPS violated the National Environmental Policy Act by not fully considering PWC impacts on wildlife, water quality, air quality, noise, and visitor experiences at these park units. The court ordered NPS to re-evaluate environmental assessments justifying PWC use, but did not vacate or overturn the current rules allowing them. In February 2013, NPS issued a notice of intent to prepare an environmental impact statement concerning the use of PWC at Gulf Islands National Seashore. No general legislation affecting PWC use has been introduced in the 113 th Congress as of the date of this report, and none was introduced in the 112 th Congress. Mountain biking advocates, such as the International Mountain Biking Association (IMBA), actively support opening additional trails in the National Park System to mountain bikers. Other groups have expressed concern that increasing the number of trails for mountain bikes could cause resource damage, such as erosion, and diminish the enjoyment of visitors on foot or horseback. On July 6, 2012, NPS finalized a rule broadly addressing mountain bicycles within NPS units. The final rule revises previous regulations and park management policies that required special regulations to designate bicycle trails other than those on park roads, in parking lots, and within developed areas such as campgrounds. The intent is to provide "park superintendents with a more efficient and effective way to determine whether opening existing trails to bicycles would be appropriate in the park unit they manage." It authorizes park superintendents to open existing hiking and horse trails for biking without promulgating special regulations, although it continues to require input from the public and environmental assessments in conjunction with park-specific trail decisions. Special regulations continue to be required for any bicycle trails involving new construction outside developed areas. Currently, more than 40 NPS units allow mountain biking on dirt trails and/or dirt roads. The IMBA and NPS renewed a five-year partnership agreement (through 2015) to explore additional opportunities for mountain biking in park units. A number of park units are contemplating or moving forward on bicycle-applicable rules and/or multi-use trails. For example, in February 2013, NPS published a final rule designating the Sleeping Bear Heritage Trail, under construction at Michigan's Sleeping Bear Dunes National Lakeshore, as a route for bicycle use. In March 2013, the agency published a final rule authorizing bicycle use at Chattahoochee River National Recreation Area, and designating several trail segments in the NRA as multi-use trails, open to pedestrians and bicyclists. Another final rule by the agency, in December 2013, authorized bicycle use at New River Gorge National River. It provided for the construction of three new trails for hiking and bicycle use, as well as allowing bicycling on certain existing park trails and administrative roads. Some NPS actions to increase trails available for biking have been controversial. For example, NPS is re-evaluating a plan to construct a bike path in the Moose-Wilson Corridor of Grand Teton National Park, in response to concerns about the effects of path construction on wildlife habitat. No legislation on the use of mountain bicycles in the National Park System has been introduced in the 113 th Congress as of the date of this report, and none was introduced in the 112 th Congress. Motorized recreation on NPS lands sometimes brings into conflict the two parts of the NPS mission: to conserve public land while at the same time providing for its enjoyment by the public. In NPS units that permit ATVs; dune, sand, or swamp buggies; snowmobiles; aircraft overflights; personal watercraft; and/or mountain bikes, the desire for access to these recreational opportunities has clashed with concerns about resource damage and disturbance of non-motorized pursuits. Adding to the conflict are economic considerations, with some asserting that restrictions on motorized recreation harm local industries that serve vehicle users, while others contend that growth in motorized recreation damages valuable natural resources that also draw visitors to the parks and support gateway communities. NPS's laws, regulations, and policies generally emphasize the conservation of park resources in conservation/use conflicts, and NPS has fewer lands open to off-highway vehicles than do other federal land management agencies such as the Bureau of Land Management and the Forest Service. The 113 th Congress has addressed motorized recreation in the National Park System through legislation and oversight. While oversight hearings have concerned broad topics, such as impediments to motorized recreation on federal lands generally, introduced legislation has focused on OHV use at specific units. Congress could consider other specific conflicts or broader topics, such as NPS management of motorized recreation, calls to increase motorized access, or impacts of motorized use on natural resources, in the remainder of the 113 th Congress.
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In managing its lands, the National Park Service (NPS) seeks to balance a dual statutory mission of preserving natural resources while providing for their enjoyment by the public. Motorized recreation on NPS lands sometimes brings the two parts of this mission into conflict. Off-highway vehicles (OHVs) have been particularly controversial, with calls for greater recreational access intersecting with concerns about environmental impacts and disturbance of quieter pursuits. NPS's laws, regulations, and policies generally emphasize the conservation of park resources in conservation/use conflicts, and NPS has fewer lands open to OHV use than do other federal land management agencies such as the Bureau of Land Management and the Forest Service. The 113th Congress has addressed motorized recreation through legislation and oversight, concerning broad issues such as recreational access to federal lands as well as individual conflicts at specific NPS units. ATVs and Oversand Vehicles. Only 13 of the 401 park units are open to public recreational use of all-terrain vehicles (ATVs), four-wheel drive vehicles, and/or dune, sand, and swamp buggies. The extent of unauthorized use of such vehicles is in dispute. Several units have developed pilot education and deterrence programs to address unauthorized use. Legislative measures in the 113th Congress (H.R. 819, H.R. 2954, S. 486) seek to regulate OHV use at one NPS site, Cape Hatteras National Seashore. Snowmobiles. Regulatory and judicial actions to allow or restrict snowmobile use have focused primarily on three Yellowstone-area park units. Winter use plans developed by NPS to establish numerical limits on snowmobile and snowcoach entries have been the subject of repeated, and often conflicting, court challenges. Most recently, NPS issued a final rule governing snowmobile use at Yellowstone for the 2014-2015 winter season and beyond. The rule allows up to 110 "transportation events" per day (defined as the use of either a multipassenger snowcoach or a group of snowmobiles). Aircraft Overflights. Grand Canyon National Park is at the center of a conflict over whether or how to limit air tours over national park units to reduce noise. NPS and the Federal Aviation Administration (FAA) continue to work to implement a 1987 law (P.L. 100-91) that sought to reduce noise at Grand Canyon, and a 2000 law (P.L. 106-181) that regulates overflights at other park units. P.L. 112-141, enacted in 2012, contains provisions on air tour management at Grand Canyon, including some less-stringent standards for natural quiet than NPS had recommended in planning efforts. P.L. 112-95 contains provisions to expedite and streamline agency planning actions for commercial air tours over parks generally. Personal Watercraft (PWC). Since 2003, NPS has completed regulations to open designated PWC areas at 13 units. In 2010, a federal judge ordered NPS to re-examine environmental assessments justifying PWC use at two of those units but did not overturn existing regulations. Mountain Bicycles. This mechanized though nonmotorized activity also raises issues of the sufficiency of access to park lands as well as potential resource damage and disturbance of quieter recreational pursuits. Currently, more than 40 NPS units allow mountain biking on dirt trails and/or dirt roads. Mountain biking advocates have worked with NPS to explore opportunities to increase this activity in park units. In 2012, NPS finalized a rule that eases the process for park superintendents to open trails to bicycles.
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A generic drug is a lower-cost copy of a brand-name chemical drug. Marketing of the generic drug becomes possible only when the brand-nameâalso called innovatorâdrug is no longer protected from market competition by patent and other protections, called regulatory exclusivity. Food and Drug Administration (FDA) approved generic drugs "have the same high quality, strength, purity and stability as brand-name drugs," and have met the same FDA standards regarding manufacturing, packaging, and testing as brand-name drugs. Generic drugs are required to have the same active pharmaceutical ingredient (API) as the brand-name product, but need not have the same inactive ingredients. Prior to marketing, the sponsor of a brand-name drug must submit to FDA clinical data in a new drug application (NDA) to support the claim that the drug is safe and effective for its intended use. The FDA uses the information in the NDA as a basis for approving or denying the sponsor's application. The Drug Price Competition and Patent Term Restoration Act of 1984 ( P.L. 98-417 )âalso called the Hatch-Waxman Actâamended the Federal Food, Drug, and Cosmetic Act (FFDCA) allowing a generic drug manufacturer to submit an abbreviated NDA (ANDA) to the FDA for premarket review. In the ANDA, the generic company establishes that its drug product is chemically the same as the already approved drug and thereby relies on the FDA's previous finding of safety and effectiveness for the approved drug. The generic drug must also be bioequivalent to the brand-name drug, meaning it delivers "the same amount of active ingredients in the same amount of time as the brand-name drug." Because the generic sponsor does not perform costly animal and clinical research âand usually does not pay for expensive advertising, marketing, and promotionâthe generic drug company is able to sell its generic drug product at a lower price compared with the brand drug product. FDA states that on average, "the cost of a generic drug is 80 to 85 percent lower than the brand name product." According to a 2016 report sponsored by the Generic Pharmaceutical Association (GPhA, now called the Association for Accessible Medicines), "generics are 89% of prescriptions dispensed but only 27% of total drug costs. Put another way, brand drugs are only 11% of prescriptions but are responsible for 73% of drug spending." The 2016 GPhA report estimates the 10-year (2006-2015) savings from the use of generic drugs at $1.46 trillion. Once a drug is approved, the brand-name manufacturer sets the drug price based on a number of factors. Patent and regulatory exclusivity allow the company to recoup its research and development expenses, allow further R&D investment, and provide a profit to stockholders. The branded drug is protected from market competition by (1) patents issued by the U.S. Patent Office and (2) regulatory exclusivity granted by the FDA following enactment of the Hatch-Waxman Act. These incentives allow the brand-name company to charge a much higher price for the drug product than the cost of manufacture. For example, the cancer drug Gleevec (imatinib) "can be sustainably and profitably produced at a price between $128 and $216 per person-year, which are far lower than the current prices of around $30,000 in EU and $107,799 per person-year in the USA." The price of a drug is strongly correlated with the number of different manufacturers marketing the drug. According to an FDA analysis, "the first generic competitor prices its product only slightly lower than the brand-name manufacturer. However, the appearance of a second generic manufacturer reduces the average generic price to nearly half the brand-name price. As additional generic manufacturers market the product, the prices continue to fall, but more slowly. For products that attract a large number of generic manufacturers, the average generic price falls to 20% of the branded price and lower." The 2016 GPhA report provides the following two illustrative examples: Zocor (simvastatin) treats high cholesterol and reduces risk of heart attacks and related health problems. The brand price pre-patent expiry for this medicine was $2.62 per pill. The generic version currently sells for three cents per pillâa 99% savings. In 2015, more than 65 million prescriptions for this medicine were dispensed. Depression affects 19 million Americans across age, race, and gender. Generic versions of the popular brand-name drug Zoloft became available in 2006. Last year [2015] there were 45 million prescriptions dispensed for generic versions of Zoloft (sertraline) at a price of six cents per pill. This is a 97% price reduction from the brand pre-expiry price of $2.18 per pill. Recently media attention has focused on price increases for certain generic drugs. For example, between July 1, 2013, and June 30, 2014, the cost of the antibiotic tetracycline increased 17,714% and the heart drug digoxin increased 828%. However, a review of the generic drug market by the Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation (ASPE), found that "about two-thirds of generic products appear to have experienced price declines in 2014." For the segments of the generic drug market that have experienced large price increases, ASPE provides the following explanations: "small markets with limited entry; the impact of mergers, acquisitions, and market exits; the ability to obtain new market exclusivities; and distribution activities." ASPE states that "these problems apply to relatively small segments of the market and, while they lead to increased costs in certain therapeutic areas, they have little influence on overall spending increases." Funding for the premarket review of ANDAs submitted to FDA by generic drug sponsors is provided by direct appropriations from Congress and user fees paid by the generic drug industry. The following section of this report discusses the anticipated reauthorization by Congress of the Generic Drug User Fee Amendments of 2012 (GDUFA). FDA first gained the authority to collect user fees from the manufacturers of brand-name prescription drugs and biological products in 1992, when Congress passed the Prescription Drug User Fee Act (PDUFA). With PDUFA, FDA, industry, and Congress reached an agreement on two concepts: 1. performance goalsâFDA would negotiate with industry on target completion times for various review processes; and 2. use of feesâthe revenue from prescription drug user fees would be used for activities to support the review of new product applications and would supplementârather than supplantâcongressional appropriations to FDA. The added resources from user fees allowed FDA to increase staff available to review applications and to reduce the median review time for standard applications. Over the years, Congress has added similar user fee authority regarding medical devices, animal drugs, and biosimilars. User fees constitute 41% of the FY2017 FDA budget. According to FDA, the Hatch-Waxman Act led to "a significant regulatory challenge" for the agency. That is because FDA's resources did not keep pace with the increasing number of ANDAs and other submissions related to generic drugs. This resulted in delayed approvals of generic drugs, "a major concern for the generics industry, FDA, consumers, and payers alike." In March 2012, median review time for generic drug applications was approximately 31 months and FDA had a backlog of over 2,500 ANDAs. At that time, FDA was receiving about 100 NDAs and 800-900 ANDAs each year. In addition, FDA had to conduct more inspections as the number of manufacturing facilities grew, "with the greatest increase coming from foreign facilities." In March 2012, the number of foreign Finished Dosage Form (FDF) manufacturers exceeded the number found in the United States. Moreover, the generic industry was experiencing "significant growth in India and China," a trend that was expected to continue. According to FDA, foreign inspections "represent a significant challenge and require significant resources." The agency's website states: Prior to GDUFA, FDA was required to inspect domestic human generic drug manufacturers every 2 years, but no such requirement existed for foreign manufacturers. This disparity between domestic and foreign manufacturing facilities, combined with insufficient resources, created significant vulnerabilities in the global prescription drug supply chain. Approximately 80% of active ingredients used in human generic medicines and marketed in the United States are manufactured in foreign countries, and more than half of finished products are manufactured overseas. In order to expedite ANDA reviews and bring parity to domestic and foreign inspection schedules, FDA had proposed generic drug user fees in each annual budget request to Congress beginning with the FY2008 request. Such fees became possible when the Food and Drug Administration Safety and Innovation Act (FDASIA, P.L. 112-144 ) became law in July 2012. Title III of FDASIA, the Generic Drug User Fee Amendments (GDUFA), authorized FDA to collect fees from industry for agency activities associated with generic drugs. Under what is now called GDUFA I, such fees are allowed to be collected from October 2012 through September 2017. GDUFA I set the total amount of generic drug fees collected for FY2013 at $299 million. It established the types of fees to be paid by the manufacturer. The first two fees listed below are paid at the time of filing or application submission; the facility fees are annual fees for each establishment: application fee for an ANDA, application fee for a prior approval supplement (PAS) to an ANDA, Drug Master File fee, facility fee for the facility making the API, and facility fee for the facility producing the FDF. The law also specified the proportion that each type of fee contributes to the total collected and provided a methodology for the calculation of an annual inflation adjustment for the remaining four fiscal years under GDUFA I, FY2014 through FY2017. Like PDUFA, the first GDUFA agreement included limitations, often referred to as triggers, designed to ensure that user fees supplement, rather than replace, congressional appropriations. The limitations require that budget authority (appropriations minus fees) go no lower than the FY2009 amounts, adjusted for inflation, for (1) FDA salaries and expenses overall and (2) human generic drug activities. Again similar to PDUFA, but different from the narrower medical device (MDUFA) and biosimilar (BsUFA) definitions, GDUFA defined human generic drug activities to include the review of submissions and drug master files, approval letters and complete response letters, letters regarding deficiencies, inspections, monitoring or research, postmarket safety activities, and regulatory science. Other provisions under the original GDUFA agreement include risk-based biennial inspections, parity of domestic and foreign inspection schedules by FY2017, a $15,000-$30,000 higher inspection fee for a foreign facility than for a domestic facility to reflect cost differences, streamlined hiring authority, and required annual performance and financial reports. The FY2017 fee rates under GDUFA are shown in Table 1 . The FDA provides information on the amount of GDUFA fees collected each fiscal year and how the fees are spent in the annual financial reports. Annual performance reports provide data on FDA's progress in meeting GDUFA performance goals and commitments. FDA has made a number of changes to its generic drug program following the enactment of GDUFA I, according to a May 2017 analysis by the Government Accountability Office (GAO). In December 2013, FDA reorganized the Office of Generic Drugs (OGD) within the Center for Drug Evaluation and Research (CDER), creating four subordinate offices within OGD. In January 2015, FDA also established a new Office of Pharmaceutical Quality "to provide better alignment among all drug quality review functions, including application reviews, inspections and research." In addition, FDA surpassed its GDUFA goal of hiring 923 new staff by the end of FY2015: the agency hired 1,176 staff over the first three fiscal years (FY2013 through FY2015) and 346 new staff in FY2016. In the area of information technology, FDA established a new informatics platform to track the applications review process as well as facility inspection decisions. FDA changed how it communicated with generic drug applicants by "consolidating all application deficiencies in one letter to the applicant, called a complete response letter." The agency also issued 31 new and revised guidance documents about the generic drug application review process, and "issued almost 600 new or revised product-specific recommendations to assist the applicants with identifying the most appropriate methodology for developing generic drugs and generating evidence needed to support application approval." In response to generic drug applicant concerns over these and other program changes, FDA has made additional refinements to its generic drug application review program. The May 2017 GAO analysis found that "the average time for FDA to complete the first review cycle decreased from 26 months for ANDAs submitted in fiscal year 2013 to about 14 months for those submitted in fiscal year 2015.... As of December 31, 2016, FDA had also acted on 89 percent of all ANDAs submitted in fiscal year 2015 within 15 months of receipt, exceeding its GDUFA goal of acting on 60 percent of ANDAs received in fiscal year 2015 within 15 months." For the first year of the GDUFA program, Congress had specified that $50 million of the $299 million would come from a one-time backlog fee to be paid by sponsors of generic drug applications that were pending at the time of enactment. Under GDUFA I, FDA committed to reviewing and taking regulatory action on 90% of the ANDA backlog by September 30, 2017. The May 2017 GAO report stated that "as of December 31, 2016, FDA had acted on 92 percent of the 4,743 applications in the backlog pending review as of October 1, 2012, exceeding its GDUFA goal of acting on 90 percent of such applications before the end of fiscal year 2017. Fifty-eight percent of these applications were approved; approximately 20 percent were withdrawn by the applicant; and the applicants for the remaining 12 percent received a complete response letter." A complete response letter (CRL) describes all of the deficiencies that FDA has identified in an ANDA that must be satisfactorily addressed before the ANDA can be evaluated for approval. According to FDA OGD Director Kathleen Uhl, "these are not on the agency clock, we have no idea when they're coming back or if they're coming back to the FDA for another review cycle." If the ANDA submitted by the generic drug sponsor lacks "crucial informationâabout their research, when the original drug will lose patent protection, or relevant court cases," then the review process can slow down. As is the case with several other FDA user fee authorities, the five-year generic drug user fee authority is scheduled to sunset on September 30, 2017. The reauthorization process is outlined in the FFDCA as amended by GDUFA. The process began on June 15, 2015, when FDA held a public meeting on the reauthorization of the GDUFA program. From October 2015 through August 2016, the agency held negotiation sessions with the generic drug industry on the reauthorization agreement; minutes of these meetings are posted on the FDA website. In addition, the law directs FDA to hold monthly discussions with representatives of patient and consumer advocacy groups; minutes of these stakeholder meetings are also found on the FDA website. In October 2016, the agency posted on its website the draft GDUFA agreementâGDUFA IIâsetting FDA performance goals and procedures for FY2018 through FY2022. Another public meeting was held on October 21, 2016, followed by a 30-day comment period. After receiving the GDUFA II recommendations (both statutory and the agreement), Senate and House committees favorably reported bills for floor consideration ( S. 934 , H.R. 2430 ). FDA and industry agreed that under GDUFA II user fees should total $493.6 million annually, adjusted each year for inflation, in order to maintain current productivity and implement proposed GDUFA II improvements. According to FDA, ANDA reviews are the primary workload driver of the GDUFA program. Under GDUFA I, the agency projected that it would receive approximately 750 ANDAs per year and planned and budgeted according to that projection. However, FDA actually received approximately 1,000 ANDAs per year. To address the increased workload, FDA hired additional staff and is projected to spend about $430 million in user fee funds in the fifth year of GDUFA I. Under the GDUFA II performance goal agreement between FDA and industry, the agency, as proposed, would review and act on 90% of standard original ANDAs within 10 months of the date of ANDA submission. This would continue the goal that GDUFA I set for the year 5 cohort in FY2017, the final year of the GDUFA I agreement. By way of comparison, under GDUFA I the goal was for FDA to review and act on 60% of ANDAs within 15 months of submission date for the year 3 cohort, and 75% of original ANDA submissions within 15 months of submission date for the year 4 cohort. Similarly, GDUFA II would continue another goal from the final year of GDUFA I (FY2017): FDA would review and act on 90% of standard PASs within 6 months of the date of PAS submission if preapproval inspection is not required and within 10 months of the date of PAS submission if preapproval inspection is required. Under GDUFA I, for PASs not requiring inspection, the goal was for FDA to review and act on 60% of PASs within six months from the date of submission for receipts in FY2015 and 75% of PASs within six months from the date of submission for receipts in FY2016. For PASs requiring inspection, the goal under GDUFA I was for FDA to review and act on each of the three cohorts within 10 months. GDUFA II would add two new features: a priority ANDA and a priority PAS. FDA would review and act on 90% of priority ANDAs within eight months of the date of ANDA submission, if the sponsor has submitted a complete and accurate facilities data package, called a Pre-Facility Communication (PFC), two months prior to the date of ANDA submission. For the priority PAS, FDA would review and act on 90% of priority PASs within four months of the date of PAS submission if preapproval inspection is not required. If preapproval inspection is required, FDA would review and act on 90% of priority PASs within eight months of the date of PAS submission, provided the applicant submits a complete and accurate PFC two months prior to the date of PAS submission. FDA representatives at an October 2016 GPhA conference indicated that in total the agency has approved more than 16,000 ANDAs. "However, that number drops down to approximately 10,000 when you look at currently approved ANDAs that have not been withdrawn. Of the 10,000 currently approved ANDAs, more than 20% have been approved since GDUFA" was implemented but "many of those ANDAs don't even go to market.... Innovator drugs for which there are no approved competitors, but for which ANDAs are pending, account for less than 2% of all drugs." Therefore, "if there's a lack of generic competition to branded products for off patent drugs, the answer may lie with industry," not with FDA. An industry analyst states, "the issue of a lack of generic competition isn't so much of an issue of FDA's speed in bringing this competition to market, but in industry submitting applications that would create this competition. For instance, there are only 23 innovator drugs with ANDAs pending and no patent or exclusivity protection ... and nothing else stopping the generic drug makers from bringing competition to the market except for FDA. But there are another 125 innovator drugs with no approved generics and no ANDAs submitted." On June 21, 2017, Scott Gottlieb, Commissioner of Food and Drugs, indicated FDA is working on a Drug Competition Action Plan to increase the development of lower-cost generic drugs and is scheduled to hold a public meeting on July 18, 2017, to obtain additional input. On June 27, 2017, FDA announced a new policy to "expedite the review of generic drug applications until there are three approved generics for a given drug product" and published "a list of off-patent, off-exclusivity branded drugs without approved generics."
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A generic drug is a lower-cost copy of a brand-name chemical drug. Marketing of the generic drug becomes possible only when the brand-nameâalso called innovatorâdrug is no longer protected from market competition by patent and other protections, called regulatory exclusivity. Prior to marketing, the sponsor of a brand-name drug must submit to the Food and Drug Administration (FDA) clinical data in a new drug application (NDA) to support the claim that the drug is safe and effective for its intended use. The FDA uses the information in the NDA as a basis for approving or denying the sponsor's application. Once a drug is approved, the brand-name manufacturer has free rein in setting the drug price due to a government-sanctioned monopoly for a defined period of time. This is designed to enable the company to recoup its r esearch and development expenses, allow further R&D investment, and provide a profit to stockholders. The branded drug is protected from market competition by (1) patents issued by the U.S. Patent Office and (2) regulatory exclusivity granted by the FDA following enactment of the Drug Price Competition and Patent Term Restoration Act of 1984 ( P.L. 98-417 ), also called the Hatch-Waxman Act. These congressionally established incentives allow the brand-name company to charge a much higher price for the drug product than the cost of manufacture. In one extreme example, as calculated by researchers in the United Kingdom and the United States, the annual cost to produce the cancer drug Gleevecâincluding a 50% profitâcould be $216 per patient; the current annual price for a U.S patient is $107,799. The Hatch-Waxman Act amended the Federal Food, Drug, and Cosmetic Act (FFDCA) allowing a generic drug manufacturer to submit an abbreviated NDA (ANDA) to the FDA for premarket review. In the ANDA, the generic company establishes that its drug product is chemically the same as the already approved drug and thereby relies on the FDA's previous finding of safety and effectiveness for the approved drug. Because the generic sponsor does not perform costly animal and clinical researchâand usually does not pay for expensive advertising, marketing, and promotionâthe generic drug company is able to sell its drug product at a lower price compared with the branded drug product. The cost of a generic drug is, on average, about 85% lower than the brand-name product. According to FDA, the success of the Hatch-Waxman Act led to significant regulatory challenges for the agency. FDA's resources did not keep pace with the increasing number of ANDAs, resulting in delayed approvals of generic drugs, "a major concern for the generics industry, FDA, consumers, and payers alike." In March 2012, median review time for generic drug applications was approximately 31 months and FDA had a backlog of over 2,500 ANDAs. In addition, FDA had to conduct more inspections as the number of manufacturing facilities grew, "with the greatest increase coming from foreign facilities." To eliminate the backlog, expedite ANDA reviews, and provide resources for more inspections, FDA proposed generic drug user fees in each annual budget request to Congress beginning with the FY2008 request. Such fees became possible in July 2012 when the Food and Drug Administration Safety and Innovation Act (FDASIA, P.L. 112-144 ) became law. Title III of FDASIA, the Generic Drug User Fee Amendments (GDUFA), authorized FDA to collect fees from industry for agency activities associated with generic drugs. What is now called GDUFA I allowed the collection of such fees from October 2012 through September 2017. Between October 2015 and August 2016, FDA held negotiation sessions with industry on GDUFA reauthorization. In October 2016, FDA posted on its website the draft agreementâGDUFA IIâsetting fees and FDA performance goals for FY2018 through FY2022. After receiving the GDUFA II recommendations (both statutory and the agreement), Senate and House committees favorably reported bills for floor consideration.
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The Food and Drug Administration (FDA), under the authority of the Federal Food, Drug, and Cosmetic Act (FFDCA), regulates the sale of drugs and biological products, such as vaccines, in the United States. Under the act, a manufacturer may not market a prescription drug without an approved new drug application (NDA) or a vaccine without an approved biologics license application (BLA). However, under limited circumstances—some of which this report addresses—there are certain mechanisms under which the FDA may expand access to a drug or biologic outside the standard regulatory framework. Two such mechanisms are expanded access to investigational drugs , commonly referred to as compassionate use , and emergency use authorization . Compassionate Use . One type of compassionate use request may come from a person with a terminal diagnosis who has tried all appropriate FDA-approved drugs. Perhaps a promising drug is being tested in a clinical trial closed to new patients or for which the patient does not qualify. In that case, a physician may ask FDA for permission to get the investigational new drug for the patient outside of the clinical trial. Before approaching FDA, the patient or physician must already have contacted the sponsor of the investigational drug, usually its manufacturer, to ask for the drug, and the manufacturer must have agreed to provide the drug pending FDA authorization. In 2014, FDA received 1,882 such requests and approved all but 9. What that 99.5% rate does not reveal is how many people took the first step—requesting access from manufacturers—and how many of those requests companies denied. Companies do not release those numbers. An article in BioCentury related a conversation with bioethicist Arthur Caplan, whom it described as consulting with many companies about expanded access, writing that Caplan "says it is likely that only a small fraction of the refusals make it into the media." Also not revealed by the over 99% FDA approval rate is how many patients and doctors did not pursue expanded access because the FDA process was too involved or lengthy. Emergency Use Authorization. Emergency use authorization (EUA) follows another path. When one of the Secretaries of Defense, Health and Human Services, or Homeland Security declares a military, domestic, or public health emergency or potential for such an emergency, FDA, following procedures authorized by law, may issue EUAs for unapproved products. Two circumstances have contributed to a recent increase in public and congressional discussion of expanded access to investigational drugs. The first is patients and interested groups who are asking state legislatures to pass right-to-try laws, which aim to bypass FDA authorization. These advocates are using the power of social media to influence manufacturers' decisions to provide investigational drugs. Second is the demand for unapproved medical products to fight Ebola virus disease. Members of Congress ask about FDA authorities and practices such as compassionate use, which can apply to one or a few patients, and emergency use authority, which expands access to investigational drugs to protect the public against national security or public health threats. Both mechanisms involve people with an immediate life-threatening condition, no standard therapy, and a possible "nothing-to-lose" attitude who are willing to try a drug that may not work or may even hasten an already imminent death. This report discusses the underlying philosophy behind how FDA, concerned with safety and effectiveness, weighs risks and benefits when deciding whether to allow access to a medical product, either through normal approval channels or outside them; FDA policies on compassionate use and emergency use authority; obstacles—perceived as the result of FDA or manufacturer decisions—to individuals' expanded access to investigational drugs, and some possible remedies; and how expanded access to compassionate use and emergency use authority might form part of a broader approach to ensuring safe, effective, and available drugs. In general, a manufacturer may not sell a drug or vaccine in the United States until FDA has reviewed and approved its marketing application. That application (a new drug application [NDA] or a biologics license application [BLA]) includes data from clinical trials as evidence of the product's safety and effectiveness for its stated purpose(s). After laboratory and animal studies have identified a potential drug or vaccine, a sponsor may submit an investigational new drug (IND) application to FDA. With FDA permission, the sponsor may then start the first of three major phases of clinical—human—trials. ( Figure 1 illustrates the general path of a pharmaceutical product.) Once the IND application is approved, researchers test in a small number of human volunteers the safety they had previously demonstrated in animals. These trials, called Phase I clinical trials, attempt "to determine dosing, document how a drug is metabolized and excreted, and identify acute side effects." If a sponsor considers the product still worthy of investment based on the results of Phase I trial, it continues with Phase II and Phase III trials. Those trials look for evidence of the product's efficacy —whether it works under controlled conditions—and evidence of how well it works when conditions are less controlled, such as effectiveness in larger groups of individuals with the particular characteristic, condition, or disease of interest. The sponsor presents analyses of the clinical trials in its marketing application—NDA or BLA—as evidence of the product's safety and effectiveness. The application also includes information on the manufacturing facilities and processes, reporting mechanisms, and labeling information. When the FDA approves a drug or licenses a vaccine, it usually leaves prescribing decisions to licensed clinicians. If the risks associated with a drug outweigh the expected benefit to the population with the condition it is meant to treat, FDA typically keeps the product off the market. Sometimes, though, FDA may approve a drug subject to certain restrictions or requirements. One mechanism is a risk evaluation and mitigation strategy (REMS), which may limit who may prescribe the drug and which pharmacies may dispense it. A REMS may require patient registries or clinical laboratory tests at the time of dispensing (e.g., for liver function or pregnancy). Once FDA has approved a drug (with or without a REMS), it places several ongoing requirements on the manufacturer. These include periodic facility registration and inspection requirements, along with manufacturer reporting requirements regarding any adverse events that may be related to the drug's use. FDA may also require studies to resolve specific questions about the drug's safety or effectiveness; such studies may require a large number of people to take the drug, or a long time to observe infrequent problems. A manufacturer may distribute a drug or vaccine in the United States only if FDA has approved its NDA or BLA, or if its use is in a clinical trial under an FDA-approved IND. Under standard procedures, individuals outside of the sponsor-run clinical trials do not have access to the investigational new drug. The FFDCA, however, permits FDA in certain circumstances to allow access to an unapproved drug or to an approved drug for an unapproved use. This report focuses on two main categories of expanded access: individual investigational new drug applications (commonly referred to as compassionate use) and emergency use authorizations . The primary route for an individual to obtain an investigational drug is to enroll in a clinical trial testing that new drug. However, an individual may be excluded from the clinical trial because its enrollment is limited to patients with particular characteristics (e.g., in a particular stage of a disease, with or without certain other conditions, or in a specified age range), or because the trial has reached its target enrollment number. Through FDA's expanded access procedure, a person, acting through a licensed physician, may request access to an investigational drug—through either a new IND or a revised protocol to an existing IND—if a licensed physician determines the patient has "no comparable or satisfactory alternative therapy available to diagnose, monitor, or treat" the serious disease or condition; and "the probable risk to the person from the investigational drug or investigational device is not greater than the probable risk from the disease or condition"; and the Secretary determines "that there is sufficient evidence of safety and effectiveness to support the use of the investigational drug" for this person; and "that provision of the investigational drug … will not interfere with the initiation, conduct, or completion of clinical investigations to support marketing approval"; and "the sponsor, or clinical investigator, of the investigational drug ... submits" "to the Secretary a clinical protocol consistent with the provisions of" FFDCA Section 505(i) and related regulations. In addition to the individual IND or protocol, regulations describe other categories of expanded use of investigational drugs: individual patient IND or protocol, including for emergency use; intermediate-size patient populations, with one IND or protocol that consolidates several individual access requests; treatment IND or treatment protocol for "widespread treatment use" when a drug is farther along the clinical trial and marketing application process. FDA makes most expanded use IND and protocol decisions on an individual-case basis. Consistent with the IND process under which the expanded use mechanism falls, the requesting physician is considered the investigator. The investigator is responsible for complying with informed consent and institutional review board (IRB) review of the expanded use. The manufacturer is responsible for required safety reports to FDA. FDA may permit a manufacturer to charge a patient for the investigational drug, but "only [for] the direct costs of making its investigational drug available" (i.e., not for development costs or profit). The widespread use of expanded access is limited by an important factor: whether the manufacturer agrees to provide the drug, which—because it is not FDA-approved—cannot be obtained otherwise. The FDA does not have the authority to compel a manufacturer to participate. Since 2004, and with the most recent amended reauthorization in 2013, the Commissioner of Food and Drugs (FDA commissioner), as delegated by the HHS Secretary, may issue an emergency use authorization (EUA) to allow temporary use of medical products that FDA has not approved or licensed, or unapproved uses for approved or licensed products. EUAs are possible only after the Secretary of Defense, Homeland Security, or HHS has determined that a military, domestic, or public health emergency (or potential for such emergency) meeting statutory criteria exists. To exercise EUA authority, the commissioner must consult with other HHS officials and conclude that the agent against which the medical product is to be used can cause a serious or life-threatening disease or condition; available scientific evidence indicates "it is reasonable to believe" the product may be effective and the known and potential benefits of the product outweigh its known and potential risks; no adequate alternative to the product is approved and available; and any other criteria prescribed in regulation are met. FDA has issued several EUAs. Examples include use of anthrax vaccine for the prevention of inhalation anthrax in 2005, several antivirals to treat H1N1 influenza in 2010, and oral doxycycline for post-exposure prevention of inhalation anthrax in 2011. In response to the 2014 Ebola disease outbreak in West Africa, FDA EUAs have covered several diagnostic tests. Who decides whether risks outweigh benefits or vice-versa? On what criteria? Such a decision varies, depending on many factors: an individual's prognosis, threat to the community, alternative available treatments, and informed consent, among others. Although sometimes it makes sense to use an unapproved product, doing so presents possible risks to patients, research goals, and manufacturers. Investigators first seek to establish safety and effectiveness thresholds for patients. No drug—even if FDA-approved—is completely safe. FDA approval involves weighing the potential risks (including known side effects) against the potential benefits. The threshold for acceptable risk rises with the risk of not acting at all. Someone with a disease that was 100% certain to be fatal in the next hour might well take a drug with an 80% risk of immediate death and a 2% chance of helping. When it comes to access questions, FDA decisions generally fall into four categories. Approved use for a new drug. FDA approves or licenses a product only when its scientists think the manufacturer has submitted evidence of the drug's safety and effectiveness for a specific use (among other requirements of approval). Unapproved use of a drug that FDA has approved for another use . A product's labeling includes information, including dosage, for the FDA-approved use. With a few exceptions, however, a physician may prescribe that drug for what is called "off-label" use. The physician may have seen anecdotal evidence or a relationship to FDA-reviewed data about another disease. For example, a product on the market labeled to treat depression might be used by a clinician to treat a patient with obsessive compulsive disorder. In such a case, a clinician could be aware of the likely safety and side effect profile of the drug but would have limited data, if any, with which to predict the drug's effectiveness in its off-label use. FDA does not require an IND application in this situation. Unapproved use of an investigational new drug . Because all drugs involve risks, regulators require that researchers design clinical trials to protect research participants (patients) from unnecessary risks. That is why the law forbids a sponsor that is testing an as yet unapproved drug from providing it outside that trial without FDA permission. FDA may allow individual access to an investigational drug, but it cannot compel the sponsor to provide the drug. (See discussion of " How Does FDA Regulate Individual IND Applications? ") Unapproved use of a product that has not yet begun clinical testing . Before clinical tests have started, researchers have conducted no human safety (or effectiveness) studies. In considering whether to allow the use of such an experimental product, FDA might analyze animal studies and any information about similar drugs or diseases to see whether the animal data might be applicable to humans. If no other treatment option exists and the patient is likely to die soon, assessing drug risk becomes less relevant to an individual patient. It may, however, be relevant to a public health decision. The risk criteria for an individual would not always be the same as they would be for public health policy. Some find the process of asking FDA for a treatment IND is too cumbersome. Others question FDA's right to act as a gatekeeper at all. Some point to manufacturers' refusal to provide their experimental drugs. Most critics see solutions as within the control of FDA or pharmaceutical companies. An August 2014 editorial in USA Today called the FDA procedures that patients must follow to request compassionate use access "bureaucratic absurdity," "daunting," and "fatally flawed." Echoing much of the criticism that the FDA has received regarding this issue, the editorial called for one measure that would "cut out the FDA, which now has final say." Difficult process to request FDA permission. In considering a federal response to patients' concerns, Congress might explore whether FDA's procedures discourage patients from seeking treatment INDs. For example: Does FDA ask for so much information in an individual IND application that physicians and patients refrain from beginning or completing the application? Does the FDA application process take too much time given the urgent circumstances of requests? In February 2015, FDA issued draft guidance on individual patient expanded access applications; its Federal Register announcement included: FDA is concerned that its goal of facilitating access to drugs for individual patient treatment use may have been complicated by difficulties experienced by physicians in submitting Form FDA 1571 (currently used by sponsors for all types of IND submissions) including associated documents, which is not tailored to requests for individual patient expanded access. FDA is circulating a draft new form that a physician could use when requesting expanded access for an individual patient. It reduces the amount of information required from the physician by allowing reference (with the sponsor's permission) to the information the sponsor had already submitted to FDA in its IND. FDA as gatekeeper. The solution USA Today proposed involved what proponents term "right-to-try" laws. These laws, which many states have passed in the absence of federal legislation, are intended to allow a manufacturer to provide an investigational drug to a terminally ill patient if certain conditions are met: the drug has completed Phase I testing and is in a continuing FDA-approved clinical trial; all FDA-approved treatments have been considered; a physician recommends the use of the investigational drug; and the patient provides written informed consent. The state laws account for anticipated obstacles to the new arrangement. For example, they provide that insurers may, but are not required to, cover the investigational treatment; and state medical boards and state officials may not punish a physician for recommending investigational treatment. The laws vary on the detail required in the informed consent and liability issues of the manufacturer and the patient's estate. As of early June 2015, governors have signed such laws in 20 states. In November 2014, Arizona voters passed a comparable ballot referendum. Legislators in another 17 states have introduced bills. Many of the bills mirror the approach that the Goldwater Institute has set forth as a model. At the federal level, three House bills introduced in the 114 th Congress would allow terminally ill patients to use investigational medical products if they provide informed consent. Another reported spur to action is the 2013 movie Dallas Buyers Club , which sympathetically portrays people with AIDS in 1985 trying to obtain experimental drugs, despite what the film presents as FDA obstacles. Although the stated goal of these laws—allowing desperately ill people to try an experimental drug when other treatments have failed—may be understandable, provisions in the laws may be subject to legal, logistical, ethical, and medical obstacles. Do these laws actually increase such access? Provisions in state right-to-try laws allow a patient to obtain—without the FDA's permission—an investigational drug that has passed the Phase 1 (safety) clinical trial stage. However, several experts have suggested that this state law approach is unlikely to directly increase patient access. First, federal law (the FFDCA), which requires FDA approval of such arrangements, may preempt this type of state law. Second, for a patient who follows FDA procedures, FDA action is not the final obstacle to access. During FY2010 through FY2014, FDA received 6,029 expanded access requests and granted 5,996 (99.5%) of them. Requests in FY2014 were double those in FY2013. One perspective is that the movement for state right-to-try legislation is a piece of a broader strategy. Referring to a "campaign of persuasion," one author suggests that the state legislative activities and anticipated subsequent court and media involvement could influence Congress and FDA to change. Rather than expect patients to gain access to drugs under those laws, the proponents aim to elevate the issue through these state activities. A key obstacle would nonetheless remain: FDA does not have "final say" because it cannot compel a manufacturer to provide the drug. In March 2014, millions of Americans heard about the plight of a seven-year-old boy with cancer who was battling an infection no antibiotic had been able to tame. His physicians thought an experimental drug might help. The manufacturer was still testing the drug, though. It declined to provide it. Because the drug was not yet approved by the FDA, it was not available in pharmacies. However, the FDA may permit the use of an unapproved drug in certain circumstances—a process referred to as compassionate use . For FDA to grant that permission, however, the manufacturer must have agreed to provide the drug. Why would a manufacturer not give its experimental drug to every patient who requests it? From the perspective of a seriously ill and possibly dying patient, a manufacturer that declines to provide its potentially life-saving experimental drug may seem callous. However, that manufacturer faces a complex decision. Certainly profit plays a role: companies think about public relations problems and the opportunity costs of limited staff and facility resources, but companies must also consider the available supply of the drug, liability, safety, and whether adverse event or outcome data will affect FDA's consideration of a new drug application in the future. Available supply. If a manufacturer only has a tiny amount of an experimental drug, that paucity may limit distribution, no matter what the manufacturer would like to do. Sponsors of early clinical research make small amounts of experimental products for use in small Phase I safety trials, and progressively more for Phase II and III trials. Although one or two additional patients may not cause supply problems, a manufacturer does not know how many expanded access requests it will receive. Investment in building up to large-scale production usually comes only after reasonable assurance that the product will get FDA approval. Even for an already approved or licensed product, scaling up production in response to an outbreak may be difficult. For a company to redirect its current manufacturing capacity involves financial, logistic, and public relations decisions. A solution—though not immediately effective—might be committing additional resources to increase production. In emergency circumstances, FDA could adapt its facility inspection and application review timetables. It could also contact other manufacturers or consider importing products that have not been approved for U.S. sale. During the recent Ebola outbreak, DOD and HHS funds, as well as those from other countries, have gone to scale up production of drugs and vaccines that are potentially effective against the Ebola virus. Such concentrated investment is less likely for any one of the cancer or Alzheimer's disease drugs in development. Liability . In discussing expanded access, some manufacturers have raised liability concerns if patients report injury from the investigational products. In the state right-to-try laws are some attempts to protect manufacturers or clinicians from state medical practice or tort liability laws. If there are legitimate concerns, Congress could consider acting as it has in past, choosing diverse approaches to protect manufacturers, clinicians, and patients in a variety of situations. Whether these concerns become illustrated by court cases and how any issues may be resolved in future laws are beyond the scope of this discussion. Limited staff and facility resources. Any energy put into setting up and maintaining a compassionate use program could take away from a company's focus on completing clinical trials, preparing an NDA, and launching a product into the market. While this delay would have bottom-line implications, one CEO, in denying expanded access, portrayed the decision as an equity issue, saying, "We held firm to the ethical standard that, were the drug to be made available, it had to be on an equitable basis, and we couldn't do anything to slow down approval that will help the hundreds or thousands of [individuals]." Pointing to ways granting expanded access might divert them from research tasks and postpone approval, he said, "Who are we to make this decision?" For a small biotech company developing its first commercial product, any diversion of its attention from carrying out the clinical trials that will form the basis of its NDA to FDA could, at best, delay approval and, at worst, allow a competitor to succeed first. However, if the public and Congress perceive a threat to be serious enough, government or private resources could supplement the company's staff and facilities, thereby allowing research to continue while also providing the experimental product to those in need. In less-extreme situations, a manufacturer could (with FDA consultation, perhaps) modify its clinical trial designs to incorporate information gathered from the patients taking the drug through expanded access programs. Data for assessing safety and effectiveness . By distributing the drug outside a carefully designed clinical trial, it may be difficult, if not impossible, to collect the data that would validly assess safety and effectiveness. Without those data, a manufacturer would be hampered in presenting evidence of safety and effectiveness when applying to FDA for approval or licensure. Disclosure. It is unclear how many people request and are denied expanded access to experimental drugs. This lack of information makes devising solutions to manufacturer-based obstacles difficult. Although FDA reports the number of requests it receives, manufacturers do not. The number of individuals who approach manufacturers is unknown, although some reports suggest that it is much larger than the number of successful requests that then go to FDA. For example, one report indicated that the manufacturer of an investigational immunotherapy drug, which does not have a compassionate use program, received more than 100 requests for it. Two bills in the 114 th Congress address manufacturers' disclosure. Those who set national policy seek to balance (1) protecting the public by trying to ensure that the drugs people take are safe and effective and (2) protecting the public by getting new products to the market quickly. That balancing act is reflected in the various authorities Congress has granted FDA and in the mechanisms FDA has developed. Congress has not only given FDA tools to keep unsafe or ineffective drugs off the market. It has also provided FDA with various authorities to encourage and expedite drug development and to expedite the review of new marketing applications. These tools, like compassionate use and emergency use authorization, help get drugs to patients more quickly. Four of these tools are described below. Incentives to Development . The FDA provides incentives to those who would develop certain categories of drugs in two main ways. Market exclusivity. During the period for which FDA offers this incentive, it will not grant marketing approval to another manufacturer's product. FFDCA allows market exclusivity for the first generic version of a drug coming to market, a drug used in the treatment of a rare disease or condition, certain pediatric uses of approved drugs, and new qualified infectious disease products. Priority review voucher. Priority review shortens the time between when a manufacturer submits a marketing application to FDA and when FDA issues its approval decision. The program works by FDA's awarding a priority review voucher to the manufacturer with a successful NDA for a drug treating certain tropical or rare pediatric diseases. The manufacturer may use it to get priority review of a subsequent NDA (which would not have received priority review on its own) or may sell the voucher to another manufacturer. Expediting Development and Review . Not all reviews and applications follow standard procedures. Some drugs address unmet needs or serious conditions, have the potential to offer better outcomes or fewer side effects than drugs currently on the market, or meet other criteria associated with better public health. For those, FDA can expedite both development and review. Fast track and breakthrough product designations make the application process faster—but do not change the types of evidence required to demonstrate safety and effectiveness. Accelerated approval and animal efficacy approval change what is needed in an application. Instead of requiring evidence gathered by a clinical endpoint, such as heart attack or death, FDA may accept evidence from a surrogate or intermediate clinical outcome. Priority review designation affects the timing of the review but not the process leading to submission of an application. Limiting Access . FDA regulates access mostly through product approval and licensing. FDA fine tunes that access for some drugs through risk evaluation and mitigation strategies (REMS), which can include restrictions on distribution. FDA enforces restrictions on imports and exports and requirements concerning supply chain. It also recommends to the Drug Enforcement Administration (DEA in the Department of Justice) whether to declare a drug a controlled substance. Separate from the government's role in safety and effectiveness, the government (not necessarily through FDA) can also control access via other tools, such as laws, regulations, and policies regarding patents, insurance coverage and benefits, Medicare and Medicaid coverage and payment, and pharmacy benefits. Regulatory Science . Not all FDA scientists review new drugs. Some study what FDA calls regulatory science , "the science of developing new tools, standards, and approaches to assess the safety, efficacy, quality, and performance of all FDA-regulated products." FDA current and planned efforts include further developing expertise in areas such as how to evaluate animal models, biomarkers, genomics, and nanotechnology. Exploring computer simulations and data analysis can yield new statistical techniques for clinical trials that could shorten their length or reduce the number of patients needed. It might involve new ways to adjust ongoing clinical trials as researchers learn more about how a new drug works. All these techniques can shorten the time it takes to bring products to market. An increased interest in compassionate use and emergency use policies comes from two distinct directions. The ongoing concerns of individuals facing serious and life-threatening conditions have become more apparent, especially with the increasing use of social media to publicize the struggles of those facing life-or-death decisions. The sudden public interest in the Ebola virus disease outbreak in West Africa has influenced discussions of international and domestic health care and research and development priorities. Expanding access to drugs in various stages of development—whether to an individual with a stubborn cancer or to a community facing an infectious threat—involves serious decisions. As the 114 th Congress confronts these issues, it may consider the following: how to define, measure, and articulate risks and benefits, and how to choose their appropriate balance, what changes to FDA authority and policy might increase appropriate access to unapproved products, how to address manufacturers' reluctance, and what approaches other than expanded access programs might Congress and FDA develop to encourage research and development of products for unmet needs; expedite activities of manufacturers and FDA in the development and review of investigational products; and generally ensure that medical products are safe, effective, and available when they can help patients. As Congress considers these issues, new options and ideas may arise, but in a context as old as public health—the constant push and pull between the need for scientific rigor and the equally compelling need for what is reflected in the very name of one policy: compassion. No FDA-approved drugs or vaccines are known to specifically treat or prevent Ebola virus disease. Nor are there approved or known drugs or vaccines recognized by other regulatory or medical authorities. In August 2014, when the Ebola virus disease outbreak in West Africa began to attract worldwide attention, news articles reported on several Ebola-focused products in the development pipeline. None of these products had yet reached the stage in which clinical trials of safety or effectiveness had begun in humans. The World Health Organization (WHO) convened a panel to consider the ethics of providing unapproved drugs to Ebola-infected people. The WHO panel said it was ethical in this outbreak. In addition to urging "ethical criteria" in the use of the drugs, it referred to "a moral obligation to collect and share all data generated" and "a moral duty to also evaluate these interventions ... in the best possible clinical trials under the circumstances." Further consideration will likely go toward identifying the limit of that ethical threshold, by considering different groups—such as the general population, those at risk of exposure, and those exposed, infected, or symptomatic—each with a different likelihood of death. Around the same time, two volunteers in Africa providing medical care to people with Ebola were themselves infected with the virus. While in Africa, they received doses of an experimental product that had shown promise in treating nonhuman primates but had not yet reached the human testing stage. These two U.S. citizens were then flown to a hospital in Atlanta for further care. Both survived. Did the experimental drug help? FDA's policies on expanded access to investigational drugs were not relied upon in the drug's use for these two individuals. First, the drug would not have been eligible because it had not yet entered the investigational new drug (IND) stage of FDA involvement, so clinical trials had not yet begun. Second, the drug was provided outside of the United States and was not, therefore, subject to FDA regulation. Since August 2014, with financial and logistical support from the U.S. and other governments, several Ebola-specific medical products (as well as several products approved for other uses that may also help in the treatment of people with Ebola virus disease) have entered clinical trials. FDA may now allow the use of these investigational drugs and vaccines under its expanded access policies. However, even if manufacturers are willing to provide the products in that situation, they may be limited by their available supplies. Emergency use authorization (EUA) could come into play as more information on the investigational Ebola products becomes available as clinical trials proceed. FDA has already approved the use of several diagnostic tests under EUA. Several commentators, including National Institute of Allergy and Infectious Diseases (NIAID) Director Anthony Fauci, have urged that any emergency distribution of unapproved drugs coincide with data collection that would support an assessment of the drugs' safety and effectiveness. In deadly situations, placebo is often considered unethical. In a deadly situation, though, where available drugs are in short supply, not everyone will receive the drug. A creative design could, within ethical guidelines, either determine who received the drugs or, certainly, keep track of who did and did not receive the drug along with characteristics of the patient, disease stage, and other relevant information. A former FDA Chief Scientist described how lack of data on a new product's use and outcome could lead to a misinterpretation of a product's utility. The illustrative example showed how wrongly thinking a drug was effective and wrongly thinking a drug was not effective could both harm future patients. Upon the American doctor's Ebola-free release from the hospital, the head of the unit that cared for him and the other infected worker said, "Frankly we do not know if it helped them, made any difference, or even delayed their recovery." An incorrect assumption of a drug's effectiveness or ineffectiveness might also hurt the larger community, which would lose the opportunity to rigorously assess a drug's safety and effectiveness and then to inform future decisions on whether to use it. Lack of such information could lead to more spending on ineffective or unsafe products in critical situations. Options to solve these issues include emergency use plans that address data collection and explicit decisions about who will have access to those data.
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The Food and Drug Administration (FDA) regulates the U.S. sale of drugs and biological products, basing approval or licensure on evidence of the safety and effectiveness for a product's intended uses. Without that approval or licensure, a manufacturer may not distribute the product except for use in the clinical trials that will provide evidence to determine that product's safety and effectiveness. Under certain circumstances, however, FDA may permit the sponsor to provide an unapproved or unlicensed product to patients outside that standard regulatory framework. Two such mechanisms are expanded access to investigational drugs, commonly referred to as compassionate use, and emergency use authorization. If excluded from a clinical trial because of its enrollment limitations, a person, acting through a physician, may request access to an investigational new drug outside of the trial. FDA may grant expanded access to a patient with a serious disease or condition for which there is no comparable or satisfactory alternative therapy, if, among other requirements, probable risk to the patient from the drug is less than the probable risk from the disease; there is sufficient evidence of safety and effectiveness to support the drug's use for this person; and providing access "will not interfere with the ... clinical investigations to support marketing approval." The widespread use of expanded access is limited by an important factor: whether the manufacturer agrees to provide the drug, which—because it is not FDA-approved—cannot be obtained otherwise. The FDA does not have the authority to compel a manufacturer to participate. Manufacturers consider several factors in deciding whether to provide an investigational drug, such as available supply, perceived liability risk, limited staff and facility resources, and need for data to assess safety and effectiveness. Although FDA reports the number of requests it receives, manufacturers do not. In the case of determination of a military, domestic, or public health emergency, the Commissioner of Food and Drugs may issue an emergency use authorization (EUA) to allow temporary use of medical products that FDA has not approved or licensed, or unapproved uses for approved or licensed products. FDA's assessment of the balance of a drug's potential risks and benefits—whether for overall market approval or for an individual with a serious disease or a public faced with an unusual and dangerous threat—may vary with the circumstance, such as an individual's prognosis, threat to the community, alternative available treatments, extent of knowledge of safety and effectiveness in the anticipated use, and informed consent. Although FDA granted over 99% of the expanded access requests it has received since 2010, patients and others point to what they see as FDA-created obstacles to access. In February 2015, FDA released draft guidance and a new form that, when finalized, would reduce the amount of information required from the physician. Since 2014, 20 states have passed so-called right to try laws to bypass FDA permission for access to an investigational drug. Congress and FDA seek to protect the public by balancing ensuring that drugs are safe and effective with getting new products to the market quickly. Complementing expanded access programs in achieving those goals are broader tools including incentives to development, expediting development and review, limited access, and regulatory science.
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Congress has been deeply involved for decades in setting policy, providing funding, and supporting or rejecting programs for the nuclear weapons enterprise. For example, it established the National Nuclear Security Administration (NNSA), a semi-autonomous component of the Department of Energy (DOE) that manages the nuclear weapons program; established the Nuclear Weapons Council, a joint NNSA-Department of Defense (DOD) agency that coordinates nuclear weapons programs; rejected a major facility to manufacture a key nuclear weapon component; initiated and later rejected the Reliable Replacement Warhead; and directed NNSA, the Government Accountability Office, and others to conduct studies on nuclear weapon issues. One issue of long-standing concern to Congress is the production of "pits." A pit is a nuclear weapon component, a hollow plutonium shell that is imploded with conventional explosives to create a nuclear explosion that triggers the rest of the weapon. While U.S. policy is not to build new-design nuclear weapons for new missions, some argue that the capacity to manufacture new pits may be needed to extend the service life of certain existing weapons, to replace pits in deployed weapons that develop pit problems unexpectedly, and to hedge against possible geopolitical surprises. During the Cold War, the Rocky Flats Plant (CO) manufactured as many as 2,000 pits per year (ppy). On June 6, 1989, armed agents from the Federal Bureau of Investigation and the Environmental Protection Agency raided Rocky Flats to investigate suspected environmental crimes. As a result, DOE first suspended pit production at Rocky Flats later that year, subsequently halted it permanently, and eventually dismantled the plant and remediated the site. With Rocky Flats closed, Congress and the Administration searched for many years for a way to make pits. NNSA proposed a two-track strategy. In one track, Plutonium Facility 4 (PF-4), the main plutonium building at Los Alamos National Laboratory (LANL) (NM), would house a pilot plant to develop pit production processes and manufacture a small number of pits. It took until 2007 for LANL to make its first "war reserve" pits, i.e., those certified for use in the stockpile. In that year, LANL made 11 such pits, the highest number since 1989. The second track involved a facility with the capacity to make pits on an industrial scale, on the order of 100 or more ppy. Several facilities were proposed, as described in "A Sisyphean History: Failed Efforts to Construct a Building to Restore Pit Production," in CRS Report R43406, U.S. Nuclear Weapon "Pit" Production Options for Congress . None came to fruition. For example, in the FY2006 budget cycle, Congress eliminated funding for the Modern Pit Facility, which was to have a capacity between 125 and 450 ppy, and in its FY2013 budget request the Administration "deferred" a facility that would have conducted operations in support of pit production "for at least five years." That facility appears unlikely to proceed. Indeed, PF-4, which opened for operations in 1978, is the last U.S. plutonium processing building to come online. As of June 2014, NNSA had the capacity to manufacture about 10 non-war reserve pits per year in PF-4. (War reserve (WR) pits are those judged acceptable for use in the nuclear stockpile. Other pits are manufactured for such purposes as development or process qualification.) However, with most work at PF-4 halted in June 2013, the actual manufacturing rate in June 2014 was zero for pits of any type; work is resuming at the end of June 2014. Further, the capacity to manufacture WR pits was zero: since there was no requirement to manufacture WR pits, some processes needed to certify pits as WR had been suspended after the previous WR build of W88 pits was completed in FY2011. NNSA anticipates manufacturing a few pits a year in the near future to prepare to manufacture WR pits. The schedule for ramping up pit production is uncertain. A Department of Defense (DOD) official stated in 2013 that "there is no daylight between the Department of Energy and the Department of Defense on the need for both a near-term pit manufacturing capacity of 10 to 20 and then 30 by 2021, and then in the longer term for a capacity of 50 to 80 per year." Also in 2013, a National Nuclear Security Administration (NNSA) document stated, "Preliminary plans call for pit production of potentially up to 80 pits per year starting as early as FY 2030." In 2014, an NNSA document changed the date for achieving a 30-ppy capacity to "by 2026," and a 2014 Department of Energy (DOE) document stated, "Current plans call for pit production capability of 50-80 pits per year by FY 2030." Also, Section 3114 of the FY2015 defense authorization bill, H.R. 4435 , as passed by the House, would require NNSA to produce 30 WR pits per year during 2023, at least 50 during 2026, and to demonstrate for at least 90 days during 2027 the ability to manufacture WR pits at a rate of 80 per year. Some favor a capacity of greater than 80 ppy, while others argue that a lower number would suffice. That debate is beyond the scope of this report, which focuses on how to achieve a capacity of 80 ppy because that is the high end of DOD's range. While 80 ppy has been beyond reach for a quarter-century, the debate over that capacity would take on added salience to the extent that it moves within the realm of feasibility. Congress remains deeply involved in efforts to increase pit production capacity. As noted above, Section 3114 of H.R. 4435 , the FY2015 defense authorization bill as passed by the House, sets a schedule for production of WR pits. Section 3133 directs NNSA to submit "a report containing an analysis of using or modifying existing facilities across the nuclear security enterprise" to support NNSA's plutonium strategy. In its report on S. 2410 , the FY2015 defense authorization bill, the Senate Armed Services Committee directed NNSA to include construction of modules (described later), which would support an exit from a 1950s-era plutonium building at LANL by 2019, as a separate line item in the FY2016 budget "to add additional visibility into the process." The House Appropriations Committee recommended a substantial increase in funding "for a robust experimental effort in fiscal year 2015 to better understand the properties of plutonium and ensure the NNSA can support certification requirements for pit reuse as an option for future [nuclear weapon life extension programs]." Use of retired pits in life extension programs would reduce the number of new pits that would have to be manufactured. The committee also recommended $35.7 million for moving certain activities out of the Chemistry and Metallurgy Research building (described below), which became operational in 1952. While DOD has a requirement for up to 80 ppy, some key questions about how to manufacture at that rate remain not only unanswered but also unasked. These questions involve details about the facilities at LANL and perhaps elsewhere that would fabricate pits and perform supporting tasks. Without answers to these questions, Congress cannot know whether existing buildings, without modifications, could manufacture 80 ppy; or if modest upgrades would suffice; or if major construction would be needed to augment capacity. This report provides a framework for analyzing requirements for manufacturing, details key questions, and raises the possibility that Congress may choose to direct NNSA to generate the data needed to answer them. Specifically, regardless of what capacity is needed, and when, Congress and the Administration will need to decide among options. This report presents three key decisions and an approach to help structure them. It focuses on two metrics: the amount of two facility resources (laboratory floor space and Material At Risk (MAR), discussed next) available for pit manufacturing. It shows that it is not known whether available amounts suffice. While NNSA has extrapolated space and MAR requirements for manufacturing 80 ppy from much lower numbers, extrapolations set an upper bound and would overstate requirements. As such, they are of questionable value for decisionmaking. Space and MAR requirements for manufacturing 80 ppy have never been calculated rigorously, though they could be. Comparing space and MAR required vs. available would show whether there is enough space and MAR at the moment. Over time, however, various factors will affect availability and requirements. While few of these factors can be predicted, this report discusses ways to offset any adverse effects from them. In addition, decisions will be needed regarding analytical chemistry, which supports pit manufacturing. For background, see CRS Report R43406, U.S. Nuclear Weapon "Pit" Production Options for Congress ; CRS Report R43428, U.S. Nuclear Weapon "Pit" Production: Background and Options in Brief , is a condensed version. Several tasks, terms, and buildings are central to the subsequent discussion. Pit manufacturing involves several tasks. Among other things, pit fabrication casts "hemishells" (half-pits) of plutonium, machines them to remove excess material, and welds two together to form a pit. The current pit fabrication line was intended as a pilot plant; its capacity is about 10 ppy. It is being upgraded to reach a capacity of 30 ppy; further upgrades would be needed to reach 80. Pit manufacturing also involves such supporting tasks as purifying plutonium for use in pits; certification to ensure that finished pits meet required standards; material control and accountability; waste management; and analytical chemistry. This report uses "fabrication" as a subset of "manufacturing." Analytical chemistry (AC) is essential for pit manufacturing, but this report considers it separately because it has large space requirements. AC analyzes plutonium samples taken from each pit at various stages in its fabrication. AC determines the isotopic composition of the plutonium and the amount of alloying materials and impurities it contains. Pit fabrication requires extensive AC for every pit. AC supports other pit manufacturing tasks, and non-pit tasks as well, though historically pit fabrication has been the greatest user of AC. The building at Los Alamos National Laboratory (LANL) that currently performs AC to support pit manufacture and many other plutonium tasks is in poor shape and not seismically robust. DOE wants to halt work there by 2019, so one or more other facilities will be needed. Laboratory floor space , or "space." Laboratory buildings have space for corridors, offices, etc., but laboratory floor space is where AC, pit fabrication, and other work is done. Space is expressed in units of square feet (sf). "Material At Risk" (MAR) is "the amount of radioactive materials … available to be acted on by a given physical stress." It is material that could be released by a disaster, such as an earthquake that collapses a building followed by a fire. Each building that works with plutonium has a building-specific MAR allowance. MAR is expressed in units of plutonium equivalent, discussed next. Plutonium is the fissile material in pits. Four forms are relevant here. Plutonium-239 (Pu-239) is the fissile isotope in pits. However, pits contain other plutonium isotopes in addition to Pu-239; that mixture is called weapons-grade plutonium (WGPu). Since some of the other isotopes are more radioactive than Pu-239, WGPu is about 1.5 times as radioactive as Pu-239. Plutonium-238 (Pu-238) is 277 times more radioactive than Pu-239. It is used to power space probes and has some military applications, but is not used in pits. It is relevant to pit manufacturing options because 40% of the MAR allowance in PF-4 is allocated to Pu-238. Moving some or all Pu-238 work out of PF-4, the main plutonium building at LANL, would make MAR and space available for other purposes. In PF-4, MAR is measured in units of plutonium equivalent (PE), which is about 1.38 times as radioactive as Pu-239; this measure is linked to potential dose if plutonium is released, such as by an earthquake and fire. PF-4 (Plutonium Facility 4) is the only building in the United States with the combination of attributes required to make pits: high security, pit fabrication equipment, and the ability to handle high-MAR processes. Its current MAR allowance is 1,800 kg PE. It is located at LANL, the nation's "center of excellence" for plutonium, and the only place that has made pits since 1989; as a result, LANL has the scientific, engineering, and craft expertise needed to make pits. PF-4 also performs other tasks involving plutonium. It is the last U.S. plutonium processing facility to be brought online, in 1978, and is the only remaining U.S. multi-program, multi-function plutonium processing facility. It would be about a half-century old when production is anticipated to reach 80 ppy. Within LANL, PF-4 is located in Technical Area (TA) 55. The Chemistry and Metallurgy Research (CMR) building currently provides AC support for limited pit manufacture and other plutonium tasks in PF-4. Most of it was completed in 1952. It is "genuinely decrepit" and "structurally unsound," in the words of two studies, and is much more vulnerable to collapse in an earthquake than more recent buildings. Accordingly, "NNSA maintains its commitment to cease programmatic operations in the CMR facility at LANL in approximately 2019." The Radiological Laboratory-Utility-Office Building (RLUOB, pronounced "rulob") was completed in FY2010. It is configured for AC. NNSA plans that RLUOB would house AC equipment needed to support pit manufacture, and possibly enough to support manufacture of 80 ppy. An approach to maintaining confidence in nuclear weapons may help provide lessons for decisionmaking on pits. This section describes that approach, then modifies it to make it applicable to pits. In 1992, the United States began a moratorium on nuclear testing that continues to the present. Concurrent with the moratorium, the United States developed and implemented a stockpile stewardship program to maintain nuclear weapons without testing. An issue became how to demonstrate confidence in the safety and reliability of these weapons. One approach, developed by LANL and Lawrence Livermore National Laboratory (LLNL), was Quantification of Margins and Uncertainties, or QMU. The idea underlying QMU was that several steps in a nuclear weapon—transmission of a signal to detonate the weapon, explosion of the high explosive surrounding the pit, transmission of the energy from the explosion of the primary stage to the secondary stage, and detonation of the secondary stage—must all work for the weapon to function. Each step, or "gate" in QMU terminology, can be quantified. For example, a certain amount of energy must be transmitted to the secondary for it to detonate. Another QMU concept is margin. If the minimum amount of energy needed to detonate the secondary is X, and the amount of energy predicted to be transmitted to the secondary is 3X, then there is a margin of 2X, i.e., margin is the amount by which the predicted quantity exceeds the minimum required quantity. At the same time, there are uncertainties in the predicted quantity. Did the calculation incorporate all relevant variables? Were there biases in experiments on which the calculations were based? Were the most relevant nuclear tests used as a data source? The uncertainty can be quantified through calculations (such as computer models); further, the amount of uncertainty is bounded because each gate has an upper and a lower limit. If margin exceeds uncertainty for a particular gate, then there can be confidence that the weapon will "pass through" that gate satisfactorily, and if margin exceeds uncertainty for all gates, there can be confidence that the weapon will work. The degree of confidence at each gate is expressed as margin divided by uncertainty; the higher the number, the greater the confidence. QMU provides three key concepts relevant to decisionmaking on pit manufacturing. Margin , in this case, is the amount by which (1) space available for pit manufacturing exceeds (2) space required to manufacture 80 ppy, and the amount by which (3) MAR available for pit manufacturing exceeds (4) MAR required to manufacture 80 ppy. (The two margins are independent.) Thus, solving for margin requires four numbers. Figures 1-7 show items (1) and (3) under various scenarios. Regarding items (2) and (4), LANL has examined space and MAR needed to fabricate 80 ppy in a preliminary fashion, but has not performed a detailed analysis of the full pit manufacturing process, including plutonium supply, waste management, AC, external support activities, and fabrication. To enable calculation of margin, Congress would need to obtain two numbers: Space required to manufacture 80 ppy, and MAR required to manufacture 80 ppy. In addition, available space and MAR figures would probably need to be updated. Once those numbers are provided, Congress would be in a better position to determine which options would free enough space and MAR in PF-4 to manufacture 80 ppy, or if there is already sufficient space and MAR in PF-4. LANL (and perhaps other sites) has computer models and other resources needed to perform these calculations. AC also has space and MAR requirements but, as discussed in " Options for Analytical Chemistry ," margins are not at issue because the nuclear weapons complex has ample space and MAR for AC for 80 ppy. Uncertainty : Margins can change over time. While MAR and space margins could be calculated precisely for the present moment, they cannot be calculated in advance because many actions, events, decisions, and discoveries have the potential to create uncertainties that could increase or decrease availability of, or requirements for, space and MAR, thus increasing or decreasing margin. Figure 1 shows hypothetical examples of uncertainties: those in red could reduce margin, and those in green could increase it. The longer the timeframe, the more uncertainties can be expected to emerge. While the effects of these uncertainties on pit manufacturing can be calculated once they materialize, the likelihood that they will come into being, and even the type of uncertainties—in contrast to the uncertainties in QMU—cannot be predicted or bounded, let alone quantified. Another means of maintaining margin, not shown in Figure 1 , is for Congress or NNSA to bar from PF-4 new missions that would consume MAR and space, especially those that could be placed elsewhere. Maintaining margin despite uncertainties: It would not be acceptable to let uncertainties that materialize into actual events reduce margin below zero, as that could force a halt to pit manufacturing. One way to maintain enough margin to support a specified pit manufacturing capacity in the face of uncertainties is to develop multiple means to counterbalance uncertainties that would reduce margin. Some means could be implemented promptly; others could be developed, held in reserve, and implemented only as needed. Having these means available for future deployment would add confidence that sufficient margin could be maintained. Determining how much MAR and space would be needed to manufacture 80 ppy would require an industrial process analysis. A study would seek to determine what equipment would be needed to manufacture 80 ppy; lay out production lines in PF-4 to accommodate that equipment while retaining space needed for other tasks; determine what tasks, if any, could be moved from PF-4 if necessary to accommodate the lines; and calculate what MAR would result from this production line configuration. An extrapolation provides an upper bound: LANL is planning to increase PF-4's capacity to 30 ppy, and if a given amount of space and equipment can make 30 ppy, then three times those amounts could make 90 ppy. However, such a study is likely to find that less space and equipment would suffice because of efficiencies. In a process step, for example, a piece of equipment that could support manufacture of 300 ppy would suffice for any number less than 300, whether 10, 30, or 80. A study would need to take into account that there are many ways to make more space or MAR available and to reduce space or MAR requirements, thereby increasing margin, as discussed under " Space Options for PF-4 " and " MAR Options for PF-4 ." This detailed analysis would be needed to determine whether enough MAR allowance and space could be made available in PF-4 to manufacture 80 ppy. Given that margin can change over time, it might be useful to have an annual review of margin and potential factors that could affect it. Which organization could perform such a study? Candidates include LANL, another lab or plant in the nuclear weapons complex, NNSA, DOD, or an independent group like the National Academy of Sciences or the JASON defense advisory group. Since LANL is intimately familiar with PF-4, it could be argued that it should do the report. On the other hand, LANL could be perceived as having a conflict of interest. An independent group would not have this potential conflict of interest but would not have LANL's knowledge of PF-4. To address this dilemma, LANL might conduct the initial study and an independent group could review it. Another approach would be to have the study prepared jointly by LANL and Lawrence Livermore National Laboratory (LLNL), or prepared by LANL and peer-reviewed by LLNL. LANL and LLNL are both nuclear weapon design laboratories, so LLNL's expertise would be of use in evaluating a LANL study. Since the two labs have often competed for projects and have a reputation as "friendly adversaries," involving LLNL would provide an added measure of confidence in the study. Before the study could begin, the Nuclear Weapons Council would need to define key parameters: What capacity is being sought? Is it 80 ppy, or 50 with a surge capacity to 80, or 80 with a surge capacity to 125, or something else? What operating tempo is planned? Would manufacturing use 1 shift per day/5 days a week, 2 shifts per day/5 days a week, or operate 24/7? The answer is related to capacity. If the capacity sought is 80 ppy using 3 shifts per day, a higher surge capacity would be difficult at best. The answer is also related to cost and equipment. Using two shifts per day, it might be possible to reach 80 ppy with equipment that would support 50 ppy on a single shift; a more costly option would be to increase the amount of equipment (and thus floor space used) to enable production of 80 with a single shift. Would the capacity be held in standby mode most of the time, available for use as needed; operated for months or years at 80 ppy for certain pit campaigns and held in low-rate production mode for other periods; operated at a steady rate, less than 80, to level out the workload between periods when no pits are needed and periods when 80 ppy are needed; or operated at full capacity at all times? What programs could be moved out of PF-4 if necessary to create enough space or MAR, where would they go, what would the move cost, and who would pay? What is a reasonable tradeoff between cost and capacity? As a notional example, if LANL could manufacture 70 ppy using existing buildings and an operating cost of $500 million per year, but it would cost $2 billion for new construction and $700 million in annual operating cost to manufacture 80 ppy, would the added capacity be worth the added cost? A sensitivity analysis would provide the data, but the answer would be a matter of judgment. It appears that it would take over a decade to reach 80 ppy, and the path to that capacity is obscure. If the path becomes clearer, it would become more important to determine if 80 is the right number, or if it should be higher or lower. This report starts with a static approach to pit manufacturing, examining the space and MAR margins for 80 ppy once current projects in PF-4 that will increase permitted MAR and make more space available are completed. This static approach provides a baseline and metrics to indicate whether margin is ample, minimal, or insufficient, and to judge the impact of future deviations from this baseline. Next, the report takes a dynamic approach, noting that uncertainties could affect margin and how they might be offset. Finally, it considers analytical chemistry requirements. This approach leads to three decisions Congress may choose to consider: Decision 1: For pit manufacturing, is there currently enough margin for space and MAR in PF-4? If not, what can be done to provide it? Decision 2: Once enough margin for space and margin for MAR are provided for pit manufacturing, what steps can be taken to maintain these margins over decades in the face of uncertainties? Decision 3: For AC, space and MAR available across the nuclear weapons complex exceed space and MAR required by a considerable amount, so margin is not an issue. Instead, the issue is how much AC should be done at LANL and how much, if any, AC should be done at other sites? The floor layout to manufacture 30 ppy would fully consume the space, and most of the MAR allowance, currently available in PF-4. As a result, manufacturing 80 ppy would require more space and MAR than are currently available for that task in PF-4. Further, updated seismic modeling results raised concerns that an earthquake might collapse or otherwise compromise the building, forcing a reduction in PF-4 MAR from 2,600 kg PE to 1,800 kg PE. However, LANL is undertaking several projects that would increase the MAR permitted in PF-4. Various projects to increase seismic robustness have been underway for years; see the section " Increasing MAR Margin Without Major Construction ." They proceed on an open-ended basis guided by results of continuing analyses. Once some additional upgrades are completed, PF-4's MAR allowance may revert to 2,600 kg or perhaps some other number. This analysis assumes a MAR allowance of 2,600 kg PE and, as noted in the sidebar, uses space data from 2012. LANL points out that PF-4, as the only U.S. building that is currently able to make pits, is essential to the entire nuclear weapons enterprise: no PF-4, no pits, no LEPs that require new pits. PF-4 is limited in space and MAR. The MAR limit is somewhat flexible, as various measures can increase it. Similarly, space within PF-4 may be shifted from one purpose to another, and LANL is undertaking such projects, e.g., decontaminating some rooms in PF-4 that are no longer in use and "repurposing" them to make them available for pit manufacture or other uses. However, the space limit is absolute: 60,000 sf of laboratory space. If manufacturing 80 ppy requires more space than is available in PF-4, NNSA would need to find alternatives, whether building modules, moving some tasks to other sites, or reducing capacity to whatever the available space could accommodate. It would be difficult for Congress to decide how to obtain the space and MAR for manufacturing 80 ppy without knowing whether there will be sufficient MAR and space margins for 80 ppy. This section considers options that might make the needed space and MAR available. Note that while margin must always be greater than zero, the amount of available space and MAR needed to maintain margin could expand or contract depending on whether required space and MAR expand or contract. For example, MAR insufficient for 80 ppy might suffice for 40 ppy. Various options could make more space available in PF-4 for pit manufacture. Some might require major construction; others might not. Sufficient space to manufacture 80 ppy might even be readily available within PF-4 with little or no work. Options would vary in terms of their projected cost and schedule. Some might be implemented quickly and at low cost; others might take longer and cost more. Still others that would entail high cost and long leadtime could be studied (e.g., design work on modules) to determine whether they are feasible and, if so, to facilitate possible future deployment. Any option could be deployed promptly or held in reserve. Thus, for each, a decision would be needed on whether to proceed and, if so, when. Such decisions would depend on how much space was needed given then-current space availability and, later, on the extent of any reduction in space margin. This analysis also applies to " MAR Options for PF-4 ," below, and is not repeated there. Figure 2 shows the 2012 allocation of space in PF-4 by program. The gray area, 4,700 square feet (sf), is available for immediate repurposing. It consists of laboratory rooms not currently in use. White areas represent non-laboratory space. Pit fabrication occupies 12,000 sf. One option involves building one or more "modules," reinforced-concrete structures that would be buried near PF-4 and connected to it by a tunnel. Preliminary concepts envision that each module would be roughly 5,000 sf of laboratory space, and that modules would be designed for high-MAR tasks, such as casting plutonium into hemishells or working with Pu-238. Figure 3 shows how moving these two tasks into two modules could release space in PF-4. It shows 5,000 sf being moved from Pu-238 programs to Module 1, with the released space used for pit manufacturing; another 5,000 sf being moved from pit fabrication space in PF-4 to Module 2, making that much more net space available for pit manufacturing; and the 4,700 sf of space immediately available for repurposing also being used for pit manufacturing, adding 14,700 sf in PF-4 and Module 2 for pit work, with pit fabrication space plus other space made available for pit manufacturing totaling 26,700 sf. (Space for some other tasks, such as Plutonium Recycle and Purification, would also support pit manufacturing.) LANL maintains that a key advantage of modules is that they would permit expansion of capacity on an as-needed basis rather than trying to build a "big box" plutonium building that would attempt to accommodate all foreseeable future needs, an approach that has been rejected for several big-box buildings over many years. Others respond that modules could be costly and, if existing buildings can be used, may not be needed. Another option (not shown) would be to build one module for Pu-238 work or pit casting. This option would release some 5,000 sf in PF-4 in addition to the 4,700 sf available for repurposing. A third option would move Pu-238 work from LANL. Two sites, Savannah River Site (SRS) (SC) and Idaho National Laboratory (INL), have worked with Pu-238 and have stated that they have, or could modify, buildings to do this work. Figure 4 shows this option permitting the full amount of space used for Pu-238 in PF-4, 9,600 sf, to be made available for pit manufacturing, as well as the 4,700 sf of repurposable space. This option would result in 26,300 sf for pit work in PF-4. In determining the feasibility of this option, NNSA would need to evaluate space and MAR at other sites, as well as the costs—the move itself, repurposing PF-4 space, refurbishing, reequipping, and staffing the new facility, and so on—of the move. A fourth option to release space would be to build one or more modules for lower-MAR activities now housed in PF-4, such as materials characterization, which occupies 5,600 square feet of laboratory space, and a gas gun, which occupies another 1,200 square feet of lab space. Moving out these two activities would release about 6,800 square feet of PF-4 lab space, 11% of the total. Some waste processing activities in PF-4 are also lower-MAR. While these activities have a lower MAR level, they would still require Hazard Category 3-level facilities. LANL expects these modules would be comparable in cost to Hazard Category-2 modules. LANL calculates that the current 12,000 sf in PF-4 available for pit fabrication is enough to fabricate 30 ppy once certain upgrades have been completed. However, the space needed for 80 ppy would not increase linearly with capacity. Even calculating the amount of space for equipment is not linear. Each piece of equipment has a specific throughput. If one piece can support 40 ppy, then 80 ppy would require two such pieces, but if one piece suffices to support 30 ppy, then 80 ppy would require three pieces. Adding complexity to the calculation, constraints imposed by room layout, facility layout, and process flows must be considered. Adding further complexity, determining the space needed for 80 ppy requires analyzing the entire manufacturing process, not just equipment requirements, including answers to such questions as: In moving to 80 ppy, how much additional space would be needed in PF-4 for supporting infrastructure, such as packaging, shipping, receiving, waste management, and temporary storage, as well as the material control and accountability needed to send hundreds if not thousands of AC samples annually to LLNL or SRS if those sites are used? Would this latter number be much reduced if the samples were all analyzed at LANL? What turnaround time would be required for samples moved onsite or shipped offsite? The time required to receive AC results would be needed in order to estimate the number of gloveboxes and temporary storage locations, and would thus affect space requirements. The analysis would need to take into account that most AC is done on a confirmatory basis, i.e., manufacturing proceeds on the assumption that AC results will confirm that samples are within specifications. (Hemishells not within specifications would be recycled.) Such AC is not time-sensitive. On the other hand, AC to analyze process problems requires fast turnaround to minimize the time the process is shut down. At issue: how much AC is likely to be time-sensitive? How much plutonium would pit fabrication need? Increasing the amount of plutonium would require adding electrorefining furnaces, increasing space requirements. Since the United States no longer produces plutonium, all U.S. plutonium is "old," such as from retired pits. As plutonium decays, it produces other elements, such as uranium and americium. These must be removed by chemical processes to purify plutonium for use in new pits. (Chemical processes do not remove specific isotopes of plutonium.) PF-4 uses 10,400 sf for plutonium recycle and purification. How much plutonium could that area purify per year? How many ppy would that capacity support? How much more space would be needed to provide plutonium for 80 ppy? Alternatively, could these processes be moved to another site, such as Savannah River Site? Pit fabrication generates some plutonium scraps, such as excess material from castings, shavings from lathes, and pits scrapped because they did not meet specifications. Providing for recycle of this plutonium requires space, and producing 80 ppy would require more space than 30. How much space would plutonium disposition require? While major construction could make more space available, increasing efficient use of existing space could increase the space margin. This could be done in several ways, such as: Designing work flow to minimize space utilization. When DOE decided to move pit manufacture to PF-4, the process line was intended as a pilot plant to develop, quickly, techniques for resuming production. It was not intended as the nation's pit production site; other proposed facilities, such as the Modern Pit Facility, were to fill that role. LANL is currently redesigning the existing pit fabrication space in PF-4 to manufacture up to 30 ppy instead of 10; increased efficiencies of this type would reduce space requirements for 80 ppy, increasing margin. Develop equipment and processes for faster work flow so fewer pieces of equipment to manufacture a specified number of pits, reducing floor space. Repurpose unused space or space used for lower-priority programs, as discussed. Make more efficient use of PF-4's basement, which houses the nuclear materials vault and most utilities, and provides space for shipping and receiving and for staging waste drums. It may be possible to move out some operations from the basement, such as drum storage, freeing space to house such laboratory-floor operations as nondestructive analysis, and some waste management operations. Move some equipment out of PF-4. For example, PF-4 houses a gas gun, which propels a metal slug into a plutonium target to study how plutonium behaves under impact. The gas gun uses 1,200 sf of laboratory space in PF-4, and some basement space. Moving it to RLUOB (if that building's MAR were to be increased substantially) or to another site would release space in PF-4. Use two or three shifts a day rather than one. So doing would make more intensive use of space by allowing fewer pieces of equipment to produce a given amount of product, thereby reducing space requirements. Rocky Flats Plant, for example, generally operated using three shifts per day. On the other hand, a higher tempo for an extended period could increase operating cost, require more maintenance, reduce time available for maintenance, increase the likelihood of equipment failure, and have more impact on production if equipment fails. Such options would almost surely be faster and less costly than major construction, but without data on space required for 80 ppy, it is not possible to know if they would provide enough space. As with space, there are options to provide more MAR. The total MAR allowance for PF-4 on February 27, 2013, was 1,800 kg PE. Table 1 shows the percentage of the 1,800 kg MAR allowance used by each program on that date. For example, Pu-238 work accounted for 24.5% of the 1,800 kg PE; pit fabrication, for 16.4%; and other tasks, for lesser amounts. The gray space, 21.5%, represents the PF-4 MAR allowance unused on February 27, 2013. As noted, this analysis assumes that seismic upgrades increase PF-4 MAR to 2,600 kg PE. Table 2 shows that amount of MAR to the same scale as Table 1 and assumes that programs other than pit manufacturing use the MAR they used on February 27, 2013, for the foreseeable future. It shows that if the newly-available 800 kg PE of MAR and the unallocated MAR are both allocated to pit manufacturing and combined with the pit fabrication MAR, then 57.0% of the MAR in PF-4 would be available for pit work. (While the amount of MAR used by other tasks remains the same, the percentage of MAR they use is lower than in Table 1 because each task accounts for a smaller fraction of the higher MAR allowance.) If adding 800 kg of MAR is not sufficient to support 80 ppy, at least three other options would release more MAR. In discussing these options, it is important to recognize that MAR is not spread evenly across PF-4. While Pu-238 is only a small fraction of PF-4's radioactive material by weight, it is so radioactive that it is allocated 40% of PF-4's MAR allowance, though it did not use that much on February 27, 2013. Nor is MAR spread evenly within a program space, as discussed below. Option 1, shown in Table 3 , would use two modules. Plutonium Recycle and Purification (PRP) uses aqueous (plutonium dissolved in acid) processes and molten processes to recover pure plutonium from scrap or from retired pits by chemically removing impurities. Module 1 would house aqueous processes from PRP, and Module 2 would house molten plutonium from Pit Fabrication and from PRP. (This would eliminate PRP within PF-4.) This option would move about 198 kg of MAR out of PF-4. On a scale using total PF-4 MAR (2,600 kg PE) as 100%, Module 1 would have 1.5% as much MAR as PF-4 and Module 2 would have 6.5% as much. MAR available in PF-4 for pit manufacturing would increase to 62.5%. Option 2 would move the Pu-238 MAR contained in 5,000 sf of PF-4 to one module, releasing 52% of the space of Pu-238 Programs and 91% of the MAR in those programs. Table 4 shows this option. (Tables 2 through 5 are drawn to the same scale.) MAR available for repurposing would also be allocated to pit fabrication. Under Option 2, pit fabrication would be allocated 72.4% of the 2,600 kg PE of MAR in PF-4. This option requires half as many modules and releases twice the MAR as Option 1. Option 3 (not shown) would move all Pu-238 work to INL or SRS. This would free up all the MAR, vs. 91% for Option 2 and, more importantly, as shown in Figure 4 , would free up 9,600 sf of space, vs. 5,000 for Option 2. As with space, it may be possible to increase MAR margin without major construction. One approach is to strengthen PF-4 seismically to reduce the risk of building collapse through such steps as wrapping supporting columns in carbon fiber bonded with epoxy to strengthen them, anchoring the wall more strongly to the ceiling, installing braces that tie columns to beams, building shear walls, and installing a drag strut on the roof of PF-4 (see Figure 5 ). Other steps could reduce the risk that plutonium would escape even if PF-4 collapsed; plutonium escaping in an accident causes dose, and dose is the key factor in determining the amount of MAR permitted. Actual or possible steps include: Installing in production areas containers designed to remain intact in a building collapse; plutonium in these containers is not "at risk" and is thus not MAR; Removing tons of combustible material from PF-4; and Anchoring gloveboxes more strongly to the floor to reduce the likelihood that an earthquake would knock them over, exposing plutonium to the air, in which case a fire could generate plutonium oxide particles and release them into the atmosphere. Unlike pit manufacturing, AC involves little MAR because it uses tiny samples, such as a few milligrams of plutonium dissolved in a small amount of acid, as Figure 6 shows. But AC involves much more space per unit MAR than does pit fabrication because each laboratory instrument is housed in a glovebox or hood that might occupy a dozen square feet of space. Many analyses must be performed for each individual pit, and the number of instruments and their housing increase in tandem with manufacturing capacity. Producing 80 ppy would require increasing AC capacity. This requirement comes from two sources. First, at LANL, most pit-related AC is performed in the CMR building; as noted, NNSA plans to halt programmatic operations there "in approximately 2019." Given NNSA's plan to achieve a 30-ppy capacity by FY2026, work currently done in CMR would have to be performed elsewhere. Second, producing 80 ppy would require additional AC, as AC must be performed on multiple samples for each pit, and increasing manufacturing capacity would require more equipment, more space, and more MAR for AC. Finding enough space and MAR for AC should be simpler than for pit manufacture because more options are readily available to meet requirements for AC than for pit manufacture. According to DOD, "At the height of the Cold War, the Department of Energy's Rocky Flats Plant produced between 1,000 and 2,000 pits per year." The plutonium for each pit required AC. Because currently-anticipated rates do not approach that level, the nuclear weapons complex has a considerable amount of excess space and MAR suitable for AC. This capacity resides at several buildings in the complex, including Building 332 at Lawrence Livermore National Laboratory (LLNL), F/H Laboratory and Building 773-A at SRS, and the Radiological Laboratory-Utility-Office Building (RLUOB) at LANL. Each of these facilities would apparently have enough floor space and MAR allowance to conduct the AC needed to support manufacture of 80 ppy, PF-4 might perform some additional AC for higher-MAR work, such as sample preparation (which takes several-gram samples from larger pieces of plutonium) and certain analyses. Figure 7 shows these options. In addition, R&D may reduce MAR requirements. For example, LANL is validating an AC system that may require a sample size of 1.5 mg of WGPu instead of 225 mg. At issue are whether all AC should be done at LANL and, if not, how much AC should be done there and how much at another site. Not at issue is that LANL would need the capability to perform all AC tasks even if it did not have the capacity to perform AC for 80 ppy. The case for having a second site perform some of the AC needed for 80 ppy while maintaining the full suite of AC capabilities at LANL is: LANL is primarily a laboratory, and AC for 80 ppy would be on an industrial scale. LANL would gain little if any technical competence by conducting AC for 80 ppy vs., say, 40. It may be difficult to provide enough MAR and floor space at LANL for the AC for 80 ppy, especially with RLUOB's current MAR limit of 26 grams WGPu. LANL and a second site could cross-check the accuracy of each other's AC measurements and processes from time to time. LANL and LLNL have for decades, since before the end of nuclear testing, held that peer review is essential in developing or maintaining weapons and leads each lab to probe for flaws in the other lab's analyses, thus increasing confidence in the results. A similar argument could apply to peer review of AC. A second site could accommodate a surge in AC needs or provide a backup in case AC operations at LANL were suspended or disrupted. A second site would provide another source of technicians trained for plutonium AC. Several factors argue for keeping all the AC at LANL. It might cost more to perform AC at two sites rather than one, though it is impossible to know without the data. A second site would necessitate shipping many plutonium samples per year from LANL to another site, which would increase the risk of an accident and could cause public concern. It might be beneficial to have all plutonium AC technicians at one site so they would have the same training and operate according to the same formal and informal procedures. Concentrating as much plutonium work as possible at LANL would strengthen its position as the nation's plutonium center. While SRS and LLNL could both do this work, their facilities presumably have different capacities and would require different upgrades to support whatever level of AC was required. Data on the MAR and space requirements, and the cost of the LANL, LLNL, and SRS options, would be needed to provide a basis for decision. The option of having LLNL or SRS conduct a substantial fraction of the AC needed to support manufacture of 80 ppy must be evaluated in light of a revised path forward for AC that NNSA developed in June 2014. Based on an initial analysis by Los Alamos National Laboratory, NNSA determined that the combination of PF-4 and RLUOB with a higher plutonium limit, if properly equipped, could likely conduct all the AC needed to support manufacture of 80 ppy. NNSA further found that RLUOB would have sufficient space for the needed equipment. The planning for this approach will be conducted by personnel from NNSA headquarters (including the Office of Defense Programs, the Office of General Counsel, and staff specializing in construction and in National Environmental Policy Act issues), NNSA's Los Alamos Field Office, and Los Alamos National Laboratory over the summer and fall of 2014 to understand the costs and benefits of this approach. A Radiological Facility like RLUOB is permitted to hold up to 38.6 grams of plutonium-239 equivalent (Pu-239E), or 26 grams of WGPu. Radiological Facilities do not require stringent safety or security measures because the dose to onsite or offsite personnel in the event of a worst-case accident would be very low. In contrast, a Hazard Category (HC) 3 facility can hold between 38.6 grams and 2,610 grams of Pu-239E, or about 26 to 1,760 grams of WGPu. NNSA considered several options for raising the MAR limit in RLUOB. One option was to retrofit the building by adding various safety upgrades to make it HC-3 at the highest level (1760 grams WGPu). That option would have been costly and time-consuming and was not necessary for conducting AC work required. Another option was to create a "Hazard Category 4," splitting off the lower part of the HC-3 range into a separate category, with the upper bound, say, 900 grams Pu-239E. That option, however, would have necessitated a revision of 10 C.F.R. 830, Nuclear Safety Management, which would have required an extended period for rulemaking and would likely have impacted many other DOE facilities. The various limits on plutonium are based on the dose to onsite workers and offsite personnel that a worst-case accident could be expected to cause, and the requirements for a building depend on dose. There are myriad other regulations, all of which come together in a document called a Documented Safety Analysis, or DSA, which is tailored to each building and specifies the amount of radioactive material the building can hold and still remain below the dose thresholds set by DOE Orders in the event of a worst-case accident. While each building in the Hazard Category system requires a DSA, a Radiological Facility, such as RLUOB, does not because the amount of radioactive material is so small. Therefore, to increase the amount of WGPu in RLUOB above 26 grams, NNSA would have to prepare a DSA to operate RLUOB as an HC-3 facility. NNSA calculated that RLUOB, with 400 grams WGPu, could likely be operated as HC-3 without significant facility modifications: because of modern building features in RLUOB, NNSA calculated that the dose from the increased material in a worst-case accident would still be below the dose thresholds set by DOE Orders. Operating RLUOB as an HC-3 facility would not require congressional approval. Instead, congressional oversight would come through the normal reviews associated with the Chemistry and Metallurgy Research Replacement (CMRR) line item construction project. This line item remains open. It would fund actions that would accomplish the tasks proposed for CMRR-Nuclear Facility (NF), which NNSA stated in its FY2013 request were "plutonium chemistry, plutonium physics, and storage of special nuclear materials." However, CMRR-NF was "deferr[ed] … for at least five years" in the FY2013 budget request on cost grounds. NNSA plans to include funds for two subprojects in the CMRR line item construction project beginning with the FY2016 request. One is adding new AC equipment to RLUOB so it can perform AC to support 80 ppy; this would be "RLUOB Equipment Installation 2," or REI-2; the initial REI provided equipment for a much smaller amount of AC. AC equates to plutonium chemistry. The other involves PF-4: decontaminating some rooms, removing some old gloveboxes, and installing new materials characterization (MC) equipment; this is "Plutonium Equipment Installation," or PEI. PEI would support MC, and relates to plutonium physics. A separate activity, not part of the CMRR project, is removing excess special nuclear materials from the storage vault in PF-4, work that has been underway for some years. As a result, these three elements would permit NNSA to perform all the tasks planned for CMRR-NF, the cost of which was projected in the FY2012 budget request to be between $3,710 million and $5,860 million. While there are no cost estimates for NNSA's path forward, it would cost substantially less than CMRR-NF because it would avoid building a large plutonium facility. NNSA requested FY2015 funds for the AC and MC subprojects as part of the Program Readiness component of Readiness in Technical Base and Facilities (RTBF), which in turn is a component of NNSA's Weapons Activities account. While the House Appropriations Committee recommended including these funds as RTBF Construction, using the CMRR line item to fund these projects is consistent with the committee's recommendation: 04-D-125, Chemistry and Metallurgy Research (CMR) Replacement Project, LANL. — The Committee recommends $35,700,000, instead of providing funds for these activities under Program Readiness as in the budget request. This approach is consistent with the Committee's previous direction to the NNSA to carry out all CMR replacement activities in accordance with DOE Order 413.3B, rather than within operations funding where there is little transparency or accountability for delivering these activities on time and within budget. While the capacity and amount of process equipment needed may be evolving due to changing programmatic requirements for plutonium, the scope of the additional work being requested is consistent with the original mission need to provide analytic chemistry and material characterization space in a different facility than the legacy CMR building. Similarly, PF-4 reconfiguration activities are also appropriate to be conducted as part of the original CMR Replacement project so long as they are limited to re-equipping lab space for capabilities that were previously housed in the legacy CMR building. Construction of new modular facilities and installation of equipment within PF-4 to establish enhanced pit production capabilities are not sufficiently related to the original mission need of the existing project, and the Committee does not support the inclusion of these activities as subprojects within the existing CMR replacement project. REI-2 and PEI would also permit NNSA to exit the CMR building, a long-time goal of NNSA for several reasons: a fault runs underneath the building; CMR was built to the seismic standards of the late 1940s, so it is much more vulnerable to collapse in an earthquake than is RLUOB, placing its workers at heightened risk; and studies have found it to be "decrepit" and "structurally unsound," as noted under " Terminology ." NNSA points out that—comparing the quantity of plutonium, the age, and the structural integrity of the two buildings—having 9 kg of plutonium in CMR, as at present, poses a much greater risk than having 400 grams of plutonium in RLUOB. If NNSA is able to implement its path forward, LANL could perform all the AC needed to support manufacture of up to 80 ppy. In that case, the key question for AC would be how much, if any, AC one or more sites other than LANL should perform. The foregoing discussion shows how much additional space and MAR various construction options would make available for pit manufacturing, and points out that various non-construction options would also increase space and MAR margins. LANL has provided data from which this report calculated how much MAR and space various options would make available. The data, however, cannot indicate which options, if any, would provide enough margin because data on space and MAR requirements are also needed to calculate margin. It might turn out that once seismic improvements are made, PF 4 would have enough space and MAR margin for 80 ppy, or that moving Pu-238 programs to a module might free up enough MAR but not enough space for 80 ppy, or that moving Pu-238 programs to another site would suffice. (Other factors may enter into feasibility as well, such as the condition of a building.) But without data for space and MAR needed to manufacture 80 ppy, one cannot know which options are infeasible, which provide excess capacity and thus entail excess cost, and which are "just right." Regarding AC, the discussion shows that there are multiple options to provide AC capacity, and highlights the issue of whether all AC should be done at LANL and, if not, how much AC should be done there and how much at another site. But without data on such matters as building condition and cost for any required upgrades and equipment, it is not possible to determine the relative merits of the options. Figure 8 shows a notional decision sequence for downselecting pit manufacturing options. After defining options meriting consideration, the first question is, Which options are feasible? It would be simple to compare data on the required MAR and space, once they become available, against the amount of MAR and space released by each option to see which options provide a positive margin. Non-feasible options would not merit further consideration. The next step would be to estimate the cost of the feasible options and decide which are affordable. These data are needed to eliminate unaffordable options, which is important before planning begins because high cost has caused the demise of several nuclear weapons complex projects. Finally, having downselected to options that are feasible and affordable, one would compare those options against other possible criteria in order to make a final choice. Not shown in the figure is that MAR and space margins may change over time, as Figure 1 shows; such changes may make currently-feasible options infeasible, and vice versa. Congress would need data on MAR margin, space margin, and cost for various pit manufacturing options in order to best determine which options are feasible and affordable. The following questions highlight how these data could support decisionmaking. Questions such as the following can only be answered with data on how much MAR and space suffice for pit manufacturing and supporting AC for 80 ppy: Once certain seismic upgrades are completed, is there expected to be enough MAR margin for PF-4 to accommodate the added MAR needed to manufacture 80 ppy? As of 2012, 4,700 sf was available for immediate repurposing in PF-4. How much space is available now? Is that space, plus the 12,000 sf for pit fabrication, plus space for other pit-related tasks, enough to manufacture 80 ppy? If there is enough space and MAR margin in PF-4 for 80 ppy, is there a need to move any pit fabrication work (such as hemishell casting), Pu-238 work, or any other high-MAR work out of PF-4, whether to modules or to another site? If the MAR allowance in PF-4 is not sufficient to accommodate manufacture of 80 ppy, by how much would it have to be raised to do so? Could that be done, and if so what would the project entail? MAR is not evenly distributed across space. As noted, 91% of Pu-238 MAR was at one point concentrated in 5,000 sf of the 9,600 sf that Pu-238 Programs occupy in PF-4. (MAR usage within PF-4 changes from day to day; the MAR figure is for February 27, 2013.) Would moving this MAR into a 5,000-sf module make enough MAR and space available in PF-4 for manufacture of 80 ppy? Moving all Pu-238 work to INL or SRS would release a little more MAR but another 4,600 sf, as compared to a module. Would that release enough MAR and space in PF-4 to permit manufacture of 80 ppy? Would one module release enough MAR and space in PF-4 for pit manufacture? (This assumes that the immediately-repurposable space in PF-4 would also be used for pit manufacture.) If yes, would that be the case if pit casting were moved to the module, or if Pu-238 were moved to the module? Space in PF-4 is precious, as PF-4 is the only place in the United States that performs high-MAR, high-security work on plutonium and can manufacture pits. Unused space therefore represents opportunity for plutonium work forgone. Would moving 5,000 sf of Pu-238 work and 5,000 sf of pit casting equipment to two modules create unused space in PF-4? Would moving the entire Pu-238 line, 9,600 sf, to another site have the same result? Or would the released space be needed to accommodate added equipment needed to manufacture 80 ppy? At present, RLUOB is permitted to have 26 grams of WGPu MAR for AC, which is not nearly enough to perform the AC for 80 ppy. If this limit remains in place, how much more MAR and space would be needed for AC at LLNL or SRS? If the MAR limit for RLUOB is increased to 400 grams of WGPu for AC, how much more MAR and space, if any, would be needed for AC at LLNL or SRS? If the 26-gram limit is retained for RLUOB, would it be less costly to perform the remaining AC at LLNL or at SRS? What would it cost to enable RLUOB to hold 400 grams WGPu? If RLUOB could hold 400 grams of WGPu but that did not provide sufficient space for AC for 80 ppy, would it be less costly to perform the remaining AC at LLNL or at SRS? LANL is conducting projects to bolster the seismic robustness of PF-4, which may increase PF-4's MAR allowance from 1,800 to 2,600 kg PE (or more or less). If 2,600 kg PE is not enough MAR, could additional projects raise the MAR allowance enough to accommodate manufacture of 80 ppy, and what would they cost? LANL maintains that each successive module should cost less than the one before it, as lessons learned should drive down costs. On the other hand, it is possible that some lessons learned would lead to increased costs. What is the first module estimated to cost? The second? How sensitive is the cost of pit manufacturing to capacity, and what tradeoffs might a sensitivity analysis reveal? As a hypothetical example, if it cost an additional several billion dollars to move from 70 to 80 ppy, would it be worth spending the added money? Would it be less costly to move Pu-238 or hemishell casting to a module? Would it be less costly to move Pu-238 to INL, SRS, or a newly-built module? In deciding how to proceed on pit manufacture, Congress would likely want to know if there is enough space margin and MAR margin for 80 ppy. Margin, the available resource (space or MAR) minus the required resource, must be greater than zero. Available space and MAR are known, as of certain dates, as this report shows. But space and MAR required for 80 ppy have not been rigorously calculated. Congress may choose to direct NNSA to provide these two numbers. Once these numbers become available, Congress would face three decisions: For pit manufacturing, is there currently enough margin for space and MAR in PF-4? If not, what can be done to provide it? Once enough margin for space and margin for MAR are provided for pit manufacturing, what steps can be taken to maintain these margins over decades in the face of uncertainties? Space and MAR margins are not at issue for analytical chemistry because considerable excess space and MAR exist at other sites in the nuclear weapons complex. At issue: How much AC should be done at LANL, what is needed to make the space and MAR at LANL sufficient to support that amount of AC, and how much, if any, AC should be done at other sites? This appendix explains the tasks included in the diagrams of PF-4 and, in so doing, explains what PF-4 does. Analytical Chemistry (AC) analyzes plutonium samples taken from each pit at various stages in its manufacture. AC measures the isotopic composition of the plutonium and the amount of alloying materials and impurities a sample contains. AC typically uses samples on the order of milligrams. Certification: Before a pit type can be accepted into the stockpile, it must be certified as acceptable for war reserve use. This involves validating weapons codes, among other things. Validation, in turn, draws on experimental data. PF-4 supports some of these experiments, such as by preparing samples for analytical chemistry and materials characterization and preparing test items for experiments at the Nevada National Security Site that do not produce a nuclear yield. Materials Characterization (MC): MC measures bulk properties of plutonium, such as tensile strength, magnetic susceptibility, grain structure, and surface characteristics. Such properties must be determined in order to certify pit design, maintain process control, address process anomalies, and examine the condition of newly-manufactured pits and pits from the stockpile. MC typically uses samples on the order of a fraction of a gram to tens of grams. Materials Recycle and Recovery (MR&R): MR&R examines containers of plutonium in PF-4 that are to be sent to WIPP for permanent disposition. If the containers have deteriorated, MR&R repackages the plutonium in new containers. Pit Disassembly and Conversion: This area of PF-4 houses ARIES (Advanced Recovery and Integrated Extraction System), which converts excess pits to plutonium oxide (a powder) and places it in special containers for long-term storage. Pit Fabrication involves, among other things, casting "hemishells" (half-pits) of plutonium, machining the cast hemishells to remove excess material, welding two together to form a pit, and inspecting the finished pit with x-ray imaging, physical measurements, etc., to ensure it meets specifications. Pit Surveillance: Ever since the beginning of the nuclear weapons program, NNSA and its predecessor organizations have monitored the condition of nuclear weapons using a variety of techniques. Pits are monitored at Pantex Plant (TX) and PF-4. PF-4 monitoring techniques include taking physical measurements, checking for release of gases that may indicate deterioration of the pit, examining pits for corrosion, and taking pits apart to perform AC and MC on samples of the plutonium. While Pantex can perform some of these tasks, pits can be disassembled only at PF-4. Plutonium-238 (Pu-238) Programs: Pu-238 is the heat source for radioisotope power systems (RPS) for space probes, and has military applications as well. It is manufactured by bombarding rods of neptunium-237 with neutrons in a nuclear reactor. It undergoes radioactive decay much more rapidly than does Pu-239, producing uranium and other impurities. As a result, old Pu-238 must be purified before it can be used. PF-4 receives Pu-238, removes the impurities through chemical processes, and makes plutonium oxide, which it presses into capsules. It mates some capsules with other equipment to make RPSs for military applications, and sends other capsules to Idaho National Laboratory, which does the same to make RPSs for space probes. Plutonium Recycle and Purification (PR&P): This area recovers plutonium from scrap plutonium (such as from lathe turnings, pits scrapped for not meeting standards, or retired pits) for use in weapons and other programs. The scraps are dissolved in acid. Plutonium is then precipitated out of solution as plutonium oxalate, and is then roasted to produce plutonium oxide. A further process removes plutonium that remains in the acid. This area also recovers and purifies plutonium using high-temperature chemical processes. Readiness in Technical Base and Facilities (RTBF): RTBF is NNSA's program for operating the nuclear weapons complex and maintaining its infrastructure. Within PF-4, RTBF space is used for functions that support multiple programs, such as shipping and receiving, waste management, and material control and accountability.
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A "pit" is the plutonium "trigger" of a thermonuclear weapon. During the Cold War, the Rocky Flats Plant (CO) made up to 2,000 pits per year (ppy), but ceased operations in 1989. Since then, the Department of Energy (DOE) has made at most 11 ppy for the stockpile, yet the Department of Defense stated that it needs DOE to have a capacity of 50 to 80 ppy to extend the life of certain weapons and for other purposes. This report focuses on 80 ppy, the upper end of this range. Various options might reach 80 ppy. Successfully establishing pit manufacturing will require, among other things, enough laboratory space and "Material At Risk" (MAR). MAR is essentially the amount of radioactive material permitted in a building that could be released in an accident; there must be enough MAR available for manufacturing within the MAR "ceiling." PF-4, the main plutonium building at Los Alamos National Laboratory (LANL), or other structures would house manufacturing. Analytical chemistry (AC), which analyzes the composition of samples from each pit to support manufacturing, will also require availability of MAR and space. For an option to support 80 ppy, MAR and space available for manufacturing and AC must exceed MAR and space required for 80 ppy. "Margin" is the amount by which an available amount exceeds a required amount. This report presents amounts of MAR and space potentially available for manufacturing under several options, though they may require updating. Calculation of margin—needed to determine if an option passes a minimum test for feasibility—also requires data on MAR and space required for 80 ppy, yet these data have never been calculated rigorously. As a result, it is not known if an option would increase capacity too little (making an option infeasible), too much (making an option too costly), or by an appropriate amount. Congress could direct the National Nuclear Security Administration, which operates the nuclear weapons program, to provide data on space and MAR required to manufacture 80 ppy. These data would permit calculation of space margin and MAR margin as static numbers. However, the situation is dynamic: uncertainties may materialize over time, increasing or decreasing margin. AC poses different issues. It is needed to support production. It requires much space but uses little MAR. The nuclear weapons complex has ample excess space and MAR available for AC, so margin is not at issue, though such factors as logistics might become an issue. Thus, three key decisions face Congress in deciding how to produce 80 ppy: Decision 1: For pit manufacturing, is there currently enough margin for space and MAR in PF-4? If not, what can be done to provide it? Decision 2: Once enough margin for space and margin for MAR are provided for pit manufacturing, what steps can be taken to maintain these margins over decades in the face of uncertainties? Decision 3: How much AC should be done at LANL, what is needed to make the space and MAR at LANL sufficient to support that amount of AC, and how much, if any, AC should be done at other sites? Choosing among options also requires data on how options compare on cost and other metrics, setting up a process for downselection. This report is best viewed in color, as it contains many multicolored graphics.
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96-395 -- World Heritage Convention and U.S. National Parks Updated April 24, 2001 Summary On March 6, 2001, Congressman Don Young introduced H.R. 883 , the AmericanLand Sovereignty Act. H.R. 883 requires congressional approval to add any lands owned by the United States to the World HeritageList, a UNESCO-administered listestablished by the 1972 World Heritage Convention. Two years ago, on May 20, 1999, the House passed (by voicevote) an identical bill also numbered H.R. 883 , but the legislation did not pass in the Senate. Sponsors of that bill expressed concern that addinga U.S. site to the U.N. list, which iscurrently done under executive authority, might not protect the rights of private property owners or the states. TheClinton Administration and opponents of thebill argued that the designation has no effect on property rights and does not provide the United Nations with anylegal authority over U.S. territory. In relatedlegislation, P.L. 106-429 , in which H.R. 5526 , the Foreign Operations, Export Financing, and RelatedPrograms appropriations act for 2001 wasreferenced, contained language prohibiting funding from this bill for the United Nations World Heritage Fund. TheFY2000 contribution to the Fund was$450,000. The World Heritage Fund provides technical assistance to countries requesting help in protecting WorldHeritage sites. This paper describes theoperation of the UNESCO Convention and will be updated periodically. This legislation would also affect U.S.participation in the UNESCO Man and theBiosphere Program, which includes some of the same sites. For information on that program, see CRS Report RS20220(pdf) , Biosphere Reserves and the U.S. MABProgram. There are currently 690 natural and cultural sites in 122 countries listed on the World Heritage List established underthe World Heritage Convention. TwentyU.S. sites are listed, including Yellowstone and Grand Canyon National Parks, Independence Hall, and the Statueof Liberty. The World Heritage in Danger listcurrently has 30 sites in 24 countries, including Yellowstone National Park and Everglades National Park. Yellowstone National Park was listed on the sites indanger list in 1995 and the Everglades was listed in 1993. The 1980 National Historic Preservation Act establishesthe Interior Department as the administratorand coordinator of U.S. activities under the Convention. H.R. 883 , the American Land Sovereignty Act,would place conditions on Interior'sauthority to nominate new sites and require specific congressional authorization for new nominations. About the Convention The Convention Concerning the Protection of the World Cultural and Natural Heritage, popularly known as the World Heritage Convention, was adopted by theGeneral Conference of the United Nations Educational, Scientific, and Cultural Organization (UNESCO) in 1972. The United States initiated and led thedevelopment of the treaty and was the first nation to ratify it in 1973. Currently, 162 nations are parties to theConvention. The Convention's purpose is toidentify and list worldwide natural and cultural sites and monuments considered to be of such exceptional interestand such universal value that their protection isthe responsibility of all mankind. Each country adopting the Convention pledges to protect listed sites andmonuments within its borders and refrain fromactivities which harm World Heritage sites in other countries. The Convention states in Article 4 that each partyto it "recognizes that the duty of ensuring theidentification, protection, conservation, presentation and transmission to future generations of the cultural andnatural heritage .... situated on its territory, belongsprimarily to that state." (1) The internationalcommunity agrees to help protect them through the World Heritage Committee and Fund. World Heritage Committee and Fund The World Heritage Committee, composed of 21 specialists from member nations elected for 6-year terms, administers the Convention. (The United States wasmostly recently a member of the Committee for a term ending October 1999). The Committee has two principaltasks. First, it recognizes the sites nominated bymember states to be included on the World Heritage List, based on the criteria established by the Committee. Decisions on additions to the List are generallymade by consensus. UNESCO provides administrative assistance to the Committee but has no role in its decisions.The Committee monitors the sites and when asite is seriously endangered, it may be put on a List of World Heritage in Danger after consultation with the countryin which the site is located. In 1992, theCommittee adopted a plan to improve its operations, including an increased focus on monitoring conditions atexisting sites rather than adding new sites to theList. The Committee also administers the World Heritage Fund, which provides technical and financial aid to countries requesting assistance. Assistance can includesuch support as expert studies, training, and equipment for protection. World Heritage Fund technical assistancemust be requested by a member country in anagreement with the Committee, which sets conditions for the assistance. The World Heritage Fund receives incomefrom several sources. Member states pay duesequal to 1% of their UNESCO contribution. The United States is not a member of UNESCO and therefore doesnot contribute as a member. The Fund alsoreceives voluntary contributions from governments, donations from institutions, individuals, and from national orinternational promotional activities. The UnitedStates contributed $450,000 voluntarily to this program in FY2000, an amount appropriated in the ForeignOperations Appropriation. A similar contribution wasrequested for FY2001. This contribution was prohibited by P.L. 106-429 . Virtually no other U.S. money wascontributed to this program. U.S. Participation The National Park Service is the primary U.S. contact for World Heritage sites in the United States. The National Historic Preservation Act Amendment of 1980( P.L. 96-515 ) charges the Department of Interior with coordinating and directing U.S. activities under theConvention, in cooperation with the Departments ofState, Commerce, and Agriculture, the Smithsonian Institution, and the Advisory Council on Historic Preservation. The National Park Service administers all theU.S. sites with funds appropriated by Congress, except for several that are owned by states, a foundation, and anIndian tribe. Legislation American Land Sovereignty Protection Act. H.R. 883 was introduced by Representative DonYoung on March 6, 2001, and referred to the Committee on Resources. It has 30 cosponsors. The legislationamends the National Historic Preservation Act of1980 ( P.L. 96-515 ) to require a determination by the Interior Department that the designation of a new site will notadversely affect private land within ten milesof the site, a report to Congress on the impact of the designation on existing and future uses of the land andsurrounding private land, and specific authorization byCongress for new World Heritage site designations. The bill also terminates and prohibits unauthorized designationof biosphere reserves under the UNESCOMan and the Biosphere Program. Foreign Operations, Export Financing, and Related Appropriations Act, 2001. ( P.L. 106-429 , as passed byCongress, enacted by reference in H.R. 5526 .) Section 580 of this bill states that none of the fundsappropriated or made available by this Act may beprovided for the U.S. contribution to the United Nations World Heritage Fund. P.L. 106-429 was signed by thePresident on November 6, 2000. Although the debate on the American Land Sovereignty Protection bill was often couched in terms which included U.N. influence over U.S. parks andmonuments, supporters of the American Land Sovereignty Protection Act were primarily concerned that a lack ofa congressional role in designating the sites anda lack of congressional oversight of implementation of the act undermines the congressional role under theConstitution to make rules governing land belongingto the United States. As the House Resources Committee web site on the legislation stated: "By using theseinternational designations, the Executive Branch isable to guide domestic land use policies without consulting Congress." (2) Supporters express concern that even though there may be no internationalor U.N. directcontrol of U.S. sites, federal agency managers may take into account the international rules of the World Heritageprogram in making land use decisions, or usethe designation to undermine local land use decisions, often without the advice or even the knowledge of localauthorities or property owners. The World Heritage Convention does not give the United Nations authority over U.S. sites. The Department of State has testified that under the terms of theWorld Heritage Convention, management and sovereignty over the sites remain with the country where the site islocated. Supporters of the World Heritagesystem note that member countries nominate sites for the World Heritage List voluntarily and agree to develop lawsand procedures to protect them using theirown constitutional procedures. Most of the U.S. sites named have already been accorded protection in law asnational monuments or parks. In commenting onthe bill, the Clinton Administration stated that the designation does not give the United Nations the authority toaffect land management decisions within theUnited States and has not been utilized to exclude Congress from land management decisions. The Department ofState noted that the Convention itself has norole or authority beyond listing sites and offering technical advice and assistance. Supporters of the conventionassert that World Heritage status has been theimpetus behind closer cooperation between federal agencies and state and local authorities. Inclusion on the World Heritage List increases knowledge and interest in sites throughout the world. Many countries use the World Heritage designation toincrease tourism to site areas. Designation also brings international attention and support to protect endangeredsites. In 1993, the World Heritage Committeesupported the United States in protecting Glacier Bay National Park and Preserve by publicizing U.S. concerns abouta Canadian open pit mine near the Bay andreminding the Canadian government of its obligations under the Convention to protect the site. In 1996,international concern, including concern raised by U.S.citizens, was instrumental in changing the plans of a Polish company to build a shopping center near AuschwitzConcentration Camp in Poland, a World HeritageSite. In March of 2000, Mexico dropped plans to develop a salt plant on the shores of a gray whale breeding groundin a protected Mexican area designated as aWorld Heritage Site. Supporters of legislation restricting U.S. World Heritage participation express concern about the impact of the designation on private property near the sites. Theysuggest that agreeing to manage the site in accordance with the international convention may have an impact on theuse of private land nearby, or may even be anindirect way of complying with treaties which the Congress has not approved. They claim that advocacy groupsuse federal regulations and international land usedesignations to frustrate the public land management decision-making process. The Interior Department hastestified, on the other hand, that the nominationprocedure includes open public meetings and congressional notification on sites being considered. In June 1995, the U.S. Department of the Interior notified the World Heritage Committee that Yellowstone was in danger and requested an on-site visit. In afollow up letter, the Department of the Interior noted actions which the United States was taking to address thesituation. A team organized by the World HeritageCenter reviewed actual and potential threats to the park. In December 1995, based on this visit and consultationswith U.S. government officials, the WorldHeritage Committee placed Yellowstone on the List of World Heritage in Danger, citing threats posed by plans fora gold mine just over 1 mile from the Park, theintroduction of non-native fish into Yellowstone Lake, and activities to eliminate brucellosis from Park bison herds. The World Heritage Committee noted thatany response to the threat was a U.S. domestic decision and asked that the U.S. government keep the committeeinformed of actions taken by the United Statesand to assess what more must be done in order to remove Yellowstone from the endangered list. Both the non native fish and the Park bison herds are the subject of ongoing federal, state, and local discussions.The gold mine issue has been resolved. Congress appropriated funds to compensate the mine owners for not developing it. The non-native fish problemis ultimately unresolvable, but Park authoritiesare working to minimize the number of non native fish in Yellowstone lake. The Administration will continue toreport annually to the World HeritageCommittee on both Yellowstone and Everglades National Parks until they are removed from the endangered list. The World Heritage Committee will continueto list both parks on the World Heritage in Danger List in consultation with the United States. The Decembermeeting of the World Heritage Committee will bethe next opportunity for the United States to report on actions taken to eliminate the danger to the parks, or todiscuss changes to their designation. It is too earlyto know what the Bush Administration position will be on this topic. 1. (back) Convention concerning the protection ofthe world cultural and natural heritage. 27 UST 37. 2. (back) U.S. Congress. House. Committee onResources. http://resourcescommittee.house.gov/resources/106cong/fullcomm/sovereignty.htm .
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On March 6, 2001, Congressman Don Young introduced H.R. 883 , the AmericanLand Sovereignty Act. H.R. 883 requires congressional approval to add any lands owned by the United States to the World HeritageList, a UNESCO-administered listestablished by the 1972 World Heritage Convention. Two years ago, on May 20, 1999, the House passed (by voicevote) an identical bill also numbered H.R. 883 , but the legislation did not pass in the Senate. Sponsors of that bill expressed concern that addinga U.S. site to the U.N. list, which iscurrently done under executive authority, might not protect the rights of private property owners or the states. TheClinton Administration and opponents of thebill argued that the designation has no effect on property rights and does not provide the United Nations with anylegal authority over U.S. territory. In relatedlegislation, P.L. 106-429 , in which H.R. 5526 , the Foreign Operations, Export Financing, and RelatedPrograms appropriations act for 2001 wasreferenced, contained language prohibiting funding from this bill for the United Nations World Heritage Fund. TheFY2000 contribution to the Fund was$450,000. The World Heritage Fund provides technical assistance to countries requesting help in protecting WorldHeritage sites. This paper describes theoperation of the UNESCO Convention and will be updated periodically. This legislation would also affect U.S.participation in the UNESCO Man and theBiosphere Program, which includes some of the same sites. For information on that program, see CRS Report RS20220(pdf) , Biosphere Reserves and the U.S. MABProgram.
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The Consolidated Appropriations Act for FY2008 ( P.L. 110-161 ) provided $26.89 billion for Interior, Environment, and Related Agencies. Another $500.0 million in emergency funds for wildfires was provided in P.L. 110-116 , for an FY2008 total of $27.39 billion. The annual Interior, Environment, and Related Agencies appropriations bill includes funding for agencies and programs in three separate federal departments, as well as numerous related agencies and bureaus. It provides funding for Department of the Interior (DOI) agencies (except for the Bureau of Reclamation, funded in Energy and Water Development appropriations laws), many of which manage land and other natural resource or regulatory programs. The bill also provides funds for agencies in two other departments—the Forest Service in the Department of Agriculture, and the Indian Health Service (IHS) in the Department of Health and Human Services—as well as funds for the Environmental Protection Agency (EPA). Further, the annual bill includes funding for arts and cultural agencies, such as the Smithsonian Institution, National Gallery of Art, National Endowment for the Arts, and National Endowment for the Humanities, and for numerous other entities and agencies. In recent years, the appropriations laws for Interior and Related Agencies provided funds for several activities within the Department of Energy (DOE), including research, development, and conservation programs; the Naval Petroleum Reserves; and the Strategic Petroleum Reserve. However, at the outset of the 109 th Congress, these DOE programs were transferred to the House and Senate Appropriations subcommittees covering energy and water, to consolidate jurisdiction over DOE. At the same time, jurisdiction over the EPA and several smaller entities was moved to the House and Senate Appropriations subcommittees covering Interior and Related Agencies. This change resulted from the abolition of the House and Senate Appropriations Subcommittees on Veterans Affairs, Housing and Urban Development, and Independent Agencies, which previously had jurisdiction over EPA. Since FY2006, appropriations laws for Interior, Environment, and Related Agencies have contained three primary titles providing funding. This report is organized along these lines. Accordingly, the first section (Title I) provides information on Interior agencies; the second section (Title II) discusses EPA; and the third section (Title III) addresses other agencies, programs, and entities. A fourth section of this report discusses cross-cutting topics that encompass more than one agency. Entries in this report are for major agencies (e.g., the National Park Service) and cross-cutting issues (e.g., Everglades restoration) that receive funding in the Interior, Environment, and Related Agencies appropriations bill. For each such agency or issue, we discuss some of the key funding changes proposed or enacted for FY2008 that are likely to be of interest to Congress. We also address related policy issues that occurred in the context of considering appropriations legislation. Presenting such information in summary form is a challenge given that budget submissions for some agencies number several hundred pages and contain innumerable funding, programmatic, and legislative changes for congressional consideration. Similarly, funding bills and accompanying reports contain numerous line items and discussions of programs and issues. This report contains final FY2007 enacted levels for agencies, programs, and activities. The Administration did not use these figures as the basis of comparison in agency budget submissions for FY2008, because agencies were being funded under a short-term continuing resolution at the time of those submissions. Accordingly, the FY2007 figures used throughout this report will differ in many cases from those contained in the FY2008 agency budget submissions. A further difference is that FY2007 figures in this report include supplemental funding. Final FY2007 funding levels, as contained in this report, were determined by the agencies under the provisions of P.L. 110-5 , the Revised Continuing Appropriations Resolution for FY2007. Continuing funding was needed to fund agency operations and activities because Congress did not enact a regular FY2007 appropriations bill for Interior, Environment, and Related Agencies. P.L. 110-5 provided funds though September 30, 2007, which was the rest of the fiscal year. It continued funds at the FY2006 account level, except where otherwise specified. The law required that agencies and departments submit an allocation of funds below the account level, for example for programs and activities, to the House and Senate Appropriations Committees. The submissions were due within 30 days of enactment (March 17, 2007). In general, in this report the term appropriations represents total funds available, including regular annual and supplemental appropriations, as well as rescissions, transfers, and deferrals, but excludes permanent mandatory budget authorities. Increases and decreases generally are calculated on comparisons between the funding levels enacted for FY2008 and those enacted for FY2007 and requested by the President for FY2008. The House Committee on Appropriations is the primary source of the funding figures used throughout the report. Other sources of information include the Senate Committee on Appropriations, agency budget justifications, and the Congressional Record . In the tables throughout this report, some columns of funding figures do not add to the precise totals provided due to rounding. Table 1 , below, shows the budget authority for Interior, Environment, and Related Agencies for FY2004-FY2008. Funding for earlier years is not readily available due to the changes in the makeup of the Interior appropriations bill. The President's request for FY2008 ($25.69 billion), if enacted, would have been the lowest level since FY2004. It would have been a $1.64 billion (6%) decrease in funds from the FY2004 level in current dollars, or a 16% decrease in constant dollars (assuming 2.24% inflation for 2007 and 2008). The House-approved funding of $27.63 billion was slightly higher than FY2004—a $301.8 million increase (1%) in current dollars but a 10% decrease in constant dollars. The Senate Committee on Appropriations recommended $27.19 billion, which was a slightly lower level than FY2004—a $143.3 million decrease (0.5%) in current dollars and an 11% decrease in constant dollars. For FY2008, the $26.89 billion contained in the Consolidated Appropriations Act was a decrease of $483.3 million (2%) in current dollars and a 12% decrease in constant dollars. The FY2008 total funding of $27.39 billion, including the $500.0 million in emergency fire funding, would be a $61.7 million increase (0.2%) over FY2004 in current dollars but a 10% decrease in constant dollars. See Table 24 for a budgetary history of each agency for FY2004-FY2008. FY2008 funding for Interior, Environment, and Related Agencies was included in the Consolidated Appropriations Act for FY2008 ( P.L. 110-161 ). The enacted bill ( H.R. 2764 ), providing funding for government agencies and activities except defense, was signed into law on December 26, 2007. An explanatory statement on the bill was printed in the Congressional Record of December 17, 2007. The explanatory statement on Interior, Environment, and Related Agencies (Division F of the bill) was published in Book II of the Record , at H16122-H16178. The explanatory statement noted that it contained "a list of congressional earmarks and congressionally directed spending items" as defined in House and Senate rules, at H16142-H16157. However, the amounts in the list did not reflect a 1.56% across-the-board cut provided in H.R. 2764 for Interior, Environment, and Related Agencies. The explanatory statement also included a detailed funding table for Interior, at H16158-H16178. For activities, programs, and agencies, the table contained funding levels enacted for FY2007, requested by the Administration for FY2008, approved by the House for FY2008, recommended by the Senate Committee on Appropriations for FY2008, contained in H.R. 2764 for FY2008, and reduced by a 1.56% across-the-board cut for FY2008. The Consolidated Appropriations Act for FY2008 ( P.L. 110-161 ) provided $26.89 billion for Interior, Environment, and Related Agencies for FY2008. That total reflects the 1.56% cut provided in the Interior portion of the act. In general, FY2008 appropriations figures used throughout this report also reflect the cut, which under the law was to be applied across the board to programs, projects, and activities. An additional $500.0 million in emergency appropriations for FY2008 for wildfires was included in an earlier law, P.L. 110-116 , for an FY2008 total of $27.39 billion for Interior, Environment, and Related Agencies. This would be about the same as enacted for FY2007 (including funds for Secure Rural Schools), $240.2 million (0.9%) lower than passed by the House for FY2008 in H.R. 2643 , and $205.0 million (0.8%) higher than recommended by the Senate Committee on Appropriations for FY2008 in S. 1696 . The FY2008 level was an increase of $1.70 billion (6.6%) over the Administration's request. Of the $500.0 million in P.L. 110-116 , $329.0 million was provided to the Forest Service for wildland fire management. The funds were divided as follows: $110.0 million for suppression, $100.0 million for repayment of accounts from which funds were borrowed in FY2007, $80.0 million for hazardous fuels reduction, $25.0 million for rehabilitation and restoration of federal lands, and $14.0 million for construction and reconstruction of federal facilities. For fire fighting on DOI lands, the law provided BLM with the remaining $171.0 million in wildland fire management funds. The funds were apportioned as follows: $40.0 million for suppression, $115.0 million for repayment of accounts from which funds were borrowed in FY2007, $10.0 million for hazardous fuels reduction, and $6.0 million for rehabilitation and restoration of federal lands. The FY2008 appropriations level was higher for some agencies than the FY2007 level, but lower for others. Among the FY2008 increases over FY2007 were the following: $292.6 million (6.2%) for the Forest Service (FS); $185.2 million (9.7%) for the Bureau of Land Management (BLM); $166.0 million (5.2%) for the Indian Health Service (IHS); $90.4 million (3.9%) for the National Park Service (NPS); $47.7 million (7.5%) for the Smithsonian Institution (SI); and $28.1 million (2.1%) for the Fish and Wildlife Service (FWS). Among the FY2008 decreases from FY2007 were the following: -$263.6 million (3.4%) for the Environmental Protection Agency (EPA); -$124.2 million (42.2%) for the Office of Surface Mining Reclamation and Enforcement (OSM); -$43.6 million (27.3%) for the Minerals Management Service (MMS); and -$33.9 million (15.2%) for the Office of Special Trustee for American Indians (OST). Prior to the enactment of the consolidated bill, Interior, Environment, and Related Agencies were funded under a series of laws that generally continued funds at FY2007 levels. Continuing funding was needed to fund ongoing projects and activities because Congress did not enact a regular FY2008 funding bill for Interior, Environment, and Related Agencies before the October 1, 2007, start of the fiscal year. In earlier action, the Senate Committee on Appropriations had reported a regular annual appropriations bill, but it was not considered on the Senate floor. Specifically, on June 26, 2007, the Senate committee reported S. 1696 ( S.Rept. 110-91 ), with $27.19 billion for FY2008 for all agencies included in the Interior, Environment, and Related Agencies appropriations bill. On June 27, 2007, the House passed H.R. 2643 with $27.63 billion for FY2008. The House-passed level would have been an increase over the FY2007 level of $27.38 billion, including $425.0 million for the Secure Rural Schools program (established under P.L. 106-393 ). The Senate committee level would have been a decrease from FY2007. The House and the Senate committee levels both would have been increases over the President's request for FY2008 of $25.69 billion. The Senate Appropriations Committee considered several amendments during its markup, in addition to a managers' package of amendments. The Committee agreed to an amendment to remove language from the bill that barred funds from being used for new Outer Continental Shelf leases for those holding leases without price thresholds, unless the leases were renegotiated. The Committee also agreed to an amendment seeking to ban imports of polar bears and polar bear parts. An amendment seeking to extend the Secure Rural Schools Act for four years was withdrawn. The act provides a method for compensating counties for the tax exempt status of most national forests (managed by the FS) and some public lands (managed by the BLM). Amendments seeking to expedite the time frame for filing claims challenging the land management plan for the Tongass National Forest (AK) also were withdrawn. The House considered 58 amendments to H.R. 2643 during two days of floor debate, and adopted 18 of them before passing the bill (272-155) on June 27, 2007. The amendments addressed an array of programs and issues. Some of them were broad, as in those that sought to cut the total appropriation in the bill by a particular sum or reduce each appropriation in the bill by a fixed percentage (which were not agreed to). Others were more narrow, such as those prohibiting funds in the bill from being used for particular programs or purposes. Many of the amendments are discussed in the pertinent sections throughout this report. In earlier action, on June 11, 2007, the House Appropriations Committee had reported H.R. 2643 ( H.Rept. 110-187 ) with a total of $27.63 billion. The House Appropriations Committee issued a supplemental report ( H.Rept. 110-187 , Part II) on June 22, 2007. The report identified projects that would be funded from various line items in the bill, such as the construction accounts of the land management agencies. It specified whether the Administration or a particular Member of Congress requested the funding and the state in which the project is located. Controversial funding and policy issues typically have been debated during consideration of the annual Interior, Environment, and Related Agencies Appropriations bill. Debate on the FY2008 funding levels encompassed a variety of issues, many of which have been controversial in the past, including the issues listed below. Clean Water and Drinking Water State Revolving Funds , especially the adequacy of funding to meet state and local wastewater and drinking water needs. These state revolving funds provide seed money for state loans to communities for wastewater and drinking water infrastructure projects. (For more information, see the " Title II: Environmental Protection Agency " section in this report.) Construction of BIA Schools and IHS Health Facilities , particularly whether to enact funding cuts proposed in the President's FY2008 budget. (For more information, see the " Bureau of Indian Affairs " and the " Department of Health and Human Services: Indian Health Service " sections in this report.) Indian Trust Funds , especially whether to enact reductions proposed in the President's FY2008 request and the method by which a historical accounting will be conducted of Individual Indian Money (IIM) accounts to determine correct balances in the class-action lawsuit against the government. (For more information, see the " Office of Special Trustee for American Indians " section in this report.) Land Acquisition , including the appropriate level of funding for the Land and Water Conservation Fund for federal land acquisition and the state grant program, and extent to which the fund should be used for activities not involving land acquisition. (For more information, see " The Land and Water Conservation Fund (LWCF) " section in this report.) Outer Continental Shelf Leasing , particularly the moratoria on preleasing and leasing activities in offshore areas, and oil and gas leases in offshore California. (For more information, see the " Minerals Management Service " section in this report.) Payments in Lieu of Taxes Program (PILT) , primarily the appropriate level of funding for compensating local governments for federal land within their jurisdictions. (For more information, see the " Payments in Lieu of Taxes Program (PILT) " section in this report.) Royalty Relief, especially the extent to which oil and natural gas companies receive royalty relief for production of oil and natural gas on federal lands. (For more information see " Minerals Management Service " section of this report.) Superfund , notably the adequacy of proposed funding to meet hazardous waste cleanup needs, and whether to continue using general Treasury revenues to fund the account or reinstate a tax on industry that originally paid for most of the program. (For more information, see the " Title II: Environmental Protection Agency " section in this report.) Termination of BIA Education and Housing and IHS Urban Health Programs , particularly whether to end funding for BIA's Johnson-O'Malley grants to schools and the Housing Improvement Program and for IHS's urban Indian health projects. (For more information, see the " Bureau of Indian Affairs " and the " Department of Health and Human Services: Indian Health Service " sections in this report.) Wildland Fire Fighting , involving questions about the appropriate level of funding to fight fires on agency lands; advisability of borrowing funds from other agency programs to fight wildfires; implementation of a new program for wildland fire protection and locations for fire protection treatments; and impact of environmental analysis, public involvement, and challenges to agency decisions on fuel reduction activities. (For more information, see the " Bureau of Land Management " and " Department of Agriculture: Forest Service " sections in this report.) Table 2 contains information on congressional consideration of the FY2008 Interior appropriations bill. The Bureau of Land Management (BLM) manages approximately 258 million acres of public land for diverse and sometimes conflicting uses, such as energy and minerals development, livestock grazing, recreation, and preservation. The agency also is responsible for about 700 million acres of federal subsurface mineral resources throughout the nation, and supervises the mineral operations on an estimated 56 million acres of Indian Trust lands. Another key BLM function is wildland fire management on about 370 million acres of DOI, other federal, and certain nonfederal land. For the BLM, the FY2008 law contained $1.89 billion, including $78.0 million in emergency appropriations for wildfire suppression contained in Title V. An additional $171.0 million in emergency wildfire funds was provided in an earlier law, P.L. 110-116 , for a total BLM appropriation of $2.06 billion for FY2008. This level was higher than enacted for FY2007 and had been supported for FY2008 by the Administration, House, and Senate Appropriations Committee, primarily due to the emergency appropriations for wildfires. See Table 3 . Proposed funding for several key activities is discussed below. Management of Lands and Resources includes funds for an array of BLM land programs, including protection, recreational use, improvement, development, disposal, and general BLM administration. For this line item, the FY2008 law contained $853.9 million, lower than enacted for FY2007 and supported by the President, House, and Senate Appropriations Committee for FY2008. The enacted level reflects $25.5 million in revenues from a new oil and gas cost recovery program as an offset to the appropriation for energy and minerals management. Many lands and resources programs received increases relative to FY2007, while others received decreased or level funding. For maintenance, the FY2008 law included $74.8 million, a $4.4 million increase over the FY2007 level. Increases were included for both annual and deferred maintenance, with total deferred maintenance funding of $36.5 million. BLM has estimated its deferred maintenance at between $387 million and $473 million for FY2006. Wildlife and fisheries would receive $44.3 million in FY2008, a $3.5 million increase. For range management, the law contained $73.0 million, $4.8 million more than appropriated for FY2007. More than half the increase for each of wildlife and fisheries and for range management was for the healthy lands initiative (see below). Recreation and wilderness programs received $67.9 million, up $4.2 million. For the healthy lands initiative, the FY2008 law provided about $5 million, an increase above the $3.0 million appropriated for FY2007. The initiative consists of vegetation resources enhancements to restore and improve the health and productivity of western public lands. The House, like the Administration, had sought a large increase—to $15.0 million—while the Senate Committee had recommended $6.0 million. The Administration had anticipated using another $8.2 million in existing BLM funds, and leveraging $10.0 million in contributions from partners. For the National Landscape Conservation System (NLCS), which consists of 26 million acres of BLM's protected conservation areas, the FY2008 law provided about $5 million over the President's request of $49.2 million. The House and the Senate Appropriations Committee had approved higher increases over the request. In the explanatory statement, the appropriations committees directed BLM to present annual NLCS reports with expenditures by unit and subactivity to enhance fiscal accountability. The FY2008 law included lower funding for energy and minerals, $109.9 million, than had been enacted for FY2007—$138.1 million (including Alaska minerals). The reduction is to be accomplished primarily through the collection of $25.5 million in offsetting fees. These revenues are expected to be derived through a new program requiring payment of $4,000 for each application for a permit to drill oil and gas wells. A similar program had been requested by the Administration and supported by the House. The FY2008 law capped the appropriation for oil and gas management at $90.2 million, due to concerns that BLM has used conservation and other natural resource funds for oil and gas activities ( H.Rept. 110-187 , p. 16). Further, the law prohibited funds from being used to prepare final regulations regarding a commercial leasing program for oil shale or to conduct a commercial oil shale lease sale. In the explanatory statement, the appropriations committees expressed that while oil shale has the potential to be an important energy resource, there is concern that DOI "may be moving ahead before the full impacts of such a program are known, and without full and complete cooperation of the affected States ... Colorado, Utah, and Wyoming." Current law ( P.L. 109-58 ) requires BLM to issue the regulations and to move to a commercial leasing program. For management of wild horses and burros, the FY2008 law provided nearly level funding—$36.2 million. The Administration had sought to reduce funding to $32.1 million, but the House and the Senate Committee supported increases over FY2007. In its report, the Senate Appropriations Committee "strongly" encouraged federal agencies that use horses to first seek to acquire a wild horse from BLM, and encouraged BLM to expedite providing wild horses to state and local police ( S.Rept. 110-91 , p. 12). For Wildland Fire Management, the FY2008 law contained $886.1 million, including the $78.0 million in emergency appropriations for wildfire suppression. This was an increase over the FY2007 level and the levels supported by the President, House, and Senate Committee for FY2008. An additional $171.0 million was provided in P.L. 110-116 , for suppression, hazardous fuels reduction, rehabilitation, and repayment of accounts from which funds were borrowed in FY2007 for fire suppression. With these funds, the FY2008 total for wildland fire management was $1.06 billion, which is about half the overall BLM appropriation for FY2008. Fire suppression would increase from $344.2 million in FY2007 (including supplemental funding) to $367.8 million in FY2008 under P.L. 110-161 . This would fund the ten-year average cost of fire suppression (about $289.8 million) and provide additional funds ($78.0 million) if needed for an extreme fire season, according to the explanatory statement on the FY2008 bill. Preparedness was increased from $274.9 million in FY2007 to $276.5 million in FY2008. The Administration had sought to reduce preparedness funding, while the House had supported level funding. The Senate Committee had recommended an increase on the grounds that cutting preparedness funding does not save money, but shifts expenditures to suppression ( S.Rept. 110-91 , p. 15). Funding for other fire operations would increase from $234.3 million in FY2007 to $241.8 million in FY2008, primarily due to the inclusion of $5.9 million for rural fire assistance. Most of the funding for other operations in FY2008 was for hazardous fuels reduction—$199.6 million—essentially level with FY2007 funding. In the explanatory statement, appropriators directed the agencies to report on the allocation of funds for reducing hazardous fuels. The wildland fire funds appropriated to BLM are used for fire fighting on all DOI lands. Interior appropriations laws also provide funds for wildland fire management to the Forest Service (Department of Agriculture) for fire programs primarily on its lands. A focus of both departments is implementing the Healthy Forests Restoration Act of 2003 ( P.L. 108-148 ) and the National Fire Plan, which emphasize reducing hazardous fuels which can contribute to catastrophic fires. (For additional information, see the " Department of Agriculture: Forest Service " section in this report.) For FY2008, the law contained $6.4 million for BLM Construction, akin to the level requested by the Administration and supported by the House. The explanatory statement expressed that the funds should be allocated as described in the President's budget request, which called for 12 construction projects in five states. The FY2008 level was a decrease of $5.4 million from FY2007 ($11.8 million). The Senate Appropriations Committee had supported funding at nearly the FY2007 level, to avoid an increase in the construction backlog, and had expressed "disapproval" regarding DOI's "lack of commitment to its infrastructure" ( S.Rept. 110-91 , p. 15-16). For Land Acquisition for FY2008, the law contained $8.9 million, a small increase over the FY2007 level of $8.6 million. The explanatory statement specified how about two-thirds of the funds would be used for eight acquisitions. Both the House and the Senate Committee initially had supported higher increases for FY2008. However, the Administration had sought a reduction to $1.6 million, with an additional $5.0 million from the proceeds of sales of the subsurface mineral estate to the surface owners. BLM estimated that 500,000 acres could be sold annually for approximately $10 per acre, for a total of $5.0 million per year. Such a redirection of the proceeds of the sales to land acquisition was not included in the FY2008 law. The appropriation for BLM acquisitions had fallen steadily from $49.9 million in FY2002 to $8.6 million for FY2007. Money for land acquisition is appropriated from the Land and Water Conservation Fund. (For more information, see the " The Land and Water Conservation Fund (LWCF) " section in this report.) For further information on the Bureau of Land Management , see its website at http://www.blm.gov/nhp/index.htm . CRS Report RL33792, Federal Lands Managed by the Bureau of Land Management (BLM) and the Forest Service (FS): Issues for the 110 th Congress , by [author name scrubbed] et al. CRS Report RL33990, Wildfire Funding , by [author name scrubbed]. For FY2008, the appropriation for the Fish and Wildlife Service (FWS) was $1.37 billion. The FY2008 level was a 2% increase over the FY2007 level of $1.34 billion and a 6% increase over the President's request of $1.29 billion. The House had approved $1.42 billion, while the Senate Appropriations Committee had recommended $1.38 billion. By far the largest portion of the FWS annual appropriation is for the Resource Management account. The FY2008 appropriation for this account was $1.08 billion, a 6% increase over the FY2007 level of $1.02 billion and a 5% increase over the Administration's request of $1.03 billion. The House had approved $1.10 billion; the Senate Committee level was $1.08 billion. Among the programs included in Resources Management are the Endangered Species program, the Refuge System, and Law Enforcement. Funding for the Endangered Species program is one of the perennially controversial portions of the FWS budget. The FY2008 appropriation was $150.5 million for the Endangered Species program, a 4% increase over FY2007. The Administration had proposed a smaller increase of 1%—from $144.7 million in FY2007 to $146.5 million in FY2008. See Table 4 . The FY2008 law did not include language from the Senate committee bill that had sought to limit funding for the importation of polar bear parts taken in sport hunts. The House had rejected a similar amendment during floor debate. The House had also rejected an amendment to prohibit use of funds for Mexican wolf recovery. A number of related programs also benefit conservation of species that are listed, or proposed for listing, under the Endangered Species Act. The President proposed to end the Landowner Incentive Program ($23.7 million in FY2007) as well as Stewardship Grants ($7.3 million in FY2007). The President also sought to reduce the Cooperative Endangered Species Conservation Fund (for grants to states and territories to conserve threatened and endangered species) from $81.0 million to $80.0 million. The FY2008 appropriation reflected these proposals, and included a further reduction for the Cooperative Endangered Species program for an FY2008 appropriation of $73.8 million. However, the FY2008 law also provided for the use of $5.0 million in prior year balances, making total FY2008 funding of $78.8 million for the Cooperative Endangered Species program. See Table 4 . In total, the FY2008 appropriations law contained $224.3 million for endangered species and related programs, down 13% from the FY2007 level of $256.6 million. Under the President's request, total FY2008 funding would have decreased to $226.5 million, a 12% reduction. For refuge operations and maintenance, the FY2008 appropriation was $434.1 million. This was a 10% increase over the FY2007 level of $395.3 million. The President had proposed $394.8 million, a slight decrease from FY2007. However, both the House and the Senate Appropriations Committee had sought increases. The House had approved $451.0 million, an increase of 14%, while the Senate committee level was $413.8 million, up 5%. Costs of operation have increased on many refuges, partly due to special problems such as hurricane damage and more aggressive border enforcement. Reductions in funding for operations in the NWRS, combined with the need to meet fixed costs such as rent, salaries, and utilities, have led to cuts in funding for programs to aid endangered species, reduce infestation by invasive species, protect water supplies, address habitat restoration, and ensure staffing at the less popular refuges. The Northeast Region (roughly Virginia to Maine, with 71 refuges) took the lead in addressing this issue by attempting to consolidate management at refuges, and increasing the number of refuges which are not staffed on a regular basis (termed "de-staffing"). This region also attempted to consolidate some services in order to spread remaining resources more effectively. Other regions have begun their own plans to address reduced operating budgets. In the Explanatory Statement for FY2008, FWS was directed to use the additional FY2008 funding to reestablish basic operations nationwide. FWS was further directed to report back to the Appropriations Committees on allocation of the increased funding within 60 days. The FY2008 appropriations law contained $59.6 million for Law Enforcement, a 4% increase over the FY2007 level of $57.3 million. The President had proposed $57.6 million, a modest increase over FY2007, but the House and the Senate Appropriations Committee had sought larger increases. Specifically, the House had approved $60.1 million, up 5%, while the Senate committee recommended $61.1 million, a 7% increase. For FY2008, Congress enacted $7.3 million for the study, monitoring, and early detection of highly pathogenic avian flu. The Administration, House, and Senate Appropriations Committee initially approved $7.4 million. The FY2007 appropriation was $12.4 million, including a $7.4 million supplemental appropriation in P.L. 110-28 . FWS cooperates with other federal and nonfederal agencies in studying the spread of the virus through wild birds. Attention is on North American species whose migratory patterns make them likely to come into contact with infected Asian birds. The geographic focus is on Alaska, the Pacific Flyway (along the west coast), and Pacific islands, with smaller samples in other areas. (See CRS Report RL33795, Avian Influenza in Poultry and Wild Birds , by [author name scrubbed] and [author name scrubbed].) For FY2008, the appropriation for Land Acquisition was $34.6 million. This was an increase of 92% over the Administration's request and 23% increase over FY2007, with the increase going to the acquisition of new lands and inholdings. The Administration had proposed $18.0 million for Land Acquisition, $10.0 million (36%) below FY2007. See Table 5 . In the past, the bulk of this FWS program had been for acquisitions of land for specified federal refuges, but a portion was used for closely related functions such as acquisition management, land exchanges, emergency acquisitions, purchase of inholdings, and general overhead ("Cost Allocation Methodology"). In recent years, less of the funding has been reserved for traditional land acquisition. The Administration had proposed to continue this trend for FY2008, reserving $5.5 million for specified acquisitions, and funding the remainder of the program at $12.5 million. This program is funded with appropriations from LWCF. (For more information, see the " The Land and Water Conservation Fund (LWCF) " in this report.) The National Wildlife Refuge Fund (also called the Refuge Revenue Sharing Fund) compensates counties for the presence of the non-taxable federal lands of the National Wildlife Refuge System (NWRS). A portion of the fund is supported by the permanent appropriation of receipts from various activities carried out on the NWRS. However, these receipts are not sufficient for full funding of amounts authorized in the formula, and county governments have long urged additional appropriations to make up the difference. Congress generally provides additional appropriations. For FY2008, the appropriation was $14.0 million, a small decrease from the FY2007 level of $14.2 million. With refuge receipts, the FY2008 level would fund about 42% of the authorized payment level, down from 52% in FY2007. The President had requested $10.8 million for FY2008, down $3.4 million (24%). That level, combined with expected receipts, would have provided about 35% of the authorized full payment. The House had approved the FY2007 level, as did the Senate Appropriations Committee. The Multinational Species Conservation Fund (MSCF) has generated considerable constituent interest despite the small size of the program. It benefits Asian and African elephants, tigers, rhinoceroses, great apes, and marine turtles. For FY2008, the appropriations law contained $7.9 million for MSCF and $4.4 million for the Neotropical Migratory Bird Conservation Fund (NMBCF), both increases over the FY2007 level and the Administration's request for FY2008. The President had proposed $4.3 million for the MSCF and $4.0 million for the NMBCF. The proposal would have cut each of the MSCF programs and held funding level for NMBCF. See Table 6 . State and Tribal Wildlife Grants help fund efforts to conserve species (including nongame species) of concern to states, territories, and tribes. The grants have generated considerable support from these governments. The program was created in the FY2001 Interior appropriations law ( P.L. 106-291 ) and further detailed in subsequent Interior appropriations bills. (It does not have any separate authorizing statute.) Funds may be used to develop state conservation plans as well as to support specific practical conservation projects. A portion of the funding is set aside for competitive grants to tribal governments or tribal wildlife agencies. The remaining portion is for matching grants to states. A state's allocation is determined by formula. The appropriation for FY2008 was $73.8 million. See Table 7 . For further information on the Fish and Wildlife Service , see its website at http://www.fws.gov/ . CRS Report RL33872, Arctic National Wildlife Refuge (ANWR): New Directions in the 110 th Congress , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. CRS Report RL33795, Avian Influenza in Poultry and Wild Birds , by [author name scrubbed] and [author name scrubbed]. CRS Report RL33779, The Endangered Species Act (ESA) in the 110 th Congress: Conflicting Values and Difficult Choices , by [author name scrubbed] et al. CRS Report RS21157, Multinational Species Conservation Fund , by [author name scrubbed] and [author name scrubbed]. The National Park Service (NPS) is responsible for the National Park System, currently comprising 391 separate and diverse park units covering 85 million acres. The NPS and its more than 20,000 permanent, temporary, and seasonal employees protect, preserve, interpret, and administer the park system's diverse natural and historic areas representing the cultural identity of the American people. The NPS mission is to protect park resources and values, unimpaired, while making them accessible to the public. Annual park visitation is now 273 million visits. The Park System has some 20 types of area designations, including national parks, monuments, memorials, historic sites, battlefields, seashores, recreational areas, and other classifications. The NPS also supports and promotes some resource conservation activities outside the Park System through limited grant and technical assistance programs and cooperation with partners. The FY2008 appropriations law provided $2.39 billion for the NPS, $26.6 million (1%) more than the FY2008 request and $90.3 million (4%) above the FY2007 level, but $71.1 million (3%) below the Senate Appropriations Committee level and $122.8 million (5%) below the House total. See Table 8 . The parks remain popular with the public and the condition of the parks and the adequacy of their care and operating capacity continues to be of concern. To be ready for the NPS's 100 th anniversary in 2016, the Administration proposed a multi-year initiative, beginning in FY2008, to strengthen visitor services and other park programs. The National Parks Centennial Initiative, announced by President Bush in August 2006, could add up to $3 billion in new funds for the parks over the next 10 years through a public/private joint effort. The initiative has three components: (1) a commitment to add $100.0 million annually in discretionary funds; (2) a challenge for the public to donate $100.0 million annually; and (3) a commitment to match the public donations with federal funds of up to $100.0 million annually. The second part of the initiative—the proposed $1 billion "Centennial Challenge"—would rely on corporate, foundation, and other private donations, raising concerns among some park supporters about potential commercialization and privatization influence on the parks. Many claim that the park system has long experienced chronic budget shortfalls. Park advocacy groups have estimated that, on average, the national parks operate with two-thirds of needed funding—a budget shortfall of more than $600 million annually. The FY2008 law included language proposed by the House extending the authorization of the National Park System Advisory Board until January 1, 2009. Board authority expired on January 1, 2007, preventing statutorily required participation in some NPS programs. The law did not include a transfer of $1.0 million from the Office of the DOI Secretary to park operations to help fully reopen the Statue of Liberty to park visitors, as had been approved by the House. The Urban Parks and Recreation Recovery (UPARR) grant program has not been funded since FY2002. The House Appropriations Committee reminded the NPS of its responsibility to enforce §1010 of the authorizing legislation (16 U.S.C. §2509), generally prohibiting the conversion of UPARR project sites from public recreational use to other (e.g., commercial) use, regardless of whether funding is provided ( H.Rept. 110-187 , p. 46). The FY2008 law provided no administrative or new grant monies for UPARR. The Senate committee bill had directed the NPS to keep in force, for the 2007-2008 winter season, the interim Yellowstone snowmobile use regulations of the past three years. The FY2008 law did not include that language because the NPS issued a Record of Decision (ROD) on winter use management on November 30, 2007, with implementing regulations expected thereafter. Lawsuits challenging the ROD did not request preliminary injunctions, allowing local operations to continue for the 2007-2008 winter season. The Appropriations Committees expressed that this was in the best interest of all parties (Explanatory Statement, H16130-H16131). The FY2008 law retained a provision of the Senate committee bill repealing Section 1077(c) of P.L. 109-364 that had prohibited the NPS from complying with a court-approved agreement to remove nonnative deer and elk from Santa Rosa Island in the Channel Islands National Park. The provision sought to resolve a long-running hunting concession controversy. The park operations line item is the primary source of funding for the national parks, accounting for more than 80% of the total NPS budget. The FY2008 law provided $1.97 billion for park operations, $122.2 million above the FY2007 enacted level but less than the Administration's request and the Senate committee and House bills. The difference was due in part to a $44.3 million reduction in the enacted level, apparently comprised of a $19.7 million general reduction and a $24.6 million "offset" for the centennial funding provided separately (see below) (Explanatory Statement, H16124-H16125). The FY2008 law agreed with the House in incorporating the Park Police account into the operations line item. See Table 8 . The majority of operations funding is provided directly to park managers. It supports the activities, programs, and services essential to the day-to-day operations of the park system, and covers resource protection, visitors' services, facility operations and maintenance, and park support programs, as well as such administrative expenses as employee pay, benefits, and other fixed costs. The FY2008 law provided $1.74 billion for park management, more than enacted for FY2007 but less than the House, Senate committee, and requested levels. The Administration, House, and Senate committee had sought relatively large increases for maintenance, visitor services, and resource stewardship. The U.S. Park Police is an urban-oriented, full-service, uniformed law enforcement entity with primary jurisdiction at park sites within the metropolitan areas of Washington, DC, New York City, and San Francisco. USPP law enforcement authority extends to all NPS units and to certain other federal and state lands. The park police provide specialized law enforcement services to other park units when requested, through deployment of professional police officers to support law enforcement trained and commissioned park rangers working in park units system-wide. The FY2008 law provided $86.7 million, $1.5 million above FY2007. The House and Senate committee bills matched the request of $88.1 million. Increased funding was proposed primarily for enhanced security at National Mall icons, special events in Washington, DC, and at the Statue of Liberty in New York. As noted above, the FY2008 law moved the U.S. Park Police to the Operation of the National Park System line item. As discussed above, the Administration proposed a three-part National Parks Centennial Initiative, with additional funding for park operations (presumably included in the request for park management discussed above), donations, and federal funds to match the donations. The FY2008 law provided $24.6 million for a signature projects matching program. This is considered interim funding to initiate the program in 2008, and requires a 50:50 match. The House and Senate Appropriations Committees expressed an expectation that authorization will be enacted during the 110 th Congress for a ten year program (Explanatory Statement, H16125). The House had approved $50.0 million to be available for matching donations in FY2008, while the Senate committee bill provided no money for the program. The Senate committee expressed support for the concept, but a preference that the authorizing committee address the issue ( S.Rept. 110-91 , p. 25). The President did not seek an annual appropriation for this purpose, but instead proposed the establishment of a mandatory program with $100.0 million annually for ten years. This program has not been authorized to date, and legislation would be required to effect this 10-year mandatory spending program. This line item funds a variety of park system recreation, natural and cultural resource protection programs, and an international park affairs office, as well as programs connected with state and local community efforts to preserve natural and historic resources. The FY2008 law provided $67.4 million, $18.5 million above the request and $13.0 million more than FY2007. The increase was partly the result of moving funding for Preserve America ($7.4 million) to this line item from Historic Preservation. Preserve America was funded at $4.9 million in FY2007, and the Senate committee originally supported $5.0 million. The Administration and the House had sought $10.0 million for FY2008. The FY2008 appropriation included $15.3 million for the heritage partnership program that funds National Heritage Areas (NHAs). NHA funding was $5.3 million more than the request and $1.9 million above FY2007. For the statutory and contractual aid programs in specific, non-NPS sites, the FY2008 law allowed $7.5 million, $4.3 million more than FY2007. The Administration had proposed discontinuing statutory and contractual aid, as proposed (but not enacted) for FY2005-FY2007. The construction line item funds new construction projects, as well as improvements, repair, rehabilitation, and replacement of park facilities. The FY2008 law provided $218.4 million for NPS construction, $79.1 million less than FY2007 and $8.8 million less than the Senate committee bill but $16.8 million more than the House approved and the Administration requested. Recent DOI data (March 2007) report an NPS deferred maintenance backlog of $7.9 billion, of which $4.3 billion is park roads, while another DOI source estimates an NPS backlog (mid-range) of $9.1 billion for FY2006. (For information on NPS maintenance, see CRS Report RL33484, National Park Management , coordinated by [author name scrubbed].) FY2008 appropriations for the NPS under the Land and Water Conservation Fund (LWCF) were $69.0 million, comprised of $44.4 million for NPS land acquisition and $24.6 million for state assistance programs. Land acquisition funds are used to acquire lands, or interests in lands, for inclusion within the National Park System. State assistance is for recreation-related land acquisition and recreation planning and development by the states, with the appropriated funds allocated by formula and states determining their spending priorities. The $44.4 million for NPS land acquisition was $10.0 million above the FY2007 level and nearly double the Administration's request of $22.5 million. The House and Senate committee had sought higher funding levels. The Administration did not seek funds for state assistance from LWCF, requesting $1.4 million for program administration under National Recreation and Preservation. The $24.6 million for state assistance was $25.4 million less than the House, $5.4 million less than the Senate, and $5.0 million below the FY2007 enacted level. (For more information, see the " The Land and Water Conservation Fund (LWCF) " section in this report.) The Historic Preservation Fund (HPF), administered by the NPS, provides grants-in-aid for activities specified in the National Historic Preservation Act (NHPA; 16 U.S.C. §470), such as restoring historic districts, sites, buildings, and objects significant in American history and culture. NHPA reauthorization ( P.L. 109-235 ) was enacted on December 22, 2006, and extends authority to fund the HPF through 2015. The Fund's preservation grants are normally funded on a 60% federal, 40% state matching share basis. The HPF also includes funding for Save America ' s Treasures grants. The FY2008 law provided $70.4 million for the HPF, compared to an FY20007 amount of $65.7 million, representing a 7% increase. The FY2007 level included a $10.0 million hurricane recovery supplemental appropriation. The House and the Senate Appropriations Committee versions of the FY2008 funding bill would have provided $81.5 million and $75.0 million, respectively. The largest HPF activity, grants to state historic preservation offices, rose 6% from $37.2 million in FY2007 to $39.4 million for FY2008. Additional funding was also provided for the Save America ' s Treasures and the Preserve America grant programs, which had been cut from $29.6 million in FY2006 to $13.0 million in FY2007. The FY2008 law provided $24.6 million for Save America's Treasures—triple the FY2007 level of $8.1 million, with over 55% of these funds allocated to congressionally-directed projects. While Preserve America funding also was increased, from $4.9 million to $7.4 million, the program was moved from the HPF to National Recreation and Preservation. New for FY2008, the Park Service proposed to establish a $5.0 million program to help states and tribal governments create an integrated inventory of historic properties. Of that amount, $4.0 million would be to fund grants through the HPF and the balance would be provided through National Recreation and Preservation funding. This proposal was not funded. For further information on the National Park Service , see its website at http://www.nps.gov/ . For further information on Historic Preservation , see its website at http://www.cr.nps.gov/hps/ . CRS Report RL33617, Historic Preservation: Background and Funding , by [author name scrubbed]. CRS Report RL33484, National Park Management , coordinated by [author name scrubbed]. CRS Report RL33525, Recreation on Federal Lands , by Kori Calvert, [author name scrubbed], and [author name scrubbed]. The U.S. Geological Survey (USGS) is the nation's premier science agency in providing physical and biological information related to natural hazards; certain aspects of the environment; and energy, mineral, water, and biological sciences. In addition, it is the federal government's principal civilian mapping agency and a primary source of data on the quality of the nation's water resources. Funds for the USGS are provided in the line item Surveys, Investigations, and Research , for seven activities: Geographic Research, Investigations, and Remote Sensing; Geologic Hazards, Resources, and Processes; Water Resources Investigations; Biological Research; Enterprise Information; Science Support; and Facilities. The FY2008 law provided $1.01 billion for the USGS. This was the first time the USGS budget has been over a billion dollars. This amount was $31.5 million (3%) over the Administration's request of $975.0 million, and $18.4 million (2%) over the FY2007 enacted level of $988.1 million. See Table 9 . The FY2008 law provided $6.3 million for water resources research institutes and full funding for the mineral resource assessment program. Funding for these programs was not requested by the Administration. The law included an increase of $7.4 million for global climate change research, of which $2.5 million was directed to establish the National Global Warming and Wildlife Science Center. In FY2005, the Administration proposed a new line item for funding within the USGS called Enterprise Information. This program consolidates funding of all USGS information needs including information technology, security, services, and resources management, as well as capital asset planning. The FY2008 law provided 110.4 million for Enterprise Information, which was $1.7 million below the Administration's request of $112.1 million and $1.4 million below the FY2007 level of $111.8 million. There are three primary programs within Enterprise Information: (1) enterprise information security and technology, which supports management and operations of USGS telecommunications (e.g., computing infrastructure and email); (2) enterprise information resources, which provides policy support, information management, and oversight over information services; and (3) national geospatial program, which provides operational support and management for the Federal Geographic Data committee (FGDC). The FGDC is an interagency, intergovernmental committee that encourages collaboration to make geospatial data available to state, local, and tribal governments, as well as communities. This program aims to provide access to high quality geospatial information to the public. The FY2008 law provided $77.7 million for this program, which was $2.8 million above the Administration's request of $75.0 million, and $2.5 million below the FY2007 level of $80.2 million. Under the Land Remote Sensing subheading, $24.2 million was requested to support the Landsat Data Continuity Mission, also known as Landsat 8. Landsat 8 is an upcoming satellite that is to take remotely sensed images of the Earth's land surface and surrounding coastal areas primarily for environmental monitoring. The volume of data taken by Landsat 8 is to be four times greater than its predecessor, Landsat 7, and Landsat 8 is to include additional spectral bands and higher resolution than Landsat 7 data. The FY2008 law appeared to support the requested funding level for Landsat 8. The Senate recommendation for a priority ecosystem restoration program was not included in the FY2008 law. For Geologic Hazards, Resources, and Processes activities, the FY2008 law provided $243.5 million, which is $21.4 million above the Administration's request, and $6.5 million about the FY2007 level. This line item covers programs in three activities: Hazard Assessments, Landscape and Coastal Assessments, and Resource Assessments. The primary reduction sought by the Administration was a $20.1 million cut in the mineral resources program. According to the Administration, universities or other entities will undertake assessments and research that support nonfederal needs. In previous years the Administration requested similar cuts in this program, yet each year funding was provided. The FY2008 law reinstated funding for this program and the Appropriations Committees referred to the Administration's request as irresponsible (Explanatory Statement, H16128). The FY2008 law contained $85.7 million for the geologic hazards program, $1.6 million above the Administration's request. Some of the funds would go towards supporting research and monitoring on volcanoes, landslides, and earthquakes. The joint explanatory statement states Congress's strong support for the multi-hazard initiative. The FY2008 law provided $220.5 million for Water Resources Investigations, which was $8.1 million above the Administration's request of $212.5 million, and $5.6 million above the FY2007 level of $214.9 million. As with the Bush Administration's FY2002-FY2007 budget requests, the FY2008 request had sought to discontinue USGS support for water resources research institutes because, according to the Administration, most institutes have succeeded in leveraging sufficient funding for program activities from non-USGS sources. Nevertheless, the institutes received funding from FY2002-FY2007, with $5.4 million appropriated for FY2007. The FY2008 law provided $6.3 million. The FY2008 law provided $20.1 million for the National Streamflow Information Program (NSIP), an increase of $3.5 million over the FY2007 enacted level. Funds would be used to continue the operation of the streamgage network of 7,400 streamgages. Further, they would allow for several new streamgages to be built and maintained. Through the NSIP, the USGS collects the streamflow data needed by federal, state, and local agencies for planning, operating water-resources projects, and regulatory programs. The Biological Research Program under the USGS generates and distributes information related to conserving and managing the nation's biological resources. The FY2008 law provided 179.9 million for the program, $1.2 million below the Administration's request of $181.1 million and $4.2 million above the FY2007 level of $175.7 million. In cooperation with the FWS and other federal and state agencies, the USGS is surveying for the early detection of avian flu in wild birds, and collecting samples from birds that are known to migrate through the Russian Far East and Southeast Asia. For 2008, the USGS will continue sampling birds for avian flu and coordinate with other agencies to address the potential for avian flu in North America. Science Support focuses on those costs associated with modernizing the infrastructure for managing and disseminating scientific information. The FY2008 law provided $67.2 million for Science Support, a decrease of $3.5 million from the Administration's request of $70.7 million and decrease of $0.6 million from the FY2007 level of $67.8 million Facilities focuses on the costs for maintenance and repair. The FY2008 law provided $100.0 million for Facilities, which is $1.6 million below the Administration's request and an increase of $4.5 million above the FY2007 enacted level of $95.4 million. For further information on the U.S. Geological Survey , see its website at http://www.usgs.gov/ . The Minerals Management Service (MMS) administers two programs: the Offshore Minerals Management (OMM) Program and the Minerals Revenue Management (MRM) Program. OMM administers competitive leasing on Outer Continental Shelf (OCS) lands and oversees production of offshore oil, gas, other minerals, and offshore alternative energy. MRM collects and disburses bonuses, rents, and royalties paid on federal onshore and OCS leases and Indian mineral leases. Revenues from onshore leases are distributed to states in which they were collected, the general fund of the U.S. Treasury, and designated programs. Revenues from the offshore leases are allocated among the coastal states, the Land and Water Conservation Fund, the Historic Preservation Fund, and the U.S. Treasury. The MMS collected and disbursed about $11.5 billion in revenue in FY2007 from mineral leases on federal and Indian lands. This amount fluctuates annually based primarily on the prices of oil and natural gas. Over the past decade, royalties from natural gas production have accounted for 40% to 45% of annual MMS receipts, while oil royalties have been not more than 25%. However, in FY2007, oil royalties accounted for about 38.5% of MMS receipts. Other sources of MMS receipts include rents and bonuses for all leaseable minerals and royalties from coal and other minerals. The FY2008 funding level for MMS was $294.7 million, composed of: $115.9 million in appropriations; $135.7 million in offsetting collections, which MMS has been retaining since 1994; and $43.0 million in state cost sharing deductions, as had been proposed by the House. This would be an increase of $6.4 million (2%) over the total funding of $288.2 million in FY2007. The Senate Appropriations Committee had recommended a total MMS budget of $302.1 million, consisting of a $166.4 million appropriation and $135.7 million in offsetting collections. The House had approved a total of $295.7 million, but much less funding through the annual appropriation process. Specifically, the House had included $67.0 million in appropriations, $135.7 million in offsetting collections, and an "administrative provisions" section resulting in a $50.0 million deferral for ultra deepwater research and a $43.0 million deduction for state royalty administrative costs. See Table 10 . The FY2008 appropriations law included House-passed language regarding state royalty administrative costs. The law required the Secretary of the Interior to deduct 2% from the states' 50% share of revenue from onshore federal leases for FY2008. Congress established net receipts sharing in 1991, which required states to pay for a portion of the administrative costs associated with managing federal leases in their states. In 2000, P.L. 106-393 ended that requirement and allowed states to receive their full share of revenue from federal leases within their state. The FY2008 appropriations law did not include other House-passed language to prevent transfers of funds into the Ultra-Deepwater and Unconventional Natural Gas and Other Petroleum Research Fund (the Fund). The Fund was created as a mandatory program in the Energy Policy Act of 2005 ( P.L. 109-58 ) and was authorized to receive $50 million each year from FY2007-FY2017 from federal oil and gas leasing receipts. The Administration had proposed both to repeal the Fund and reintroduce net receipts sharing among states. The House-passed bill reflected support for the Administration's proposals through scoring credits , resulting in a $50.0 million deferral for ultra deepwater research as well as the $43.0 million deduction for state royalty administrative costs. See Table 10 . Issues not directly tied to specific funding accounts remain controversial. Oil and gas development moratoria in the OCS along the Atlantic and Pacific Coasts, parts of Alaska, and the Gulf of Mexico have been in place since 1982, as a result of public laws and executive orders of the President. However, Congress enacted separate legislation ( P.L. 109-432 ) to open part of the Gulf of Mexico (about 5.8 million acres) previously under the moratoria, but the law places nearly all of the eastern Gulf under a leasing moratorium until 2022. The law also contains revenue sharing provisions for selected coastal states. Two areas—Bristol Bay (AK) and Virginia—contained in the MMS Proposed Final Five-Year OCS Oil and Gas Leasing Program (2007-2012) remain controversial. Bristol Bay was removed from the congressional moratoria, while oil and gas leasing off Virginia remains under the moratoria. The new five-year program took effect July 1, 2007. (For more information, see CRS Report RL33493, Outer Continental Shelf: Debate Over Oil and Gas Leasing and Revenue Sharing , by [author name scrubbed].) The FY2008 appropriations law did not contain House-passed language barring funds in the bill from being used for new leases for those holding leases under the Deep Water Royalty Relief Act of 1995 without price thresholds. The Appropriations Committees expressed continued commitment to this issue and the expectation that the authorizing committees would complete action on this matter (Explanatory Statement, H16130). The Senate Appropriations Committee had rejected bill language that would have prohibited the government from issuing new offshore leases to companies holding deepwater leases without price thresholds. Royalty relief for OCS oil and gas producers also was debated during consideration of FY2007 Interior appropriations. On February 13, 2006, the New York Times reported that the MMS would not collect royalties on leases awarded in 1998 and 1999 because no price threshold was included in the lease agreements during those two years. Without the price thresholds, producers may produce oil and gas up to specified volumes without paying royalties no matter what the price. The MMS asserts that placing price thresholds in the lease agreements is at the discretion of the Secretary of the Interior. However, according to the MMS, the price thresholds were omitted by mistake during 1998 and 1999. On January 18, 2007, the House passed a bill ( H.R. 6 ) that would deny new Gulf of Mexico leases to those holding leases without price thresholds or payment or an agreement to pay a "conservation of resources" fee that would be established by H.R. 6 . DOI has asserted that the House-passed bill could lead to legal challenges which could delay oil and gas development in the Gulf of Mexico. The Department also suggested that Congress offer the lessees a three-year extension to their leases as an incentive to amend the leases to include price thresholds. The House-passed language was not enacted in the Energy Independence and Security Act of 2007 ( P.L. 110-140 ). During consideration of FY2008 Interior appropriations, the House considered other amendments related to the OCS. An amendment which would have lifted the OCS moratoria for natural gas leasing and development beyond 25 miles from the coastline was defeated. Related amendments to open the OCS for oil and gas drilling beyond 100 miles of the coastline and to open the entire OCS currently under the moratoria were defeated. For FY2008, the Appropriations Committees provided direction related to drilling in the North Aleutian Basin Planning Area, also known as Bristol Bay (Explanatory Statement, H16128). They expressed that drilling in that area should be conducted only after the availability of detailed studies and information. They directed MMS and other scientific bodies to document oil spill containment and responses to accidents. Further, the MMS was required to complete a 2½–3 year pre-sale and NEPA process including the preparation of an Environmental Impact Statement before proceeding with the North Aleutian Basin sale. Another challenge confronting the MMS is to ensure that its audit and compliance program is consistently effective. Critics contend that less auditing and more focus on compliance review has led to a less rigorous royalty collection system and thus a loss of revenue to the federal Treasury. DOI's Inspector General (IG) has made recommendations to strengthen and improve administrative controls of the Compliance and Asset Management Program (CAM). Further, DOI established an independent panel to review the MMS Mineral Leasing Program. The review included an examination of the Royalty-in-Kind Program which has grown significantly over the past three years—from 41.5 million barrels of oil equivalent (BOE) sold in 2004 to 112 million BOE sold in 2007. The House Appropriations Committee, in report language on the FY2008 bill, expressed concern about IG reports on the need for more and better audits, and directed MMS to report on corrective actions it is taking ( H.Rept. 110-187 , p. 58). Oil and gas leasing in offshore California also has continued to be a controversial issue. Under the Coastal Zone Management Act of 1972, as amended (16 U.S.C. §1451-64) (CZMA), development of federal offshore leases must be consistent with state coastal zone management plans. In 1999, MMS extended the terms of 36 leases in offshore California by granting suspensions of the leases' five-year terms. A suspension extends the term of the lease, to allow the lessee to facilitate development. The state of California sued, contending that MMS should have made a consistency determination showing that the lease suspensions were consistent with California's coastal management plan before issuing the suspensions. In June 2001, the U.S. Court for the Northern District of California agreed with the state of California and struck down the lease suspensions. MMS appealed to the U.S. Court of Appeals for the Ninth Circuit. However, in December 2002, the Ninth Circuit upheld the District Court decision. Following this ruling, nine oil company lessees brought breach of contract claims against MMS seeking restitution for "bonus payments" made to MMS in order to obtain and suspend their leases in offshore California. In November 2005, the U.S. Court of Federal Claims held that the federal government breached its contract with the lessees when it enacted the amendments to the CZMA in 1990 that, according to the decisions described above, required lease suspensions to be evaluated for consistency with a state's coastal management plan. The Court reasoned that the lessees had not bargained for the more extensive consistency determination requirements to be applied to suspension requests when the leases were signed, and that therefore the legislation creating these new requirements amounted to breach of the leases. The government was ordered to repay the lessees for all so-called "bonus payments" made to the government in exchange for the leases. For further information on the Minerals Management Service , see its website at http://www.mms.gov . CRS Report RL33974, Legal Issues Raised by Provision in House Energy Bill (H.R. 6) Creating Incentives for Certain OCS Leaseholders to Accept Price Thresholds , by [author name scrubbed] and [author name scrubbed]. CRS Report RL33493, Outer Continental Shelf: Debate Over Oil and Gas Leasing and Revenue Sharing , by [author name scrubbed]. CRS Report RS22567, Royalty Relief for U.S. Deepwater Oil and Gas Leases , by [author name scrubbed]. The Surface Mining Control and Reclamation Act of 1977 (SMCRA, P.L. 95-87 ; 30 U.S.C. §1201 note) established the Office of Surface Mining Reclamation and Enforcement (OSM) to ensure that land mined for coal would be returned to a condition capable of supporting its pre-mining land use. However, coal mining is an old activity in the United States, and at the time SMCRA was enacted there was a large inventory of abandoned mine sites that no company could be held accountable to reclaim. To address this problem, SMCRA established an Abandoned Mine Land (AML) fund, with fees levied on coal production, to reclaim abandoned sites that posed serious health or safety hazards. The law provided that individual states and Indian tribes would develop their own regulatory programs incorporating minimum standards established by law and regulations. Reclamation in states with no approved programs is directed by OSM. Historically, AML collections have been divided up and assigned to different accounts, some of which fall into a federal designation allocated to individual states based upon their ranking in historical coal production. A portion of fee collections also has been credited to a state share account. Grants to states and tribes for reclamation have been awarded after applying a formula to annual congressional appropriations from the AML fund. Grants to a state or tribe would draw on both that state's federal-share and state-share accounts. Collections have exceeded appropriations for a number of years. The total unappropriated balance—including both federal and state share accounts in the AML fund—was over $1.95 billion by the end of FY2006, of which approximately $1.2 billion was in the state-share accounts. As coal production has shifted westward, western states have paid more into the fund. These states have contended that they are shouldering a disproportionate share of the reclamation burden because the great majority of the sites requiring remediation are in the East. Several states were pressing for increases in the AML appropriations, with an eye on those unappropriated balances in the state-share accounts. The Tax Relief and Health Care Act ( P.L. 109-432 ) reauthorized AML fee collections through FY2021, and also made significant changes in the procedures for disbursing grants. Grants will be funded by permanent appropriations from the AML fund and the general fund of the U. S. Treasury. All the revenues paid to the fund during a given fiscal year will be returned during the fiscal year that follows. Under the restructuring, the balances in the state- and tribal-share accounts will be returned to all states and tribes in seven annual installments paid with general Treasury funds. States and tribes are categorized as "Certified" or "Uncertified," and distributions to each differ. Certified states are those that have reclaimed the most serious sites, while uncertified states have not yet done so. Beginning in FY2008, and over a period of seven years, certified states will receive equal installments of the unappropriated balances in their state-share accounts as of the end of FY2006. Additionally, they will receive whatever grants they would be entitled to based upon application of the distribution formula to both prior year collections and that state's entitlement based upon its historic coal production. Beginning with fees collected during FY2008, the amounts that would have been deposited to certified states' state-share accounts will instead be credited to the federal-share account representing historical coal production. Certified states will not receive this allocation in their annual grants after FY2008. This is intended to have the effect of increasing the pool of money available for distribution to uncertified states in future years. The level of grants distributed to uncertified states will be based upon their proportionate entitlement from the historical coal production account (which, as just noted, will hold more money than under the old system), as well as the amount that would have otherwise been deposited to the state-share account. Owing to the establishment of the permanent appropriation, the FY2008 OSM budget request was sharply lower than the FY2007 level. Overall, the FY2008 budget request for OSM totaled $168.3 million in discretionary spending, a reduction of $126.3 million (43%) from the FY2007 level of $294.6 million. However, due to the restructuring of the program to provide for repayment of the unappropriated state balances from Treasury funds, one cannot make a direct comparison between the FY2007 appropriated level for OSM and the FY2008 levels. In FY2008, some activities will remain subject to annual appropriations. Among these are the expenses of federal AML programs in states with no OSM-approved reclamation programs, an emergency reclamation program, OSM administrative expenses, and the Clean Streams program. The agency budget also has an additional component—regulatory and technology programs. The FY2008 appropriations law provided a total of $118.5 million for Regulation and Technology and $52.0 million for the AML fund. The total appropriation of $170.4 million for the Office of Surface Mining is roughly $2.1 million (1%) higher than the Administration's request. As is summarized in Table 11 , there was, in fact, no wide disparity in the funding levels recommended by the House and the Senate committee on Appropriations. The House had approved a $1.9 million boost to Regulation and Technology, an addition of 2%, over the Administration's request for $115.5 million. The additional funds were intended for environmental protection activities. The Senate Appropriations Committee recommended $121.5 million, an increase of $6.0 million above the Administration's request. The increase was to include additional funds to match state costs for the conduct of regulatory programs intended to minimize impacts of coal extraction on local environments and populations. Both the full House and the Senate Appropriations Committee agreed with the Administration request of $52.8 million for AML. In total, the House approved $170.2 million for OSM, $1.9 million (1%) over the Administration's request and $124.5 million (42%) below FY2007. The Senate Committee on Appropriations recommended a total of $174.3 million for OSM, $6.0 million (4%) over the Administration's request and $120.3 million (41%) below FY2007. For further information on the Office of Surface Mining Reclamation and Enforcement , see its website at http://www.osmre.gov/osm.htm . CRS Report RL32993, Abandoned Mine Reclamation Fee on Coal , by [author name scrubbed]. The Bureau of Indian Affairs (BIA) provides a variety of services to federally recognized American Indian and Alaska Native tribes and their members, and historically has been the lead agency in federal dealings with tribes. Programs provided or funded through the BIA include government operations, courts, law enforcement, fire protection, social programs, education, roads, economic development, employment assistance, housing repair, dams, Indian rights protection, implementation of land and water settlements, management of trust assets (real estate and natural resources), and partial gaming oversight. BIA's direct appropriations were $2.31 billion in FY2007. For FY2008, the Consolidated Appropriations Act provided $2.29 billion for the BIA, a decrease of $17.0 million (1%) from FY2007. The Administration had proposed $2.23 billion for FY2008, the House had approved $2.35 billion, and the Senate Appropriations Committee had recommended $2.27 billion. The FY2008 enacted amount for the BIA was $62.4 million (3%) more than the Administration's proposal, $55.7 million (2%) less than the House amount, and $25.6 million (1%) more than the Senate committee's recommendation. See Table 12 for more detailed BIA appropriations figures. Key issues for the BIA include education programs—including the Administration's proposals to increase education management spending, eliminate funding for the Johnson-O'Malley program and tribal technical colleges, and reduce education construction—as well as BIA law enforcement and housing programs, and the Interior Department's process for acknowledging Indian tribes. BIE funds an elementary-secondary school system and higher education programs. The BIE school system comprises 184 BIE-funded schools and peripheral dormitories, with over 2,000 structures, educating about 46,000 students in 23 states. Tribes and tribal organizations, under self-determination contracts and other grants, operate 123 of these institutions; the BIE operates the remainder. The BIE operates two postsecondary schools and provides grants to 26 tribally controlled colleges and two tribally controlled technical colleges. Key problems for the BIE-funded school system are low student achievement, the high proportion of schools failing to make adequate yearly progress (AYP), and the large number of inadequate school facilities. The Administration proposed a nearly $15-million initiative in FY2008 to enhance education at BIE-funded schools. BIE's forward-funded elementary and secondary budget activity would receive $9.6 million of the new program funds; these funds would be used to improve instructional resources (especially through teacher development and principal training) at BIE schools being restructured to meet AYP goals ($5.3 million), and to increase operation and maintenance funds for student transportation ($4.3 million). The remaining $5.3 million of the initiative would go to BIE's education management budget activity, to add education and administrative specialists at education line offices ($4.0 million) and maintain BIE's new student and school information system ($1.2 million). Both the full House and the Senate Appropriations Committee approved these initiatives, but the House approved an additional $7.0 million for meeting AYP goals and an additional $1.0 million for student transportation. The amount of appropriations enacted for FY2008 for the education initiative is being determined through the OMB report under §437 of the Interior portion of the Consolidated Appropriations Act. The JOM program provides supplementary education assistance grants for tribes and public schools to benefit Indian students, and is funded in two budget activities, Tribal Government and BIE. In FY2007, JOM was funded at $7.7 million in the Tribal Government activity and $12.0 million in the BIE activity. The Administration proposed no funding for this program in FY2008, asserting that Department of Education programs under Titles I (education of the disadvantaged) and VII (Indian education) of the Elementary and Secondary Education Act provide funds for the same purposes, and that the funds should be used for BIE-funded schools. Opponents disagree that the Education Department programs can replace what they see as JOM's culturally relevant programs. The House Appropriations Committee rejected the Administration's proposal to end JOM funding in FY2008, stating that the Administration's argument has not been substantiated ( H.Rept. 110-187 , p. 70). For FY2008, the House approved $5.3 million under Tribal Government and $16.5 million under BIE for JOM. The Senate committee recommended $7.7 million under Tribal Government and $8.0 million under BIE. The amount enacted for JOM by the Consolidated Appropriations Act, under the Tribal Government budget activity, is being determined through the OMB report under §437. The act's explanatory statement specified $14.0 million for JOM under BIE, before an across-the-board rescission of 1.56% for discretionary programs. There are two tribal technical (or vocational) colleges, one in North Dakota (United Tribes Technical College) and one on the Navajo Reservation (Navajo Technical College, formerly Crownpoint Institute of Technology). Both colleges are statutorily excluded from the BIE tribal colleges and universities assistance program, but the two are the only colleges receiving grants under the Education Department's Carl Perkins Act program for tribally controlled vocational colleges. The BIE has for several years sought to end its funding for the two technical colleges, asserting that they receive adequate funding from the Perkins Act and other Education Department higher education programs and that the funds are needed more at the 26 tribal colleges and universities. Congress has not agreed to the Administration's recommendation. The tribal technical colleges received a total of $5.3 million in FY2007, split between the BIA's Community Development budget activity and the BIE's Post Secondary Programs budget subactivity. The Administration proposed no funding for tribal technical colleges in FY2008, but neither the full House nor the Senate committee agreed. The House approved, and the Senate committee recommended, $6.0 million for tribal technical colleges, all in the BIE Post Secondary Programs budget subactivity. The explanatory statement on the FY2008 Act agreed, specifying $6.0 million for the two tribal technical colleges (without the rescission). Many BIE school facilities are old and dilapidated, with health and safety deficiencies. BIA education construction covers both construction of new school facilities to replace facilities that cannot be repaired, and improvement and repair of existing facilities. Schools are replaced or repaired according to priority lists. Table 12 shows education construction funds. For FY2008, the Administration had proposed reducing the appropriation for education construction by $65.1 million (32%). Included was a reduction of $69.1 million (82%) for construction of replacement schools, leaving $14.8 million for two new replacement schools. The Administration asserted that construction and repairs since 2001 have reduced the proportion of BIE facilities in bad condition from about 66% to 31%, and that the BIA needed to focus on completing replacement schools funded in prior years. Opponents of a reduction contend that a large proportion of BIA schools still need replacement or major repairs and thus funding should not be cut. The FY2008 appropriations law supported a significant reduction for education construction. It contained the House-passed level of $145.2 million, reduced to $142.9 million after the rescission. This was a reduction of $62.0 million (30%) from the FY2007 level of $205.0 million. The amounts enacted for replacement school construction and other education construction activities are being determined through the OMB report under §437. The act's explanatory statement also approved the BIE plan to complete existing school construction and alleviate current construction shortfalls before beginning new school construction projects. While the House had approved $145.2 million for education construction, the Senate Appropriations Committee had recommended $125.0 million. The Senate committee had recommended no funding for replacement school construction, stating that the BIA informed them that 15 replacement school construction projects (of 18 total) had funding shortfalls, totaling $143 million overall, and that the Committee believed it imprudent to start new projects until the BIA presented a plan to address the shortfalls ( S.Rept. 110-91 , p. 39). BIA and Justice Department figures show rising crime rates, methamphetamine use, and juvenile gang activity on some Indian reservations. The federal government has lead jurisdiction over major criminal offenses on most Indian reservations, although in some states federal law has transferred criminal jurisdiction to the state. Tribes share jurisdiction but under federal law tribal courts have limited sentencing options. In general, tribes have fewer law enforcement resources. The BIA funds most law enforcement, jails, and courts in Indian country, whether operated by tribes or the BIA. For FY2008 the Administration proposed a "Safe Indian Communities Initiative" involving a $17.3 million total increase (8%) in BIA law enforcement funding, to $221.8 million. Included in the initiative were $5.4 million for additional officers, equipment, and training; $6.4 million to increase staffing at detention and corrections facilities, a need identified in a 2004 Interior Inspector General report; and $5.4 million for specialized drug enforcement training, especially regarding methamphetamine. Indian tribes and supporters, estimating a 42% shortfall in law enforcement staffing, suggested the Administration's initiative was insufficient for adequate policing on reservations and may not have been sufficient to handle the methamphetamine problem. For BIA law enforcement, the FY2008 appropriations law included the House-passed level of $231.8 million, reduced to $228.1 million after the rescission. This was a $23.7 million increase (12%) over the FY2007 level of $204.5 million. The amounts enacted for specific activities are being determined through the OMB report under §437. The Appropriations Committees directed the BIA to use all available existing authorities to increase law enforcement and criminal prosecutions, and to allocate the funding increases for tribal law enforcement outside the usual methodology in order to serve areas with the greatest need, especially remote reservations. The House total of $231.8 million included $9.5 million over the Administration's request to combat methamphetamine abuse. The Senate Appropriations Committee had recommended $225.8 million for BIA law enforcement. The Committee did not include funds specifically for methamphetamine abuse, but instead increased funding for criminal investigations and for detention/corrections by $2.0 million each over the requested and House-approved amounts. The Senate committee also required the BIA to report on the needs of BIA- and tribally operated detention facilities for staffing, operation and maintenance, and improvement and repairs ( S.Rept. 110-91 , p. 38). For tribal courts, the FY2008 appropriations law provided $14.3 million, which was a $2.3 million (19%) increase over the FY2007 level of $12.0 million. The Administration had proposed a small increase (0.4%), to $12.1 million, while Indian tribes and supporters urged greater funding. The House had approved $17.1 million for tribal courts, while the Senate committee had recommended $12.1 million. The major federal Indian housing program is the Indian Housing Block Grant administered by the Department of Housing and Urban Development (HUD), which funds all types of housing. BIA's HIP, an older and much smaller program, focuses on urgently needed repairs, renovations, or modest new houses, on or near reservations, especially for the neediest families. BIA has considered HIP a safety net for those not eligible for or not served by the HUD program. Total HIP funding was $23.1 million in FY2007, split between the Tribal Government budget activity ($4.3 million) and the Human Services activity ($18.8 million). The Administration proposed eliminating HIP for FY2008, contending that its recipients are not statutorily barred from the HUD program, that it serves a limited number of tribes, and that other BIA programs are of higher priority. Indian tribes and supporters opposed the elimination of HIP, asserting that HIP meets a great need for rehabilitation of substandard housing, and questioning whether the HUD program could fill the need for urgent housing repairs. The FY2008 appropriations law contained $13.6 million for HIP for FY2008. The House had declined to end HIP, approving $18.8 million in FY2008 in the Human Services budget activity only, a slight increase ($6,000, or less than 1%) from the FY2007 Human Services portion, but a decrease of $4.3 million from total HIP funding in FY2007. The House Appropriations Committee directed the BIA and HUD to evaluate HIP's effectiveness and determine whether HIP and its eligibility criteria could be integrated into existing HUD programs ( H.Rept. 110-187 , p. 69). The Senate Appropriations Committee had recommended $9.4 million for HIP. Federal recognition brings an Indian tribe unique benefits, including partial sovereignty, jurisdictional powers, and eligibility for federal Indian programs. Tribes have been acknowledged in many ways, but it was not until 1978 that the Interior Department established a regulatory process for acknowledgment decisions (25 CFR 83). First located within the BIA, the recognition office is now in the office of the Assistant Secretary—Indian Affairs, as the Office of Federal Acknowledgment (OFA). OFA employs teams of expert ethnohistorians, genealogists, and anthropologists to consider recognition petitions. The OFA process has been frequently criticized for taking too long, one reason for which is a lack of resources. For FY2007, OFA received $1.9 million within the Executive Direction budget activity, which funds the Assistant Secretary's office. The Administration requested, and the Senate committee recommended, the same amount for FY2008. The House approved an amendment to designate an additional $1.0 million for OFA in FY2008, bringing OFA's total to $2.9 million within the Assistant Secretary's office. The House's goal was to add several teams of experts to increase the number of decisions on recognition petitions. The FY2008 appropriations law provided $240.4 million for the Executive Direction budget activity, within which OFA is funded, but the specific amount for OFA is being determined through the OMB report under §437. For further information on education programs of the Bureau of Indian Education , see its website at http://www.oiep.bia.edu . CRS Report RL34205, Federal Indian Elementary-Secondary Education Programs: Background and Issues , by [author name scrubbed]. The Office of Insular Affairs (OIA) provides financial assistance to four insular areas—American Samoa, the Commonwealth of the Northern Mariana Islands (CNMI), Guam, and the U.S. Virgin Islands—as well as three former insular areas—the Federated States of Micronesia (FSM), the Republic of the Marshall Islands (RMI), and the Republic of Palau. OIA staff manage relations between each jurisdiction and the federal government and work to build the fiscal and governmental capacity of units of local government. Most of OIA's budget is not subject to the annual appropriations process. Specifically, $324.1 million in OIA's FY2008 budget request represented permanent and indefinite funding required by statutes that provide various forms of financial assistance to current and former U.S. territories. In the FY2008 Consolidated Appropriations Act, OIA received $83.1 million in annually appropriated funds. That amount exceeded by $1.6 million (2%) the $81.5 million enacted in FY2007. The $83.1 million is divided into two accounts: Assistance to Territories (AT) and Compact of Free Association (CFA). AT funding provides grants for the operation of the government of American Samoa, infrastructure improvement projects on many of the insular area islands, and specified natural resource initiatives. The CFA account provides federal assistance to the freely associated states pursuant to compact agreements negotiated with the U.S. government. In FY2008, OIA will receive $77.8 million in AT funding (with the rescission), and $5.3 million in CFA appropriations (with the rescission). In both the AT and CFA accounts, approved funding levels remained largely consistent across the House, Senate committee, and enacted appropriations bills for FY2008. The FY2008 appropriations law designated $70.1 million in AT funding (without the rescission) for technical and maintenance assistance, disaster assistance, brown tree snake control and research, judiciary grants in American Samoa, other grants to individual territories, and other territorial assistance. Of the remaining AT funding, $8.5 million (without the rescission) was designated for OIA salaries and expenses. The law specified conditions for release of AT funding, such as Government Accountability Office (GAO) audits, and specified grants to the Northern Mariana Islands, the Pacific Basin Development Council, and the Close Up Foundation. OIA funding has been the subject of little congressional debate in recent years. For additional information on Insular Affairs, see its website at http://www.doi.gov/oia/index.html . For FY2008, the appropriation for PILT was $228.9 million, a drop of $3.6 million (2%) from the FY2007 level of $232.5 million and 62.5% of the authorized amount. The Administration had requested $190.0 million for PILT, down $42.5 million (18%) from FY2007. The Administration's request would have provided approximately 51.9% of the authorized amount. See Table 13 . The PILT program compensates local governments for federal land within their jurisdictions which cannot be taxed. Since the beginning of the program in 1976, payments of more than $3.6 billion have been made. The PILT program has been controversial, because in recent years the payment formula, which was indexed for inflation in 1994, has increased authorization levels. However, appropriations have grown less rapidly, and substantially slower than authorized amounts, ranging from 42% to 68% of authorized levels between FY2000 and FY2007. See Table 13 . County governments claim that the program as a whole does not provide funding comparable to property taxes, and that rural areas in particular need additional PILT funds to provide the kinds of services that counties with more private land are able to provide. For further information on the Payments in Lieu of Taxes program, see the DOI website at http://www.doi.gov/pilt/ . CRS Report RL31392, PILT (Payments in Lieu of Taxes): Somewhat Simplified , by [author name scrubbed]. CRS Report RL33822, The Secure Rural Schools and Community Self-Determination Act of 2000: Forest Service Payments to Counties , by [author name scrubbed]. The Office of Special Trustee for American Indians (OST), in the Secretary of the Interior's office, was authorized by Title III of the American Indian Trust Fund Management Reform Act of 1994 (25 U.S.C. §§4001, et seq.). The OST generally oversees the reform of Interior Department management of Indian trust assets, establishment of an adequate trust fund management system, and support of department claims settlement activities related to the trust funds. OST also manages Indian funds directly. Indian trust funds formerly were managed by the BIA, but in 1996 the Secretary transferred trust fund management to the OST. Indian trust funds managed by the OST comprise two sets of funds: (1) tribal funds owned by about 300 tribes in approximately 1,450 accounts, with a total asset value of about $2.9 billion; and (2) individual Indians' funds, known as Individual Indian Money (IIM) accounts, in about 323,000 accounts with a current total asset value of about $400 million. The funds include monies received from claims awards, land or water rights settlements, and other one-time payments, and from income from land-based trust assets (e.g., land, timber, minerals), as well as from investment income. OST's FY2007 appropriation was $223.3 million. For FY2008, the Consolidated Appropriations Act provided $189.3 million for the OST, a decrease of $33.9 million (15%) from FY2007. The Administration had proposed $196.2 million for FY2008, the House had approved $192.5 million, and the Senate Appropriations Committee had recommended $195.9 million. See Table 14 . Key issues for the OST are an historical accounting for tribal and IIM accounts, and litigation involving tribal and IIM accounts. For FY2008, the Administration and the Senate Appropriations Committee supported $60.0 million for historical accounting activities, an increase of 5% over FY2007. The House had approved $56.4 million, the same as FY2007 and $3.6 million (6%) below the Administration's proposal. The FY2008 Consolidated Appropriations Act limited historical accounting to no more than $56.4 million; the rescission reduced this amount to $55.5 million, $0.9 million (2%) less than FY2007. The historical accounting effort seeks to assign correct balances to all tribal and IIM accounts, especially because of litigation. Because of the long historical period to be covered (some accounts date from the 19 th century), the large number of IIM accounts, and the large number of missing account documents, an historical accounting based on actual account transactions is expected to be large and time-consuming. In 2003, DOI proposed an extensive, five-year, $335 million project to reconcile IIM accounts. The plan has been revised to reflect ongoing experience and to add additional accounts. The project seeks to reconcile all transactions for certain types of accounts and all land-based transactions of $5,000 and over, but uses a statistical sampling approach to reconcile land-based transactions of less than $5,000. OST continues to follow this plan, subject to court rulings (see " Litigation ," below) or congressional actions, and now estimates its completion in FY2011. Plaintiffs in the Cobell litigation (discussed below) consider the statistical sampling technique invalid. Tribal trust fund and accounting suits have been filed for over 300 tribes. Most of the tribal suits were filed at the end of 2006, because the statute of limitations on such claims expired then. OST has been allocating about $40 million of its historical accounting expenditures to IIM accounts and the remainder to tribal accounts. In the past, the House Appropriations Committee has expressed its intent to limit expenditures for historical accounting, asserting it reduces spending on other Indian programs. An IIM trust funds class-action lawsuit ( Cobell v. Kempthorne ) was filed in 1996, in the federal district court for the District of Columbia, against the federal government by IIM account holders. Many OST activities are related to the Cobell case, including litigation support activities. The most significant issue for appropriations concerns the method for the historical accounting to estimate IIM accounts' proper balances. The DOI estimated its method would cost $335 million over five years and produce a total owed to IIM accounts in the low millions. The plaintiffs' method, based on estimated rates of errors applied to an agreed-upon figure for IIM throughput, was estimated to produce a total owed to IIM accounts of as much as $177 billion , depending on the error rate used. After a lengthy trial, the court, on September 25, 2003, rejected both the plaintiffs' and DOI's historical accounting plans and ordered DOI to account for all trust fund and asset transactions since 1887, without using statistical sampling. DOI estimated that the court's choice for historical accounting would cost $6 billion-$12 billion, and appealed the order. The U.S. Court of Appeals for the District of Columbia temporarily stayed the September 25 order and, on December 10, 2004, overturned much of the order. On February 23, 2005, however, the district court issued an order on historical accounting very similar to its September 2003 order, requiring that an accounting cover all trust fund and asset transactions since 1887 and not use statistical sampling. The DOI, which estimated that compliance with the new order would cost $12-$13 billion, appealed the new order. The Appeals Court on November 15, 2005, vacated the district court's February 2005 order. The district court has not issued another order, and the OST continues its historical accounting under its September 2003 plan. In 2006 the D.C. Circuit assigned a new judge to the Cobell case. In October 2007 the judge held hearings on DOI's historical accounting obligations, methodology, and results. Congress has long been concerned that the current and potential costs of the Cobell lawsuit may jeopardize DOI trust reform implementation, reduce spending on other Indian programs, and be difficult to fund. Besides the ongoing expenses of the litigation, possible costs include $12-$13 billion for the court-ordered historical accounting, a Cobell settlement that might cost as much as (1) the court-ordered historical accounting, (2) the more than $100 billion that Cobell plaintiffs estimate their IIM accounts are owed, or (3) the $27.5 billion that the Cobell plaintiffs have proposed as a settlement amount. The addition of tribal trust fund and accounting suits may greatly enlarge the potential costs of a settlement, since tribes' funds are far larger in size than individuals' funds. Among the funding sources for these large costs discussed in a 2005 House Interior Appropriations Subcommittee hearing were discretionary appropriations and the Treasury Department's "Judgment Fund," but some senior appropriators consider the Fund insufficient even for a $6-$13 billion dollar settlement. Among other options, Congress may enact another delay to the court-ordered accounting, direct a settlement, or delineate the department's historical accounting obligations (which could limit, or increase, the size of the historical accounting). Settlement bills in the 109 th Congress would have established in the Treasury Department's general fund an IIM claim settlement fund with appropriations from the Judgment Fund, but did not specify the dollar size of the fund. The Administration, on March 1, 2007, proposed a comprehensive settlement and a settlement amount of $7 billion, but the proposed settlement would not only cover both IIM and tribal accounting claims but would also settle all trust land mismanagement claims. At a March 29, 2007, hearing before the Senate Indian Affairs Committee, both a Cobell plaintiff and a tribal representative opposed the Administration's proposal, and the Committee chair expressed numerous doubts. No trust fund settlement legislation has been introduced thus far in the 110 th Congress. The House Appropriations Committee urged the parties to the litigation, and Congress, to settle trust litigation in its entirety ( H.Rept. 110-187 , p. 80). For further information on the Office of Special Trustee for American Indians , see its website at http://www.ost.doi.gov/ . CRS Report RS22343, Indian Trust Fund Litigation: Legislation to Resolve Accounting Claims in Cobell v. Norton , by [author name scrubbed]. CRS Report RS21738, The Indian Trust Fund Litigation: An Overview of Cobell v. Norton, by [author name scrubbed]. The National Indian Gaming Commission (NIGC) was established by the Indian Gaming Regulatory Act (IGRA) of 1988 (25 U.S.C. §§2701, et seq.) to oversee Indian tribal regulation of tribal bingo and other Class II operations, as well as aspects of Class III gaming (e.g., casinos and racing). The primary appropriations issue for NIGC is whether its funding is adequate for its regulatory responsibilities. The NIGC is authorized to receive annual appropriations of $2 million, but its budget authority consists chiefly of annual fees assessed on tribes' Class II and III operations. During FY1999-FY2008, all NIGC activities have been funded from fees, with no direct appropriations. Neither the Administration, the House, nor the Senate Appropriations Committee recommended a direct appropriation for the NIGC for FY2008. The NIGC in recent years had expressed a need for additional funding because it was experiencing increased demand for its oversight resources, especially audits and field investigations. IGRA formerly capped NIGC fees at $8 million per year, but Congress used appropriations act language to increase the NIGC's fee ceiling to $12 million for FY2004-FY2007. In the Native American Technical Corrections Act of 2006 ( P.L. 109-221 ), Congress amended IGRA to create a formula-based fee ceiling—0.08% of the gross gaming revenues of all gaming operations subject to regulation under IGRA. This new fee ceiling applied to FY2007 and subsequent fiscal years, superseding the previous dollar limitation for FY2007. The NIGC sets an annual fee rate, which can be less than the ceiling rate. For FY2007, based on the FY2007 fee rate of .059%, NIGC anticipated fee revenues of $16 million, about a one-third increase from its FY2006 fee revenues of $12 million. NIGC anticipates FY2008 fee revenues of about $18 million. For further information on the National Indian Gaming Commission , see its website at http://www.nigc.gov . EPA was established in 1970 to consolidate federal pollution control responsibilities that had been divided among several federal agencies. EPA's responsibilities grew significantly as Congress enacted an increasing number of environmental laws as well as major amendments to these statutes. Among the agency's primary responsibilities are the regulation of air quality, water quality, pesticides, and toxic substances; the management and disposal of solid and hazardous wastes; and the cleanup of environmental contamination. EPA also awards grants to assist state and local governments in controlling pollution. EPA's funding over time generally has reflected an increase in overall appropriations to fulfill a rising number of statutory responsibilities. Without adjusting for inflation, the agency's appropriation has risen from about $1.0 billion when the agency was established in FY1970 to a high of $8.4 billion in FY2004. Title II of Division F of the FY2008 Consolidated Appropriations Act provided a total of $7.46 billion for EPA. Although the enacted funding level is an increase above the President's request of $7.20 billion, it is less than the $8.09 billion that the House had proposed, the $7.77 billion that the Senate Appropriations Committee had recommended, and the $7.73 billion that Congress had enacted for FY2007. Congress allocated the FY2008 appropriation of $7.46 billion for EPA among eight statutory accounts that fund the agency, and specified statutory funding levels within these accounts for a relatively small number of selected programs and activities. As in past years, Congress specified funding for most of EPA's programs and activities within the explanatory statement accompanying the FY2008 law, rather than in the statute itself. Among individual agency programs and activities, there were varying decreases and increases in funding when comparing the FY2008 enacted appropriation to the amounts that the House, Senate Appropriations Committee, and President had supported for FY2008, and Congress had enacted for FY2007. For some activities, funding enacted for FY2008 remained relatively flat, compared to the originally proposed amounts and the prior year appropriation. Table 15 lists the eight statutory accounts that currently fund EPA. The table specifies the amounts within each of these accounts that Congress enacted for FY2008, and compares these amounts to the initial recommendations of the House and the Senate Appropriations Committee, the President's request, and the amounts that Congress enacted for FY2007. The House had proposed to establish a ninth account in FY2008 to fund a new Commission on Climate Change Adaptation and Mitigation, which is reflected in the following table. The FY2008 law did not include a new account for the House's proposed commission, nor did the law appear to provide funding in any of the agency's other accounts for this purpose. However, the law did provide funding for many other activities related to climate change. Although there were varying levels of interest in the FY2008 debate about the adequacy of funding for individual programs and activities administered by EPA, much of the attention focused on funding for water infrastructure projects, the cleanup of hazardous waste sites under the Superfund and Brownfields programs, scientific research on human health effects upon which pollution control standards are based, and grants to assist state and local governments in administering air quality programs. There also was rising interest in the adequacy of funding and staffing of EPA's Office of Inspector General to audit and evaluate the agency's activities. Funding within EPA and other federal agencies to address climate change has been another area of increasing interest within Congress. Certain EPA regulatory actions also received attention within the funding debate. For example, §432 of Division F of the FY2008 appropriations law prohibited the use of funds to promulgate or implement EPA's proposed rule that would alter Clean Air Act regulations to control hazardous air pollutant emissions from major sources. Selected funding issues that received more prominent attention in the FY2008 appropriations debate are discussed below. Appropriations for water infrastructure projects are allocated within EPA's State and Tribal Assistance Grants (STAG) account. Most of these funds are devoted to grants that support State Revolving Funds (SRFs). These grant funds provide seed monies for states to issue loans to communities for wastewater and drinking water infrastructure projects. The FY2008 law provided $689.1 million for the Clean Water SRF, slightly more than the President's request of $687.6 million, but far less than the $1.08 billion appropriated for FY2007. The FY2008 enacted appropriation also is much less than the $1.13 billion that the House had proposed, and the $887.0 million that the Senate Appropriations Committee had recommended. The FY2008 law provided another $829.0 million for the Drinking Water SRF. The President had requested $842.2 million, which the House and the Senate Appropriations Committee initially had approved. The FY2008 enacted appropriation for the Drinking Water SRF also was below the prior year appropriation of $837.5 million. The adequacy of federal funding to assist states in capitalizing their Clean Water SRFs has been an ongoing issue. The Clean Water Act authorized EPA to award grants to help states capitalize these loan funds. Although appropriations for these grants have declined in recent years, Congress still had been providing significantly more funding than the President requested each year. This trend was due to differing views on the extent of the role of the federal government in capitalizing these state loan funds. Departing from this trend, the FY2008 enacted appropriation is closer to the President's request than the higher amounts that Congress had been providing. Over the years, there has been less disagreement between Congress and the Administration in regard to the adequacy of funding for Drinking Water SRF grants. However, some Members continue to assert that more federal funds are needed to help capitalize these loan funds, especially in light of more stringent drinking water standards with which communities must comply. Although grants to help states capitalize their SRFs represent the bulk of EPA funding for water infrastructure, Congress also has supported these needs through targeted funding for "special project grants" within EPA's STAG account. These grants fund a variety of wastewater, drinking water, and storm water infrastructure projects. They are awarded on a noncompetitive basis to specific communities. Although communities must repay the loan funds that they borrow from the SRFs, special project grants do not require repayment. However, each recipient of these grants must provide 45% of a project's cost in matching funds, unless EPA approves a waiver due to financial hardship. The FY2008 law provided $132.9 million within the STAG account for 280 special project grants for FY2008, and identified the intended recipients in the explanatory statement accompanying the law. As in past years, the Administration did not request funding for these congressionally designated projects. Total funding for special project grants has declined in the past few years; Congress provided $197.1 million for FY2006. However, Congress did not provide any funding for special project grants in FY2007, as the Revised Continuing Appropriations Resolution for FY2007 ( P.L. 110-5 ) specifically prohibited the funding of these types of grants. The FY2008 law provided $1.22 billion for the Hazardous Substance Superfund account to fund the cleanup of hazardous substances under the Superfund program. This funding level is the net amount available for the program, after a combined transfer of $37.2 million to the S&T account and the Office of the Inspector General account. The President had requested a slightly lower net amount of $1.21 billion for the Superfund account, nearly the same as enacted for FY2007. The House and the Senate Appropriations Committee initially had recommended a greater net amount of $1.24 billion. Funding for the Superfund account has remained relatively close to these amounts over the past decade. The adequacy of funding for the Superfund program to clean up the nation's most contaminated and threatening sites has been a long-standing issue. The Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) established the Superfund program to fund the cleanup of contamination when responsible parties cannot be found or cannot pay. Some Members of Congress and the Bush Administration continue to assert that a steady level of federal funding is sufficient to maintain a constant pace of cleanup, considering the costs borne by responsible parties that supplement these funds. Other Members, states, environmental organizations, and communities counter that more federal funds are necessary to expedite the pace of cleanup to address human health and environmental risks more quickly, and that the effect of inflation over time has reduced available resources. The availability of funds within the Superfund account for "physical" cleanup of sites has been a perennial issue, in light of public concerns about health risks from potential exposure to contamination. Although the primary purpose of the Superfund program is to clean up contaminated sites, the program does fund many "indirect" activities that support cleanup, such as enforcement against responsible parties, and research of more effective cleanup methods with funds transferred to the S&T account. In recent years, about 2/3 of annual funding has been devoted to physical cleanup of sites, including both short-term removal actions to address immediate risks and long-term remedial actions intended to provide a more permanent means to prevent exposure. The FY2008 law provided a total of $827.5 million for activities related to the physical cleanup of sites, an increase above the President's request of $824.5 million and the FY2007 appropriation of $816.9 million. Funding for long-term remedial actions accounted for most of the increase. The FY2008 enacted appropriation is less than the $839.7 million that the House had proposed, and the $843.2 million that the Senate Appropriations Committee had recommended, with the difference again being primarily due to funding for long-term remediation. In the funding debate, concerns about the sufficiency of cleanup actions to protect human health and the environment also motivated questions about program performance. Staffing and funding of EPA's Office of Inspector General to audit and evaluate the Superfund program were particularly controversial, as discussed in the " Office of Inspector General (OIG) " section below. In addition to the Superfund program, amendments to CERCLA in 2002 established a separate program to clean up contaminated "brownfields." The FY2008 appropriations law provided a combined total of $165.8 million for EPA's Brownfields Program. The House initially had proposed a higher amount of $172.9 million. The Senate Appropriations Committee had recommended $162.5 million, closer to the President's request of $162.2 million and the FY2007 appropriation of $163.0 million. Total funding for the Brownfields Program consists of three amounts. The STAG account funds Brownfields "infrastructure" grants to assist communities with cleanup at individual sites, and Brownfields "categorical" grants to assist states with their own Brownfields programs. The Environmental Programs and Management account funds the administrative expenses of the Brownfields Program. Typically, brownfields are abandoned, idled, or underutilized commercial and industrial properties with levels of contamination less hazardous than a Superfund site, but that still warrant cleanup before the land can be safe for reuse. The desire to redevelop these properties for economic benefit has generated interest in the adequacy of funding for brownfields cleanup grants to states and local areas. In response to these needs, the FY2008 enacted appropriation included an increase for Brownfields infrastructure grants to assist communities with the cleanup of individual sites, but not as much as the House initially had approved. The enacted amounts for Brownfields categorical grants and administrative expenses of the program are roughly similar to the recommendations of the House, the Senate Appropriations Committee, the President, and the FY2007 appropriation. The Office of Inspector General (OIG) is an independent office within EPA that conducts and supervises audits, evaluations, inspections, and investigations of the agency's programs and operations. The OIG also performs audits and evaluations specifically requested by Congress. The office is funded by a "base" appropriation and a transfer of appropriations from the Superfund account. Historically, Congress has transferred these funds to the OIG because a significant portion of its funding and staffing has been devoted to oversight of EPA's cleanup efforts under the Superfund program. Including the transfer from Superfund, the FY2008 law provided $52.6 million for the OIG, an increase above the President's request of $45.1 million and the FY2007 appropriation of $50.5 million. The House had proposed $53.5 million for FY2008, and the Senate Appropriations Committee had recommended $53.3 million. In the funding debate, some Members had expressed concern that the President's request would not have been sufficient to support adequate staffing to audit and evaluate Superfund cleanup activities. The explanatory statement accompanying the FY2008 law indicated that the increase in enacted funding above the request and the FY2007 appropriation was intended to ensure consistent staffing levels within the OIG, and was not to be used for buyouts associated with reductions in staff. EPA had reported that the President's proposed decrease in funding for the OIG would have resulted in a reduction of 30 workyears (full time equivalent employees or FTEs), and a reassignment of 20 FTEs from the oversight of Superfund cleanups to oversight of a broader array of agency activities. Most of EPA's scientific research activities are funded within the Science and Technology (S&T) account, including the agency's laboratories and research grants. Similar to the OIG account, the S&T account is funded by a base appropriation and a transfer from Superfund. These transferred funds are dedicated to research of more effective methods to clean up contaminated sites. Including the transfer from the Superfund account, the FY2008 law provided $785.8 million for the S&T account, an increase above the President's request of $780.6 million and the FY2007 appropriation of $763.6 million. The House had proposed $809.4 million for this account in FY2008, and the Senate Appropriations Committee had recommended $798.6 million. Most of the S&T account funds "actual" research activities, but the operational and administrative expenses of agency research facilities, such as rent, utilities, and security, are also funded within this account. The increase above FY2007 was mostly due to a continued shift in funds from the Environmental Programs and Management account to pay these operational and administrative expenses. Consequently, funding enacted for FY2008 for many of EPA's research areas decreased, or remained relatively flat, relative to FY2007. However, funding for certain areas rose above the President's request for FY2008 and the prior year appropriation, such as Climate Protection and Global Change research areas, but not to the level that the House or the Senate Appropriations Committee had proposed for FY2008 in some cases. The funding debate for FY2008 took place within the context of a larger discussion about the adequacy of federal funding for many "core" scientific research activities administered by multiple federal agencies, including EPA. Some Members of Congress, scientists, and environmental organizations have expressed concern about the downward trend in federal resources for scientific research over time. The debate continues to center around the question of whether the regulatory actions of federal agencies are based on "sound science," and how scientific research is applied in developing federal policy. The FY2008 law provided $216.8 million for state and local air quality management categorical grants within EPA's STAG account, an increase above the President's request of $185.2 million and the FY2007 appropriation of $199.8 million. Some Members and state and local air pollution control officials have continued to express that even greater funds are needed for these grants, as a result of increasing Clean Air Act responsibilities imposed upon state and local governments to regulate air pollution. The FY2008 enacted appropriation for these grants was less than the $220.2 million that the House had proposed and the $220.3 million that the Senate Appropriations Committee had recommended. According to EPA, the President's requested decrease for state and local air quality management grants was primarily because of the agency's use of different authorities in the Clean Air Act to administer these grants. EPA originally proposed this change in authorities in its FY2007 budget justification. These different grant authorities require matching funds from recipients, rather than the federal government bearing the full cost. EPA based this proposed shift in authorities on its assertion that the monitoring network for particulate matter is beyond the demonstration phase, and that the network should now be considered an operational system in the implementation phase. Authorities for demonstration grants do not require matching funds, but those for implementation do require a match, thereby reducing the federal role in funding these activities. In its initial report on the FY2008 Interior appropriations bill, the Senate Appropriations Committee had "strongly" disagreed with the President's proposed shift in grant authorities to require matching funds of recipients ( S.Rept. 110-91 , p. 69). The FY2008 law and the explanatory statement accompanying the law did not explicitly address this issue. However, the statement did specify that House or Senate report language that was not changed by the explanatory statement "should be treated as approved when administering the appropriations" (Explanatory Statement, H16122). Presumably, EPA would be subject to the language in the original Senate report, expressing the intention of the committee not to require matching funds for these air quality grants. The FY2008 law did not include a new account, or funding in any other existing account, to establish a new Commission on Climate Change Adaptation and Mitigation. The House had proposed $50.0 million for a new account for this purpose. The commission would have been temporary and would have served for two years. Neither the Senate Appropriations Committee, nor the President, recommended funding for such a commission. Of the $50.0 million that the House had proposed, $5.0 million was to have been used to establish and operate the commission, analyze scientific questions related to climate change adaptation and mitigation, and recommend research priorities to better understand climate change. The remaining $45.0 million was to have been distributed to various federal agencies to conduct this research, based on the commission's recommended priorities. The agencies that would have received this funding would not have been limited to those funded in the Interior appropriations bill. The commission would have been made up of individuals inside and outside of government, and the President of the National Academy of Sciences would have served as the chairman. For further information on the Environmental Protection Agency's budget and activities, see its websites http://www.epa.gov and http://epa.gov/ocfo/budget/ . For the Forest Service (FS), the FY2008 Consolidated Appropriations Act contained $4.67 billion, including $222.0 million in emergency appropriations for wildfire suppression in Title V. An additional $329.0 million in emergency wildfire funds was provided in an earlier law, P.L. 110-116 , for a total FS appropriation of $5.0 billion for FY2008. This total was higher than enacted for FY2007 and supported by the President, House, and Senate Appropriations Committee for FY2008, primarily due to the emergency fire money. In general, Congress rejected the decreases that the Administration had proposed across a range of line items and programs, as an offset to recent increases for fire suppression. The Senate Appropriations Committee expressed that "[f]orcing the Forest Service to absorb rapid increases in firefighting costs within discretionary funds shortchanges vital fire preparedness and natural resource programs and undermines the agency's multiple-use mission" ( S.Rept. 110-91 , p. 79). As shown in Figure 1 , FS appropriations are provided in several major accounts: Forest and Rangeland Research (FS Research); State and Private Forestry; National Forest System; Wildland Fire Management; Capital Improvement and Maintenance (Capital); Land Acquisition; and Other programs. For FY2008, about half of the total FS appropriation—$2.49 billion of the $5.0 billion—was provided for wildland fire management. The Senate Appropriations Committee was "disturbed that the proportion of Forest Service budget that is devoted to fire activities is growing rapidly while the overall budget declines" ( S.Rept. 110-91 , p. 79). The committee noted that in 2000 fire programs accounted for 21% of the FS budget, whereas in the FY2008 budget request they represented 45%. Significant FS issues have been raised during consideration of the annual Interior appropriations bills. In the FS budget proposals for FY2007 and FY2008, the President proposed selling about 300,000 acres of national forest lands. In the FY2007 request, the proceeds would have paid for a five-year extension of FS payments under the Secure Rural Schools and Community Self-Determination Act of 2000 ( P.L. 106-393 ). In the FY2008 request, the proceeds were proposed to be split, with half for a four-year phase-out of payments under P.L. 106-393 and the other half for habitat improvement and land acquisition. Legislation would be needed to authorize the proposed land sale, but such legislation has not been enacted. The House Appropriations Committee "strongly encourage[d] the Administration to permanently abandon this notion" of "selling off national forest system lands to generate funds for rural schools" ( H.Rept. 110-187 , p. 120). A one-year extension of payments under P.L. 106-393 was included in P.L. 110-28 . On the House floor, an amendment was offered to the FY2008 Interior appropriations bill to add $425.0 million for another year's payments under the program, but the amendment was not in order. Reauthorization of Secure Rural Schools—without land sales—is still being debated. The FY2008 law did not include House-passed language that would have limited funds for timber harvesting in the Tongass (AK) National Forest. The House had agreed to an amendment to prohibit funds to plan, design, study, or build forest development roads in the Tongass for timber harvesting by private entities or individuals (§503). Proponents of the amendment contended that timber harvests in the Tongass are a net loss to the Treasury and damaging to the environment; opponents asserted that federal timber is critical to the economy of southeast Alaska. A similar amendment had passed the House in the FY2006 appropriations bill but was removed in the conference agreement. In the FY2007 bill, the amendment was disallowed on a point of order. Fire funding and fire protection programs continue to be controversial. Ongoing discussions include questions about the high cost of fire suppression efforts; locations for various fire protection treatments; and whether, and to what extent, environmental analysis, public involvement, and challenges to decisions hinder fuel reduction and post-fire rehabilitation activities. (For historical background, descriptions of activities, and analysis of wildfire expenditures, see CRS Report RL33990, Wildfire Funding , by [author name scrubbed].) The FS and BLM wildfire line items include funds for fire suppression (fighting fires), preparedness (equipment, training, baseline personnel, prevention, and detection), and other operations (rehabilitation, fuel reduction, research, and state and private assistance). The FY2008 appropriations law contained $3.05 billion for these line items. Another $0.5 billion in emergency funds for wildfires was included in P.L. 110-116 , for an FY2008 total of $3.55 billion for FS and BLM wildfire funding combined. As shown in Table 16 , this would be the highest level in at least five years. About 30% of the FY2008 total ($1.06 billion) was provided to the BLM; this funding is discussed in the " Bureau of Land Management " section in this report. About 70% of the FY2008 total ($2.49 billion) was provided to the FS. Of the FS fire funds, the largest portion was for fire suppression—$1,067.6 million. This would fund the ten-year average of fire suppression and provide additional funds ($222.0 million in Title V) if needed for an extreme fire season (Explanatory Statement, H16139). The House Appropriations Committee expressed continued concern with the high costs of large fires, and provided direction to the FS and DOI on examining, reducing, and reporting on the costs of large fire incidences. For FS preparedness, the FY2008 law contained $665.8 million, essentially level with FY2007 but a large increase over the Administration's request for FY2008. Both the House and the Senate Appropriations Committees rejected the Administration's cut as "irresponsible." The House Committee asserted that it would "impair the ability of the Forest Service and its partners to launch successful initial attacks, thereby making more destructive and expensive fires not just possible, but inevitable." ( H.Rept. 110-187 , p. 137; S.Rept. 110-91 p. 79). Both Committees expressed dissatisfaction that the FS and DOI have not deployed the Fire Program Analysis system as an "urgently needed fire preparedness planning tool," and provided direction for doing so (Explanatory Statement, p. H16138). For other fire programs, the FY2008 law provided $432.0 million for the FS. The Administration had sought to reduce funding for other operations through cuts for hazardous fuels and state fire assistance and eliminating funds for post-fire site rehabilitation. The FY2008 law did not reflect these proposals. Most of the FY2008 appropriation for other programs was for hazardous fuels reduction—$310.1 million, or 72%. The Appropriations Committees provided direction regarding these funds, such as their allocation based on a model that prioritizes fuels treatments in the wildland-urban interface and gives greater weight to areas with high fuel loads, population, and values at risk. P.L. 110-116 provided $329.0 million in emergency fire funds for the FS for FY2008. The appropriation was for several purposes: $110.0 million for emergency wildfire suppression; $100.0 million for repayment of accounts from which funds were borrowed during FY2007 for wildfire suppression; $80.0 million for hazardous fuels reduction and hazard mitigation activities; $25.0 million for rehabilitation and restoration of lands; and $14.0 million for reconstruction/construction of facilities. State and Private Forestry (S&PF) programs provide financial and technical assistance to states and to private forest owners. For FY2008, the law contained $262.7 million for S&PF, a decrease of $17.3 million (6%) from FY2007 but an increase of $60.2 million (30%) over the Administration's FY2008 request. See Table 17 . The request had included relatively large cuts for cooperative lands forest health management, forest stewardship, forest legacy, and urban and community forestry. The FY2008 law reduced appropriations for all four programs from FY2007, but not to the degree sought by the Administration. Forest health management programs provide insect and disease control on federal and cooperative (nonfederal) lands. The FY2008 appropriation of $44.5 million for cooperative lands was a 5% reduction from FY2007, but an increase of 17% over the Administration's request. The other three programs are funded under Cooperative Forestry. For the forest stewardship program, which assists private landowners, the FY2008 appropriation was $29.5 million—30% lower than FY2007 but 48% higher than the request. The forest legacy program assists states and private landowners through purchase of title or easements for lands threatened with conversion to nonforest uses, such as for residences. The FY2008 appropriation of $52.2 million was 8% lower than FY2007, but 78% higher than the request. Another $7.5 million in prior year funds was provided for FY2008, making $59.7 million in available funding. The urban and community forestry programs provides financial and technical assistance to localities. The FY2008 appropriation of $27.7 million was a reduction of 8% from FY2007 but an increase of 59% over the request. For the National Forest System , the FY2008 law provided nearly level funding—$1.47 billion. Each of the major activities received level or increased funding relative to FY2007, except that there was a 15% reduction for land management planning (to $48.8 million). The largest increase was for law enforcement—from $115.0 million in FY2007 to $131.9 million in FY2008. The President had sought a decrease for the National Forest System to $1.34 billion (8%), with the decrease spread among many programs. The President had sought an increase only for law enforcement (to $123.8 million). For Capital Improvement and Maintenance (infrastructure), the FY2008 law provided slightly reduced appropriations—$434.4 million. However, it contained an additional $40.0 million, comprised of transfers of $25.0 million from the purchaser elect road fund and $15.0 million from the road and trails fund. Similar transfers had been supported by the House. The FY2008 appropriation included $48.3 million for deferred maintenance, to reduce the agency's backlog (estimated at $5.6 billion). This was a large increase over the $9.1 million appropriated for FY2007 and supported by the Administration and the Senate committee for FY2008. The deferred maintenance appropriation contained $39.4 million for "legacy road remediation," to decommission roads, repair and maintain roads and trails, remove fish passage barriers, and protect community water resources (Explanatory Statement, H16138). The House had approved a larger amount for legacy road remediation. For FY2008, the law also provided level funding for Land Acquisition —$41.8 million. Funds were provided for 25 specific acquisitions in 20 states, with amounts ranging from less than $0.2 million to approximately $4.5 million. The Administration had sought to cut the appropriation to $15.7 million. For information on the Department of Agriculture, see its website at http://www.usda.gov/wps/portal/usdahome . For further information on the U.S. Forest Service , see its website at http://www.fs.fed.us/ . CRS Report RL33792, Federal Lands Managed by the Bureau of Land Management (BLM) and the Forest Service (FS): Issues for the 110 th Congress , by [author name scrubbed] et al. CRS Report RL30755, Forest Fire/Wildfire Protection , by [author name scrubbed]. CRS Report RL30647, National Forest System Roadless Area Initiatives , by [author name scrubbed] and [author name scrubbed]. CRS Report RL33990, Wildfire Funding , by [author name scrubbed]. The Indian Health Service (IHS) in the Department of Health and Human Services (HHS) is responsible for providing comprehensive medical and environmental health services for approximately 1.9 million American Indians and Alaska Natives (AI/AN) who belong to 561 federally recognized tribes located in 35 states. Health care is provided through a system of federal, tribal, and urban Indian-operated programs and facilities. IHS provides direct health care services through 33 hospitals, 52 health centers, 2 school health centers, 38 health stations, and 5 residential treatment centers. Tribes and tribal groups, through IHS contracts and compacts, operate another 15 hospitals, 220 health centers, 9 school health centers, 116 health stations, 166 Alaska Native village clinics, and 28 residential treatment centers. IHS, tribes, and tribal groups also operate 11 regional youth substance abuse treatment centers and 2,252 units of residential quarters for staff working in the clinics. The FY2008 appropriations law contained $3.35 billion for the IHS, an increase of $166.0 million (5%) over FY2007 ($3.18 billion). The Administration had proposed $3.27 billion for FY2008, the House had approved $3.38 billion, and the Senate Appropriations Committee had recommended $3.37 billion. IHS also receives funding through reimbursements and a special Indian diabetes program (see " Health Services " below). The sum of direct appropriations, reimbursements, and diabetes is IHS's "program level" total. See Table 18 . IHS funding is separated into two budget categories: Health Services, and Facilities. Of total IHS appropriations enacted for FY2008, 89% will be used for Health Services and 11% for the Facilities program. The most significant issues in the FY2008 IHS budget concern the urban Indian health program, in Health Services, and the health care facilities construction program in Facilities. IHS Health Services are funded not only through congressional appropriations, but also from money reimbursed from private health insurance and federal programs such as Medicare, Medicaid, and the State Children's Health Insurance Program (SCHIP). Estimated total reimbursements are expected to be $700.3 million in FY2008. Another $150.0 million per year is expended through IHS for the Special Diabetes Program for Indians under a separate appropriation that expires after FY2008. The IHS Health Services budget has three subcategories: clinical services, preventive health services, and other services. The clinical services budget includes most of IHS Health Services funding. The FY2008 appropriations law contained $2.43 billion for clinical services, an increase of $135.0 million (6%) over FY2007 ($2.30 billion) and of $8.4 million (<1%) over the Administration's request for FY2008. The House had approved $2.48 billion, and the Senate committee had recommended $2.45 billion. Clinical services include primary care at IHS- and tribally run hospitals and clinics. For hospital and health clinic programs , which make up 60% of the FY2008 clinical services budget, the FY2008 appropriation was $1.47 billion. This was an increase of $27.8 million (2%) over the FY2007 level of $1.44 billion but a decrease of $23.3 million (2%) from the Administration's request. The Administration and the House had both supported $1.49 billion, while the Senate committee had recommended $1.50 billion. Contract health care is a significant clinical service that funds the purchase of health services from local and community health care providers when IHS cannot provide medical care and specific services through its own system. It is especially important in IHS regions that have fewer direct-care facilities or no inpatient facilities. The FY2008 law appropriated $579.3 million for contract health care, including $26.6 million for the Catastrophic Health Emergency Fund (CHEF). This was a $62.0 million (12%) increase over the FY2007 appropriation ($517.3 million) and $9.8 million (2%) higher than the level requested by the Administration for FY2008 ($569.5 million). The House and the Senate Appropriations Committee had both approved $579.5 million, nearly the level that was appropriated. However, the Senate committee had recommended increasing CHEF to $28.0 million, an increase of 58% over the FY2007 level of $17.7 million. Both the Administration and House had supported relatively level funding for CHEF—$18.0 million. CHEF is used to pay contract health care costs in critical, high-cost cases (above $25,000), such as disaster victims or catastrophic illnesses. For other programs within clinical services, the FY2008 appropriations law contained $133.6 million for dental programs, $63.5 million for mental health, and $159.5 million for alcohol and substance abuse. The law provided a separate $13.8 million for methamphetamine treatment and prevention and authorized its distribution to areas with greatest need. It also provided $13.8 million for the Indian Health Care Improvement Fund (IHCIF), and the explanatory statement directed that it be allocated first to units with the greatest level of health care funding needs so as to bring their funding up to 40% of the funding needed (as measured by the formula). The IHCIF is authorized to be allocated among IHS service units to reduce health status and resources deficiencies and shortfalls; it is allocated according to a formula that measures the percentage of health care funding needs met in each operating unit. The Administration had proposed that dental programs receive $135.8 million, mental health programs $64.5 million, and alcohol and substance abuse programs $162.0 million. The House had approved these proposals, but separately added $15.0 million for methamphetamine treatment and prevention and $25.0 million for IHCIF. The Senate committee had recommended the same amount as the House for dental health but disagreed with the House on other programs. The Committee had recommended adding $2.5 million for methamphetamine programs to the Administration/House amount for alcohol and substance abuse programs (instead of a separate appropriation), adding $2.5 million for suicide prevention to the Administration/House amount for mental health programs, and no funding for IHCIF. For preventive health services, the FY2008 appropriations law contained $127.6 million, a $2.6 million (2%) increase over FY2007 ($124.9 million). Included were $55.9 million for public health nursing, $15.0 million for health education in schools and communities, $1.7 million for immunizations in Alaska, and $54.9 million for the tribally administered community health representatives program, which supports tribal community members who work to prevent illness and disease in their communities. The Administration, House, and Senate Appropriations Committee had supported $129.6 million for preventive health services, a 4% increase over FY2007. The FY2008 appropriations law contained $410.2 million for other health services for FY2008. This was an increase of $7.7 million (2%) over the FY2007 level of $402.5 million and of $33.6 million (9%) over the President's request of $376.6 million. The House had approved $418.6 million for these services, and the Senate committee had recommended $411.7 million. The FY2008 law appropriated $267.4 million for contract support costs (CSC), the largest item in this category. Contract support costs are provided to tribes to help pay the costs of administering IHS-funded programs under self-determination contracts or self-governance compacts authorized by the Indian Self-Determination and Education Assistance Act ( P.L. 93-638 , as amended). CSC pays for costs that tribes incur for such items as financial management, accounting, training, and program start-up. The Administration and the Senate Appropriations Committee had supported a higher funding level ($271.6 million) as had the House ($274.6 million.) Besides urban Indian health programs (discussed below), other health services include Indian health professions scholarships and other support, for which the FY2008 law appropriated $36.3 million; tribal management grants ($2.5 million); direct IHS operation of facilities ($63.6 million); and self-governance technical assistance ($5.8 million). The FY2008 appropriations law contained $34.5 million for the urban Indian health program, a 2% increase over the FY2007 level of $34.0 million. The Administration had proposed no FY2008 funding for the program, but the House and Senate Appropriations Committee had disagreed; they approved $34.0 million and $35.1 million respectively. The 28-year-old program helps fund preventive and primary health services for eligible urban Indians through contracts and grants with 34 urban Indian organizations at 41 urban sites. The specific services vary from site to site, and may include direct clinical care, alcohol and substance abuse care, referrals, and health information. The Administration contends that IHS must target funding and services towards Indians on or near reservations, to serve those who do not have access to health care other than IHS, and that urban Indians can be served through other federal and local health programs, such as HHS's Health Centers program. Opponents assert that the Administration has not provided evidence that alternative programs can replace the urban Indian health program and that it has not studied the impact of the loss of IHS funding on health care for urban Indians who annually receive services through this program. The House Appropriations Committee made similar assertions and added that the urban Indian health program "provides vital, culturally sensitive health care" ( H.Rept. 110-187 , p. 146). The IHS's Facilities category includes money for the equipment, construction, maintenance, and improvement of both health-care and sanitation facilities, as well as environmental health support programs. The FY2008 appropriations law contained $374.6 million for FY2008, an increase of $20.7 million (6%) over the FY2007 level of $353.9 million and of $35.5 million (10%) over the Administration's request of $339.2 million. The House had approved $360.9 million, while the Senate Appropriations Committee had recommended $375.5 million. Included in the facilities total for FY2008 was $52.9 million for maintenance and improvement, $94.3 million for sanitation facilities construction, $21.3 million for equipment, $169.6 million for facilities and environmental health support, and $36.6 million for health care facilities construction (discussed below). See Table 18 . The $36.6 million in the FY2008 appropriations law for health facilities construction was 51% more than FY2007 and 189% more than the Administration's proposal. The act's explanatory statement specified amounts (without the rescission) for construction of hospitals and clinics ($32.7 million), small ambulatory facilities ($2.5 million), and dental units ($2.0 million). Instead of recommending specific projects (as the House and Senate committees had done earlier), the explanatory statement expressed the expectation that the IHS would allocate funding to the highest-priority projects on which construction had begun but for which additional funding was needed to keep the project on schedule. The FY2007 level for health care facilities construction had been a 36% reduction from the FY2006 level of $37.8 million, which itself had been a 57% reduction from the FY2005 level of $88.6 million. The Administration had proposed $12.7 million for construction of new health care facilities in FY2008, a 48% reduction from the FY2007 level of $24.3 million. The Administration had asserted that its cut was part of an HHS-wide emphasis on maintenance of existing facilities, and that it helped fund the increasing costs of health care services and the staffing of several recently completed facilities. Opponents had contended that the IHS has reported a $1.5 billion backlog in unmet health-facility needs and that the need was too great for a reduction in new construction. The House approved $20.3 million for FY2008, while the Senate committee recommended $33.0 million. For further information on the Indian Health Service, see its website at http://www.ihs.gov/ . CRS Report RL33022, Indian Health Service: Health Care Delivery, Status, Funding, and Legislative Issues , by [author name scrubbed]. The Office of Navajo and Hopi Indian Relocation (ONHIR) and its predecessor were created pursuant to a 1974 act ( P.L. 93-531 , as amended) to resolve a lengthy dispute between the Hopi and Navajo tribes involving lands originally set aside by the federal government for a reservation in 1882. Pursuant to the 1974 act, the lands were partitioned between the two tribes. Members of one tribe living on land partitioned to the other tribe were to be relocated and provided new homes, and bonuses, at federal expense. Relocation is to be voluntary. ONHIR's chief activities consist of land acquisition, housing acquisition or construction, infrastructure construction, and post-move support, all for families being relocated, as well as certification of families' eligibility for relocation benefits. The FY2008 appropriations law contained $8.9 million for ONHIR, a 4% increase over FY2007 ($8.5 million). The Administration, House, and Senate Appropriations Committee had supported $9.0 million. Navajo-Hopi relocation began in 1977 and is now nearing completion. ONHIR has a backlog of relocatees who are approved for replacement homes but have not yet received them. Most families subject to relocation were Navajo. Originally, an estimated 3,600 eligible Navajo families resided on land partitioned (or judicially confirmed) to the Hopi, while only 26 eligible Hopi families lived on Navajo partitioned land, according to ONHIR data. By the end of FY2005, according to ONHIR, 98% of the currently eligible Navajo families and 100% of the Hopi families had completed relocation. In addition, however, ONHIR estimates that about half of roughly 250 Navajo families (not all of them eligible families) who live on Hopi land and signed "accommodation agreements" (under P.L. 104-301 ) that allow them to stay on Hopi land, under Hopi law, may wish to opt out of these agreements and relocate using ONHIR benefits. ONHIR estimated that, as of the end of FY2005, 83 eligible Navajo families were awaiting relocation. Eight of these 83 families still resided on Hopi partitioned land; one of these families was seeking a relocation home and the other seven refused to relocate or sign an accommodation agreement. ONHIR and the U.S. Department of Justice were negotiating with the Hopi Tribe to allow the seven families to stay on Hopi land, as autonomous families, in return for ONHIR's relocating off Hopi land those families who had signed accommodation agreements but later decided to opt out and accept relocation. In its FY2007 budget justification ONHIR had estimated that relocation moves for currently eligible families would be completed by the end of FY2006. However, the addition of Navajo families who opt out of accommodation agreements and of Navajo families who filed late applications or appeals (but whom ONHIR proposes to accommodate to avoid litigation), would mean that all relocation moves would not be completed until the end of FY2008, according to ONHIR. This schedule for completion of relocations would depend on infrastructure needs and relocatees' decisions. In addition, required post-move assistance to relocatees would necessitate another two years of expenditures after the last relocation move (whether in FY2006 or FY2008). Congress has been concerned, at times, about the speed of the relocation process and about avoiding forced relocations or evictions. In the 109 th Congress, legislation passed the Senate, but not the House, to sunset ONHIR in 2008 and transfer any remaining duties to the Secretary of the Interior. Further, a long-standing proviso in ONHIR appropriations language, retained for FY2008, prohibits ONHIR from evicting any Navajo family from Hopi partitioned lands unless a replacement home were provided. This language appears to prevent ONHIR from forcibly relocating Navajo families, because of ONHIR's backlog of approved relocatees awaiting replacement homes. As the backlog is reduced, however, forced eviction may become an issue, if any remaining Navajo families were to refuse relocation and if the Hopi Tribe were to exercise a right under P.L. 104-301 to begin legal action against the United States for failure to give the Hopi Tribe "quiet possession" of all Hopi partitioned lands. The purpose of the negotiations among ONHIR, the Justice Department, and the Hopi Tribe, mentioned above, was to avoid this. The Smithsonian Institution (SI) is a museum and research complex consisting of 19 museums and galleries and the National Zoo in addition to 9 research facilities throughout the United States and around the world. Smithsonian facilities logged nearly 23 million visitors in 2006. Established by federal legislation in 1846 in acceptance of a trust donation by the Institution's namesake benefactor, SI is funded by both federal appropriations and a private trust, with over $979 million in revenue for FY2006. The FY2008 appropriations law provided $682.6 million for SI, an increase of $47.7 million (8%) over the FY2007 level of $634.9 million and of $4.2 million (<1%) over the Administration's request of $678.4 million. See Table 19 . Funding was provided for three main line items: Salaries and Expenses, Facilities Capital, and a new Legacy Fund. For FY2008, the Smithsonian was appropriated $562.4 million to fund Salaries and Expenses for its museums, research centers, and administration. FY2008 funding represented a $26.1 million (5%) increase over FY2007 ($536.3 million) but an $8.9 million (2%) decrease from the President's requested level ($571.3 million). The growth over FY2007 in staff and expenditures would primarily be for the National Museum of African American History and Culture (established by P.L. 108-184 ), which is under development. Federal appropriations fund salaries of over 4,200 employees. During consideration of FY2008 Interior appropriations legislation, concerns were raised by the Appropriations Committees and other Members over governance and fiscal management at the Smithsonian. Questions over the salary and other compensation for Smithsonian Secretary Lawrence M. Small led to his resignation in March 2007. Subsequently, the Deputy Secretary also resigned in 2007, as did the chief executive officer of Smithsonian Business Ventures amid an investigation of his expenses. In addition to the changes in senior leadership, the Smithsonian Board of Regents began an effort to reform governance and oversight at the Institution. In the explanatory statement accompanying the FY2008 funding act, the Appropriations Committees expressed "increased confidence" in SI for these efforts, but noted that the Committees will continue to carefully monitor progress (Explanatory Statement, H16140). The SI is responsible for over 400 buildings with approximately 8 million square feet of space. Recent external studies and the SI estimate that an investment of $2.3 billion over ten years is needed to address advanced facilities deterioration. Recent appropriations and fundraising fall far short of this level. The FY2008 law provided $105.4 million for Facilities Capital, with the bulk of the funds for renovations and the balance for security and health and safety improvements. This was an increase over FY2007 of $6.8 million (7%) but a decrease of $1.7 million (2%) from the Administration's request. No funds for construction were appropriated for FY2008. In addition to federal appropriations, the Smithsonian Institution receives income from trust funds which support salaries for some employees, donor-designated capital projects and exhibits, and operations. At the end of FY2006, the SI trust funds endowment was valued at over $2.2 billion. Non-appropriated revenues fund over a third of SI operations and include income from the trusts, contributions from private sources, competitive government grants and contracts from other agencies, and the profits from the Smithsonian Business Ventures division. For FY2008, the SI estimates $284.1 million will be available for Institution operations from these sources. The FY2008 law included a new account—not provided for by either the House or Senate Appropriations Committee bills—called the Legacy Fund. The Fund's purpose is to address the backlog of facilities capital repairs. For FY2008, up to $14.8 million in federal funding was provided for the initiative, with a requirement that private dollars match each federal dollar two to one. For further information on the Smithsonian Institution , see its website at http://www.si.edu/ . One of the primary vehicles for federal support for the arts and the humanities is the National Foundation on the Arts and the Humanities, composed of the National Endowment for the Arts (NEA), the National Endowment for the Humanities (NEH), the Federal Council on the Arts and Humanities, and the Institute of Museum and Library Services (IMLS). The NEA and NEH authorization (P.L. 89-209; 20 U.S.C. §951) expired at the end of FY1993, but the agencies have been operating on temporary authority through appropriations law. The FY2008 law provided a total of $289.4 million to the arts and humanities—an increase of $23.7 million (9%) over FY2007. The Administration had requested $269.8 million, and the FY2008 appropriation was an increase of $19.6 million (7%) over that amount. The NEA is a major federal source of support for all arts disciplines. Since 1965 it has provided over 120,000 grants that have been distributed to all states. For FY2008, the NEA was funded at $144.7 million, an increase of $20.1 million (16%) over FY2007, as shown in Table 20 . The House bill had included a substantial increase for the agency (28%); the House had considered, but did not agree to, several floor amendments to cut or eliminate funding for the arts. Floor amendments to increase or decrease arts funding similarly have been raised for many years. The Senate committee recommendation for FY2008 would have provided a smaller increase over FY2007 of 7%. Within NEA grants, the final law included $9.3 million to fund Challenge America—a program of matching grants for arts education, outreach, and community arts activities for rural and under-served areas. The FY2008 law also provided $13.3 million in grants for American Masterpieces —touring programs, local presentations, and arts education in the fields of dance, visual arts, and music. The NEH generally supports grants for humanities education, research, preservation and public humanities programs; the creation of regional humanities centers; and development of humanities programs under the jurisdiction of the 56 state humanities councils. Since 1965, NEH has provided approximately 61,000 grants. NEH also supports a Challenge Grant program to stimulate and match private donations in support of humanities institutions. For FY2008, NEH requested $141.4 million, essentially level with FY2007. The FY2008 law provided $144.7 million, an increase of $3.6 million (3%) above FY2007. Both the House and the Senate committee bills had supported larger increases over FY2007—13% and 4% respectively. The two largest grant programs funded by NEH are federal/state partnership grants and the We the People Initiative grants, funded at $31.7 million and $15.0 million in the FY2008 law, respectively. We the People grants include model curriculum projects for schools to improve course offerings in the humanities. FY2007 program funding was $30.9 million for federal/state partnerships and $15.2 million for We the People . For further information on the National Endowment for the Arts , see its website at http://arts.endow.gov/ . For further information on the National Endowment for the Humanities , see its website at http://www.neh.gov/ . CRS Report RS20287, Arts and Humanities: Background on Funding , by [author name scrubbed]. The LWCF (16 U.S.C. §§460 l -4, et seq.) is authorized at $900 million annually through FY2015. However, these funds may not be spent without an appropriation. The LWCF is used for three purposes. First, the four principal federal land management agencies—Bureau of Land Management, Fish and Wildlife Service, National Park Service, and Forest Service—draw primarily on the LWCF to acquire lands. The sections on each of those agencies earlier in this report identify funding levels and other details for their land acquisition activities. Second, the LWCF funds acquisition and recreational development by state and local governments through a grant program administered by the NPS, sometimes referred to as stateside funding. Third, Administrations have requested, and Congress has appropriated, money from the LWCF to fund some related activities. This third use is relatively recent, starting with the FY1998 appropriation. Programs funded have varied from year to year. Most of the appropriations for federal acquisitions generally are specified for management units, such as a specific National Wildlife Refuge. The appropriations for the state grant program and other related activities rarely have been specified for individual projects or areas. From FY1965 through FY2007, about $30 billion was credited to the LWCF. About half that amount—$15 billion—has been appropriated. Throughout history, annual appropriations from LWCF have fluctuated considerably. Until FY1998, LWCF funding did not exceed $400 million, except from FY1977-FY1980, when funding was between $509 million and $805 million. In FY1998, LWCF appropriations exceeded the authorized level for the first time, spiking to $969 million from the FY1997 level of $159 million. A record level of funding was provided in FY2001, when appropriations reached $1.0 billion, partly in response to President Clinton's Lands Legacy Initiative and some interest in increased and more certain funding for LWCF. For FY2008, the total LWCF appropriation was $255.5 million. This was a $110.4 million (30%) reduction from FY2007 ($365.9 million), as well as a $123.2 million (33%) reduction from the Administration's request for FY2008 ($378.7 million). Both the House and the Senate Appropriations Committee had supported decreases from the FY2007 level. The Senate committee had recommended $292.9 million for LWCF, while the House had approved $261.9 million. The FY2008 law included an additional $7.7 million for land appraisals related to federal land acquisitions, but it did not appear that this amount would be derived from LWCF. The FY2008 appropriated level included funds for federal land acquisition, the stateside program, and other purposes as described below. For land acquisition, the FY2008 law contained $129.7 million for land acquisition, a $16.7 million (15%) increase over FY2007 ($113.0 million) and more than double the Administration's request for FY2008. The House and the Senate Appropriations Committee had supported higher funding. The House had approved $155.6 million, with an additional $7.8 million for land appraisals apparently not derived from LWCF. The Senate Appropriations Committee had recommended $152.2 million for land acquisition, and $7.8 million for land appraisals with funds derived from LWCF. For the five fiscal years ending in FY2001, appropriations for federal land acquisition had more than tripled, rising from $136.6 million in FY1996 to $453.4 million in FY2001. The appropriation for land acquisition has subsequently declined to roughly the FY1996 level—to $129.7 million for FY2008. The decline may be attributed in part to increased interest in allocating funding to lands already in federal ownership, reducing the federal budget deficit, and funding other national priorities, such as the war on terrorism. Table 21 shows recent funding for LWCF. For FY2008, $24.6 million was appropriated for the stateside program, comprised of $23.1 million for new stateside grants and $1.5 million for administrative expenses. That figure was $5.0 million (17%) less than appropriated for FY2007 ($29.6 million). The Senate Appropriations Committee had recommended funding at about the FY2007 level ($30.0 million), but the House had approved a substantial increase (to $50.0 million). The Administration did not request funds for new stateside grants in FY2008, as in FY2006 and FY2007. The Administration has asserted that state and local governments have alternative sources of funding for parkland acquisition and development, and that the current program could not adequately measure performance or demonstrate results. As for FY2006 and FY2007, for FY2008 the Administration did request a relatively small amount of funding for administration of the grant program. Specifically, the Administration supported $1.4 million for program administration in FY2008, but in a break from the past, the Administration asked that the funds be derived from the National Recreation and Preservation line item rather than the LWCF. Seeking to eliminate funds for new stateside grants is not a new phenomenon. For example, for several years the Clinton Administration proposed eliminating stateside funding, and Congress concurred. In the last seven years, stateside funding has fallen 83%, from $143.9 million in FY2002 to $24.6 million in FY2007. Through provisions of the Gulf of Mexico Energy Security Act of 2006 ( P.L. 109-432 ), a portion of revenues from certain OCS leasing will be provided in future years (without further appropriation) to the stateside grant program. No money is expected to be available under these provisions for FY2008. An estimated $6.4 million in revenue from such OCS leasing is projected to be collected in FY2008 and disbursed to the stateside program in FY2009. Preliminary estimates of disbursements through FY2017 total approximately $21.8 million, according to the DOI Budget Office. The FY2008 law provided funding from LWCF for two other programs, for a total of $101.1 million. Of the total, $48.9 million was provided for Cooperative Endangered Species Grants and $52.2 million was for the Forest Legacy Program. The Senate Appropriations Committee also had sought funding for these two programs from LWCF, for a total of $102.9 million. The House had approved funding only for Forest Legacy—$56.3 million. By contrast, the President had sought funding for 11 other programs in the Department of the Interior and the Forest Service. The largest portion of the President's FY2008 LWCF request—$313.1 million—was for these other programs. The FY2008 appropriation for other programs was less than half that provided in FY2007, when $215.9 million was appropriated for five programs. Table 21 shows that for each year from FY2004 through FY2007, the largest portion of the LWCF appropriation was for other programs. This changed in FY2008, when the largest portion of the LWCF appropriation was for land acquisition. The Administration had requested a much larger amount than was appropriated for each year for other programs, for instance requesting $440.6 million for FY2007. Table 22 shows the other programs for which Congress appropriated funds for FY2006 through FY2008. In some cases, Congress provided these programs with non-LWCF funding, which is not reflected here. CRS Report RL33531, Land and Water Conservation Fund: Overview, Funding History, and Current Issues , by [author name scrubbed]. Altered natural flows of water by a series of canals, levees, and pumping stations, combined with agricultural and urban development, are thought to be the leading causes of environmental deterioration in South Florida. In 1996, Congress authorized the U.S. Army Corps of Engineers (Corps) to create a comprehensive plan to restore, protect, and preserve the entire South Florida ecosystem, which includes the Everglades ( P.L. 104-303 ). A portion of this plan, the Comprehensive Everglades Restoration Plan (CERP), was completed in 1999, and provides for federal involvement in restoring the ecosystem. Congress authorized the Corps to implement CERP in Title IV of the Water Resources Development Act of 2000 (WRDA 2000, P.L. 106-541 ). While restoration activities in the South Florida ecosystem are conducted under several federal laws, WRDA 2000 is considered the seminal law for Everglades restoration. (See CRS Report RS20702, South Florida Ecosystem Restoration and the Comprehensive Everglades Restoration Plan , by [author name scrubbed] and [author name scrubbed].) Appropriations for restoration projects in the South Florida ecosystem have been provided to various agencies as part of several annual appropriations bills. The Interior, Environment, and Related Agencies appropriations laws have provided funds to several DOI agencies for restoration projects. Specifically, DOI conducts CERP and non-CERP activities in southern Florida through the National Park Service, Fish and Wildlife Service, U.S. Geological Survey, and Bureau of Indian Affairs. (For more on Everglades funding, see CRS Report RS22048, Everglades Restoration: The Federal Role in Funding , by [author name scrubbed] and [author name scrubbed].) From FY1993 to FY2007, federal appropriations for projects and services related to the restoration of the South Florida ecosystem exceeded $2.8 billion, and state funding topped $4.8 billion. The average annual federal cost for restoration activities in southern Florida in the next 10 years is expected to be approximately $286 million per year. For FY2008, the Administration requested $235.0 million for DOI and the Corps for restoration efforts in the Everglades. It is generally not possible to identify specific funding amounts for Everglades restoration activities from enacted appropriations laws and their explanatory statements. Accordingly, they are not reflected for FY2008 in Table 23 . However, funds for the Modified Water Deliveries Project were specified in the FY2008 law, and are discussed below. Other specific funding amounts for Everglades restoration under DOI will be available in the FY2009 Administration's request. The FY2008 law provided $14.3 million for Mod Waters under NPS construction. This project is designed to improve water deliveries to Everglades National Park, and to the extent possible, restore the natural hydrological conditions within the Park. The completion of this project is required prior to the construction of certain projects under CERP. For FY2007, $13.3 million in new funds were appropriated for Mod Waters. For FY2008, $14.5 million was requested and provided in the House and the Senate committee bills. The House Appropriations Committee noted that it intends to monitor the progress of restoring the Everglades and requested that the DOI submit a progress report on the status of restoration ( H.Rept. 110-187 , p. 44). The FY2008 law provided funds for Mod Waters under NPS construction only if matching amounts are appropriated for similar purposes to the Corps. Further, the FY2008 law prohibited funding for Mod Waters under NPS Construction if any Corps matching funds for Mod Waters become unavailable, including funds for design analysis of the Tamiami Trail (a component of Mod Waters). Funds for evaluating Tamiami Trail were provided to the Corps in the FY2008 law. Also, the law provided $9.8 million to the Corps for Mod Waters. Because this is less than the level appropriated to the NPS, it is uncertain if NPS funding will be decreased to match Corps funding. A funding issue receiving broad attention is the level of commitment by the federal government to implement restoration activities in the Everglades. Some observers measure commitment by the frequency and number of projects authorized under CERP, and the appropriations they receive. Because no restoration projects have been authorized since WRDA 2000, these observers are concerned that federal commitment to CERP implementation is waning. Others assert that the federal commitment will be measurable by the amount of federal funding for construction, expected when the first projects break ground in the next few years. Some state and federal officials contend that federal funding will increase compared to state funding as CERP projects move beyond design into construction. Still others question whether the federal government should maintain the current level of funding, or increase its commitment, because of escalating costs and project delays. Since FY2004, Interior appropriations laws have conditioned funding for the Modified Water Deliveries Project based on meeting state water quality standards. Funds appropriated in the laws and any prior laws for Mod Waters would be provided unless administrators of four federal departments/agencies (Secretary of the Interior, Secretary of the Army, Administrator of the EPA, and the Attorney General) indicate in their joint report that water entering the A.R.M. Loxahatchee National Wildlife Refuge and Everglades National Park do not meet state water quality standards, and the House and Senate Committees on Appropriations respond in writing disapproving the further expenditure of funds. These provisions were enacted based on concerns regarding a Florida state law (Chapter 2003-12, enacted on May 20, 2003) that amended the Everglades Forever Act of 1994 (Florida Statutes §373.4592) by authorizing a new plan to mitigate phosphorus pollution in the Everglades. Phosphorus is one of the primary water pollutants in the Everglades and a primary cause for ecosystem degradation. Provisions conditioning funds on the achievement of water quality standards are included in the FY2008 appropriations law. For further information on Everglades Restoration , see the website of the South Florida Ecosystem Restoration Program at http://www.sfrestore.org and the website of the Corps of Engineers at http://www.evergladesplan.org/ . CRS Report RS22048, Everglades Restoration: The Federal Role in Funding , by [author name scrubbed] and [author name scrubbed]. CRS Report RS21331, Everglades Restoration: Modified Water Deliveries Project , by [author name scrubbed] (pdf). CRS Report RS20702, South Florida Ecosystem Restoration and the Comprehensive Everglades Restoration Plan , by [author name scrubbed] and [author name scrubbed].
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The Interior, Environment, and Related Agencies appropriations bill includes funding for the Department of the Interior (DOI), except for the Bureau of Reclamation, and for two agencies within other departments—the Forest Service within the Department of Agriculture and the Indian Health Service (IHS) within the Department of Health and Human Services. It also includes funding for arts and cultural agencies, the Environmental Protection Agency, and numerous other entities. The Consolidated Appropriations Act for FY2008 (P.L. 110-161) included $26.89 billion for Interior, Environment, and Related Agencies for FY2008. An additional $500.0 million in emergency appropriations for wildfires was included in P.L. 110-116, for an FY2008 total of $27.39 billion. This would be about the same as enacted for FY2007 (including funds for Secure Rural Schools), $240.2 million (0.9%) lower than passed by the House for FY2008 in H.R. 2643, and $205.0 million (0.8%) higher than recommended by the Senate Committee on Appropriations for FY2008 in S. 1696. The FY2008 level was an increase of $1.70 billion (6.6%) over the Administration's request for FY2008. The FY2008 appropriations level was higher for some agencies than the FY2007 level, but lower for others. Among the FY2008 increases over FY2007 were the following: $292.6 million (6.2%) for the Forest Service (FS); $185.2 million (9.9%) for the Bureau of Land Management (BLM); $166.0 million (5.2%) for the Indian Health Service (IHS); $90.4 million (3.9%) for the National Park Service (NPS); $47.7 million (7.5%) for the Smithsonian Institution (SI); and $28.1 million (2.1%) for the Fish and Wildlife Service (FWS). Among the FY2008 decreases from FY2007 were the following: -$263.6 million (3.4%) for the Environmental Protection Agency (EPA); -$124.2 million (42.2%) for the Office of Surface Mining Reclamation and Enforcement (OSM); -$43.6 million (27.3%) for the Minerals Management Service (MMS); and -$33.9 million (15.2%) for the Office of Special Trustee for American Indians (OST). Congress debated a variety of funding and policy issues during consideration of FY2008 Interior appropriations legislation. They included appropriate funding for BIA construction, education, and housing; IHS construction and urban Indian health; wastewater/drinking water needs; land acquisition; the Payments in Lieu of Taxes program; the Superfund program; the Smithsonian Institution; and wildland fire fighting. Other issues included Indian trust fund management, leasing in the Outer Continental Shelf, and royalty relief. This report is not expected to be updated.
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States and localities have at times proposed or enacted measures restricting governmental transactions with entities doing business or having financial ties with foreign countries whose conduct is found objectionable, particularly because of terrorism or human rights concerns. This report summarizes constitutional arguments made for and against these laws and discusses the Supreme Court's decisions in Crosby v. National Foreign Trade Council and American Insurance Association v. Garamendi , where the Court addressed the permissibility of state laws having implications upon U.S. foreign affairs. The report also discusses a 2007 federal district court decision which held that an Illinois law that imposed sanctions upon Sudan was unconstitutional, along with a 2012 federal district court decision preliminarily enjoining the enforcement of a Florida statute which, among other things, restricts the state or local governments from entering contracts with certain entities that do business in Cuba. The report also suggests some possible legal ramifications of recent case law for future state and congressional action in this area, and summarizes recent federal enactments addressing state economic sanctions. State and local sanctions have generally taken the form of (1) selective purchasing or contracting laws, which generally prohibit state or local agencies from contracting with or procuring goods and services from companies that do business in a named country, or (2) selective investment laws, which prohibit state or local agencies from investing public funds in such companies. A variation of the latter is a state or local divestment law which, for example, may require divestment by state pension funds of stock in companies that either do business within a named country or with that country's government. In the 1990s, a number of state laws focused on conditions in Burma (Myanmar), while others targeted Nigeria, Tibet, Cuba, Indonesia, Switzerland, and Northern Ireland. Other state laws addressed poor foreign labor practices regardless of country. Due to the troubled situation in Darfur, between 2006 and 2010 a number of states proposed or enacted divestment legislation focused on Sudan. Other states have passed legislation prohibiting pension fund investment in debt instruments issued by any nation designated by the State Department as supporting or engaging in terrorism. Other pending or enacted state legislation is aimed at divestment of state funds from companies engaged in certain business activities in Iran, in either Iran or Sudan, or in state sponsors of terrorism. In February 2007, a federal district court held that an Illinois statute, which restricted the deposit of state funds to institutions having customers with ties to Sudan and barring the investment of state pension funds with Sudanese-connected entities, was constitutionally impermissible. The state's appeal to the U.S. Court of Appeals for the Seventh Circuit was subsequently dismissed as moot. State and local economic sanctions that target foreign government behavior ordinarily raise three constitutional issues: (1) whether they burden foreign commerce in violation of the Foreign Commerce Clause and, if so, whether they are protected by the market participant exception to the Clause; (2) whether they impermissibly interfere with the federal government's exclusive power to conduct the nation's foreign affairs; and (3) where Congress or the President has acted, whether they are preempted by federal law. The Constitution provides Congress with the authority to regulate both interstate and foreign commerce (Art. I, §8, cl. 3). In addition to this affirmative grant of constitutional authority, the Supreme Court has recognized that the Commerce Clause implies a corresponding restraint on the authority of the states to interfere with commerce, even absent Congressional action. This inferred restriction arising from congressional inaction is generally referred to as the "dormant" Commerce Clause. Under this established principle, states and localities are impliedly prohibited from unreasonably burdening or discriminating against either interstate or foreign commerce unless they are authorized by Congress to do so. In a series of cases involving state taxes, the Supreme Court has set out criteria for examining whether state measures impermissibly burden foreign commerce where affirmative congressional permission is absent. In sum, the Court has required a closer examination of measures alleged to infringe the Foreign Commerce Clause than is required for those alleged to infringe its interstate counterpart, but has also provided scope for state measures in situations where a federal role is not clearly demanded. In Japan Line, Ltd. v. County of Los Angeles , the Supreme Court struck down on Foreign Commerce Clause grounds a California state statute that applied an ad valorem property tax on foreign cargo containers. In doing so, the court identified two reasons why "a more extensive constitutional inquiry is required" in foreign commerce cases than those involving "purely interstate commerce." First, there is an "enhanced risk of multiple taxation" upon goods involved in foreign commerce than in the case of domestic goods. Secondly, a state tax upon an instrumentality in foreign commerce "may impair federal uniformity in an area where federal uniformity is essential," or, in other words, may "prevent [] the Federal Government from 'speaking with one voice when regulating commercial relations with foreign governments.'" The Court made clear that "[i]f a state tax contravenes either of these precepts, it is unconstitutional under the Commerce Clause." Four years later in Container Corp. of America v. Franchise Tax Board , the Court upheld a state income tax law challenged by a multinational enterprise, finding that it did not infringe upon the federal government's authority over foreign commerce. The Court viewed the case as involving several facts which made it distinguishable from the state tax which had been struck down in Japan Line, Ltd . In upholding the California state income tax law, the Court also elaborated upon its prior recognition in Japan Line, Ltd. that a state tax may be impermissible if it prevents the federal government from speaking with "one voice" on international trade issues. Here, the Court indicated that state action may have "merely foreign resonances" without impermissibly treading upon the federal government's authority over foreign affairs. A state tax "will violate the 'one voice' standard if it either implicates foreign policy issues which must be left to the Federal Government or violates a clear federal directive." The Court noted that the second of these factors "is, of course, essentially a species of preemption analysis." The Court later concluded in Barclays Bank PLC v. Franchise Tax Board of California , a case examining California's income-based corporate franchise tax, that even a state statute that may make it more difficult for the federal government to speak with a single voice on international trade will be sustained if there is no clear indication that Congress had intended to bar the state practice. The Court stated that Container Corporation and a subsequent case, Wardair Canada Inc. v. Florida Dep't of Revenue , in which the Court upheld a state tax on jet fuel purchased by foreign airlines, suggested that "Congress may more passively indicate that certain state practices do not 'impair federal uniformity in an area where federal uniformity is essential....'" Moreover, Congress "need not convey its intent with the unmistakable clarity required to permit state regulation that discriminates against interstate commerce...." Where Congress has not clearly immunized a state selective purchasing or divestment law for Foreign Commerce Clause purposes, arguments that any such law impermissibly burdens foreign commerce may be countered by invocation of the market participant doctrine. First articulated in the Supreme Court's 1976 ruling in Hughes v. Alexandria Scrap Corp. , the doctrine exempts from the clause those laws in which the state or local government acts as a buyer or seller of goods rather than as a regulator. It is counter-argued, however, that the doctrine is inapplicable where the state seeks to affect behavior beyond the immediate market in which it is operating; that it does not immunize laws from other constitutional challenges; and that, as suggested by the Supreme Court, it may not even apply in Foreign Commerce Clause cases. "Power over external affairs is not shared by the States; it is vested in the national government exclusively." State or local laws which encroach upon the federal government's authority over foreign affairs may be deemed constitutionally impermissible. In its 1968 decision in Zschernig v. Miller , the Supreme Court struck down an Oregon law prohibiting nonresident aliens from inheriting property if they could not satisfy certain requirements. Namely, the Oregon statute required such aliens to demonstrate to the Oregon state courts that their home countries allowed U.S. nationals to inherit estates on a reciprocal basis and that payments to foreign heirs from the Oregon estates would not be confiscated. Although the federal government had not exercised its power in the area, the Supreme Court nonetheless found that the inquiries required by the Oregon statute would result in "an intrusion by the State into the field of foreign affairs which the Constitution entrusts to the President and the Congress." The Court distinguished its earlier decision in Clark v. Allen , which had upheld a similar California statute, on the ground that the statute in that case could be implemented through "a routine reading of foreign law" and did not require the particularized inquiries demanded by the Oregon statute. Many observers have characterized the parameters of the Zschernig ruling as unclear. Application of the ruling is often an issue in litigation concerning state or local measures which restrict economic transactions with companies doing business with foreign entities whose conduct the state or locality finds objectionable. It has been argued, for example, that state or local selective procurement laws, through which jurisdictions condition eligibility for a public contract upon business entity refraining from certain activities within or in relation to a foreign country, are directed at influencing or scrutinizing foreign behavior in the manner that the Zschernig Court found objectionable. Courts that have upheld restrictive procurement laws that were challenged on Zschernig grounds have emphasized that the challenged laws applied neutrally to all foreign products, and thus did not require the assessment of a particular government's policies that might result in constitutional infirmity. The Supremacy Clause of the Constitution establishes that federal statutes, treaties, and the Constitution itself are "the supreme Law of the Land." Accordingly, states can be precluded from taking actions that are otherwise within their authority if federal law is thereby thwarted. The extent to which federal law preempts, or supersedes, state law in a given area is entirely within the control of Congress. Congress may, by clearly or expressly stating its intent, choose to preempt all state laws, no state laws, or only certain state laws. Absent an express statement from Congress, an act of Congress may also impliedly preempt state or local action in a given area. Where Congress has not expressly preempted state and local laws, two types of implied federal preemption may be found: field preemption , in which federal regulation is so pervasive that one can reasonably infer that states or localities have no role to play, and conflict preemption , in which "compliance with both federal and state regulations is a physical impossibility," or where the state law "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." The delineation between preemption categories, and in particular between conflict and field preemption, is not rigid. In preemption cases involving foreign affairs, courts may well weigh the deference traditionally accorded areas subject to state and local regulation against the policy considerations implicated by the federal scheme affecting foreign affairs or commerce. For example, in the Supreme Court's ruling in the 1941 case of Hines v. Davidowitz , which invalidated a state alien registration statute, the Court reiterated the long-recognized, constitutionally based supremacy of federal authority in foreign affairs and made clear that any concurrent state power in the area must be "restricted to the narrowest of limits.…." Depending on the nature of a state statute and the type of federal action taken to deal with a problematic foreign nation, opponents of a state sanctions law may thus argue that, even absent express preemption by a federal statute, (1) a state law may conflict with federal laws and policies targeted at a specific country with respect to the activities and persons covered, or (2) there is reason to presume that Congress intended that all state and local measures targeting a particular country be preempted. In response, it might be maintained, inter alia , that federal limitations on the exercise of proprietary powers to contract and invest must be expressly intended or must result from a highly pervasive federal scheme. Moreover, state laws may arguably mandate consequences that differ from federal remedies or that do not exist on the federal level so long as the federal legislation or action involved does not constitute a "complex and interrelated federal scheme of law, remedy and administration." In Crosby v. National Foreign Trade Council , the Supreme Court unanimously ruled that a Massachusetts selective purchasing law targeted at Burma was impliedly preempted by federal sanctions against Burma contained in the Foreign Operations Appropriations Act, 1997 ( P.L. 104-208 ). At the time, the absence of well-developed case law directly addressing sub-federal sanctions had made the outcome of a constitutional challenge to state sanctions laws unclear. Although various Supreme Court cases had previously examined aspects of such laws, none directly ruled on such a statute. Moreover, the few state cases scrutinizing such measures on constitutional grounds differed in result. Although Congress had not expressly preempted state laws in the federal Burma statute, the Court found the Massachusetts law was impliedly preempted because it "undermines the intended purpose and 'natural effect' of at least three provisions of the federal Act, namely, its delegation of effective discretion to the President to control economic sanctions against Burma, its limitation of sanctions solely to United States persons and new investment, and its directive to proceed diplomatically in developing a comprehensive, multilateral strategy towards Burma." After rejecting the state's argument that the law could not be preempted because it was based on an exercise of the state's spending power, the Court found that the law lacked the flexibility inherent in the federal statute: the state law had stringent application requirements and no termination provision, while federal law authorized the President to lift federal measures in certain circumstances, allowed him to prohibit new investment based on his own findings, and provided waiver authority with regard to all sanctions imposed in the statute. The state law was also found to exceed federal authorities. While the Massachusetts law covered most state contracts, foreign and domestic firms, and firms already operating in Burma, the federal law imposed sanctions solely on U.S. persons, authorized a prohibition on new investment only, and exempted purchase and sales contracts from any ban. Finally, the Court ruled that the state law had impeded the President's ability to pursue the multilateral strategy envisioned in the federal act, with the Court noting formal protests from U.S. trading partners, World Trade Organization complaints, and the distraction caused by the state law in discussions with foreign countries regarding the situation in Burma. Finally, the Court rejected the state's argument that Congress had implicitly permitted the state law because it had failed to expressly preempt state sanctions against Burma. Massachusetts noted that Congress was aware of the state's law when it adopted the federal Burma statute in 1996. However, the Court found that "[a] failure to provide for preemption expressly may reflect nothing more than the settled character of implied preemption doctrine that the courts will dependably apply" and that "in any event, the existence of a conflict cognizable under the Supremacy Clause does not depend on express recognition that federal and state law may conflict." The Court found that in this case Congress's silence was ambiguous and insufficient to warrant an inference of congressional intent to permit states to adopt their own Burmese sanctions. In American Insurance Association v. Garamendi , the Supreme Court reaffirmed the Zschernig Court's finding of a dormant federal foreign affairs power. In a 5-4 vote, the Court struck down a California law, the Holocaust Victim Insurance Relief Act, which required any insurer doing business in the state to disclose information about all life insurance policies issued in Europe during the Nazi regime. An executive agreement with Germany signed by the President provided that the International Commission on Holocaust Era Insurance Claims would serve as the sole vehicle for voluntary insurance claims to reduce litigation between foreign nationals and German firms. Despite the lack of a specific preemption clause, the Court, citing the "kid glove" approach chosen by the executive branch that was evident in the German agreement and similar agreements with Austria and France, along with executive branch statements supporting this approach, determined that there was a "clear conflict" between the policies adopted by the executive and the "iron fist" that California sought to use. The Court made clear that state law could be preempted by the President's exercise of his independent constitutional authority to conduct foreign affairs, noting that Congress had not acted on the matter addressed in the California law and that given this independent authority, "congressional silence is not to be equated with congressional disapproval." In National Foreign Trade Council v . Giannoulias , the first lower federal court decision since Crosby and Garamendi to address a state sanctions law, the U.S. District Court for the Northern District of Illinois held the Illinois Sudan Act unconstitutional and permanently enjoined its enforcement. At issue in the February 23, 2007, decision was a statute that placed restrictions both on the deposit of state funds and the investment of state and municipal pension assets. The Illinois law amended the Deposit of State Moneys Act to prohibit the Illinois Treasurer from investing state funds in commercial instruments of Sudan and so-called "forbidden entities" and also from depositing state funds into any financial institution that did not certify that it "has implemented policies and practices that require loan applicants to certify that they are not 'forbidden entities.'" The category of "forbidden entities" included any company that had not certified that it did not own or control certain Sudan-related property or assets and did not engage in certain Sudan-related transactions. The statute also amended the Illinois Pension Code to prohibit the fiduciary of any pension fund established under the Code from investing in any entity unless the company managing the funds' assets certified that the managing company had not transferred any assets of the Illinois retirement system or pension fund to a forbidden entity. The statute ultimately required that none of the assets of the system or fund be invested in "forbidden entities" by the end of July 2007. For purposes of the pension amendments, the term "forbidden entity" included (1) the firms described above; (2) any publicly traded company that owned or controlled Sudan-related property or assets or engaged in other Sudan-related transactions; and (3) any non-publicly traded company that failed to submit to the fund's managing company a sworn affidavit averring that the company did not own or control any Sudan-related property or conduct business transactions in Sudan. The statute was challenged on preemption, foreign affairs, and foreign commerce grounds. In reaching its decision, the court set out federal law regarding Sudan, beginning with a 1997 Executive Order signed by President Clinton freezing Sudanese property in the United States and prohibiting various transactions between the United States and Sudan, and continuing with three subsequent public laws: the Sudan Peace Act (2002), the Comprehensive Peace in Sudan Act (2004), and the Darfur Peace and Accountability Act (2006). None of these statutes contains a provision expressly preempting states from enacting their own sanctions against the Sudan. Addressing the statutory preemption argument, the court held that, with respect to the amendment to the Deposit of State Moneys Act, the Illinois statute's "lack of flexibility, extended geographic reach, and impact on foreign entities interferes with the national government's conduct of foreign affairs," and was thus preempted by federal law. On the other hand, the pension amendments were found not to be preempted, since federal law did not expressly address divestment, and, in the district court's view "the potential effects of pension divestment on the national government's ability to conduct foreign policy are highly attenuated." The court stated that it had not been presented with evidence "suggesting that these pension funds' inability to purchase the securities of such companies would be in any way likely to affect their decision to do business in that country" and thus it had not been shown "that pension fund divestment stands as an 'obstacle to the accomplishment and execution of the full purposes and objectives of Congress' with regard to Sudan policy." Regarding the claim that the state measure impermissibly intruded upon the federal government's authority over foreign affairs, the court found scant prior case law on the issue, but concluded that the amendments to the Deposit of State Moneys Act "would have an impact on the national government's ability to deal with Sudan that is at least equal to or greater than the impact of the state laws in Zschernig and Garamendi. " The court considered that the amendments might cause multinational companies to pull out of Sudan, resulting in a "real and direct" effect on Sudan's economy, and that they thus clearly had "more than an incidental or indirect effect" in Sudan. Noting as well the amendments' "substantive and direct impact on the national government's ability to carry out the flexible and measured approach to Sudanese relations that Congress and the president have created," the court held that they interfered impermissibly with the federal government's power to conduct the nation's foreign affairs. At the same time, the court held that the pension amendments did not improperly intrude on the federal foreign affairs authority, finding that they did not place the same kind of pressure on firms to sever business ties with that country that flowed from the banking amendments and thus were not likely to affect the firms' willingness to do business in Sudan. Because the court had already found the banking amendments unconstitutional on two grounds, it did not consider them in light of the Foreign Commerce Clause. Nevertheless, it did find that "there is little doubt that the conduct the Illinois Sudan Act seeks to proscribe involves foreign commerce" and that "[w]ithout the protection of the market participant exception, the amendment to the Pension Code violates the Foreign Commerce Clause." The court found that to the extent that the state was exercising control over municipal pension funds, however, it was acting as a market regulator and that the market participant doctrine, even if it were determined applicable in Foreign Commerce Clause cases, did not apply to this situation. With respect to the state's control of its own pension funds, the court held that, even if the amendment was constitutional if only applied to these funds, it could not be severed from the unconstitutional portion of the statute. The court therefore struck down the pension amendment as a whole. The State of Illinois appealed the decision to the U.S. Court of Appeals for the Seventh Circuit. It also enacted new Sudan-related divestment legislation, which included a repeal of the invalidated provisions. In October 2007, the state moved to dismiss the appeal as moot and to vacate the district court judgment. The appellate court granted the motion and remanded the case to the district court on November 30, 2007, with instructions to vacate the decision. Faculty Senate of Florida International University v. Winn , a per curiam opinion of the U.S. Court of Appeals for the Eleventh Circuit, held that states can restrict the use of funds to sponsor travel by state education employees to specific countries for national security reasons. At issue in Winn was a Florida statute prohibiting the allocation of both public and non-public funds for travel to countries that the federal government had identified as "State Sponsors of Terror." Presented with plaintiff's arguments that the law impeded the federal foreign policy powers, the court distinguished Crosby and Garamendi by emphasizing that there were no penalties for traveling to these countries and that no conflict with a federal law existed. The court also considered Zschernig , but found that Florida's willingness to follow the federal list of state sponsors rather than create its own criteria minimized the possibility of interference with the Executive's foreign affairs powers. Finally, the Eleventh Circuit emphasized that this statute did not place broad limits on trade with or travel to these countries and thus lacked a large economic effect on the target nations. The U.S. Supreme Court denied certiorari in the case on June 25, 2012. In Odebrecht Constr., Inc. v. Prasad , the U.S. District Court for the Southern District of Florida granted a preliminary injunction halting the enforcement of a Florida law that sought to prevent the state and local governments from awarding public contracts to companies with business connections to Cuba. Specifically, the law prohibited companies "engaged in business operations in Cuba," from bidding on, or entering contracts with, state or local entities for "goods or services of $1 million or more." In granting the preliminary injunction, the court determined that there was a substantial likelihood that the Florida law was preempted by federal law, impermissibly interfered with the federal government's foreign affairs power, and violated the Foreign Commerce Clause. In holding that the statute was likely preempted by federal law, the court relied principally on the Supreme Court's decision in Crosby . Like the Massachusetts state law challenged in that case, the Florida law was found to likely conflict with federal law because it impermissibly "frustrates the President's discretion to carefully calibrate sanctions against Cuba," and "diminishes the President's bargaining power by imposing inconsistent sanctions." In addition, the district court determined that the law would likely also fall under field preemption grounds, as "Congress has clearly intended to 'occupy the field' relating to this country's policy toward Cuba." In addition to being preempted, the district court also held that the Florida statute was likely to infringe on the federal government's foreign affairs power by forcing "foreign companies to choose between doing business with Florida and lawful business with Cuba," and because the statute had the "potential for diplomatic disruption or embarrassment." Finally, the court determined that the law also likely violated the Foreign Commerce Clause because it discriminated against foreign companies and regulated economic activity "beyond [the state's] borders that implicates foreign affairs and impairs federal uniformity." The district court's ruling has been appealed, but the Eleventh Circuit has yet to issue a ruling in the case. Where state or local sanctions are held to be preempted by federal statute, Congress may choose expressly to authorize such measures in new legislation. It is also possible that a state or local sanctions law could be written so as not to conflict with a federal enactment. Where Congress has not enacted or authorized sanctions against a particular country, state or local sanctions directed at that jurisdiction may be challenged on dormant foreign affairs or Foreign Commerce Clause grounds, given that Crosby did not address, and thus did not foreclose or limit the use of, these constitutional arguments. At the same time, questions remain as to the outcome of these arguments in a particular case. For example, if state or local sanctions were challenged on Foreign Commerce Clause grounds, would congressional silence be construed by a reviewing court as implied authorization of these measures or, instead, as a manifestation of an overriding federal policy that a particular country not be subject to restrictive U.S. measures? Whether the market participant exception applies in Foreign Commerce Clause cases also remains unclear. Where a state law is challenged as intruding into the federal foreign affairs power, the Supreme Court's ruling in Garamendi suggests that executive agreements or statements might preempt state action, despite a lack of specific agreement language showing the intent to do so. At the same time, the Court recommended following Justice Harlan's standard from the Zschernig case as a minimum threshold for foreign affairs preemption, that is, that the state legislation should "produce something more than incidental effect in conflict with express foreign policy of the National Government." Some commentators have provided practical criticisms of the state divestment laws. For instance, state investors rely on private organizations to identify firms with business interests in targeted countries. The particular concern is that this information might be inaccurate or fail to take account of the federal government's interests. This could lead to divestment activities inconsistent or directly counter to U.S. foreign policy goals. In response, the National Conference of State Legislatures has asked the federal government to provide U.S. investors with "authoritative information" regarding foreign and domestic firms with financial and investment activities in states that sponsor terrorism. There are also overarching concerns about whether public plans are suitable means for achieving foreign policy goals. Besides questions of their efficacy in changing foreign government behavior, divestment measures could diminish the rate of return on investment. There are increased administrative costs related to screening investments for ties to targeted nations. Broad restrictions on investment in certain companies could also undermine the goal of a diversified portfolio. These risks are likely to be especially problematic because there may well be limited overlap between those authorizing and making divestment decisions and the stakeholders whom these decisions will affect. The Sudan Accountability and Divestment Act of 2007 ( P.L. 110-174 ), enacted into law on December 31, 2007, authorizes state and local governments to adopt divestment measures involving (1) federally identified persons with investments and business in the Sudanese energy and military equipment sectors or (2) persons having a direct investment in or carrying on a trade or business with Sudan or the Government of Sudan, provided certain notification requirements are met; the statute also provides that a measure falling within the scope of the authorization is not preempted by any federal law or regulation. The enactment is based on S. 2271 , an original bill of the Senate Committee on Banking, Housing, and Urban Affairs ( S.Rept. 110-213 ). H.R. 180 (Lee) and S. 831 (Durbin) also addressed Sudan divestment by state and local governments; H.R. 180 passed the House on July 31, 2007. President George W. Bush, upon signing the act, stated that "the executive branch shall construe and enforce this legislation in a manner that does not conflict" with the federal government's "exclusive authority" to conduct foreign relations. The Comprehensive Iran Sanctions, Accountability, and Divestment Act ( P.L. 111-195 ), enacted into law on July 1, 2010, includes provisions authorizing state and local governments to divest or prohibit investments of public monies in Iran. Responding to state and local divestment activities related to Iran, Congress designed Title II's divestment provisions to "remove [] any doubt as to the constitutionality of these measures." Specifically, states can require public divestment from businesses making investments of (or extending credit to persons who will make investments of) $20 million or more in Iran's energy sector. States must provide notice to those affected by divestment measures and give those affected the opportunity to comment or challenge the measures' applicability to their business dealings. If 90 days elapse after notice is given without the notified company changing its behavior, divestment can occur. The statute clearly states that no federal laws or regulations preempt actions taken by the states under these provisions. Below is a list of state laws related to divestment of public funds from companies doing business in foreign countries. Unless otherwise indicated, the provided statute fits the general model of identifying companies doing business in a country and, after giving notice and opportunity to discontinue the offending activity, requiring divestment of public funds from these companies. Some, but not all, of these measures include language providing for their expiration in the event that Congress or the President take specified action.
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States and localities have occasionally enacted measures restricting their agencies from conducting economic transactions with entities that do business with or in foreign countries whose conduct these jurisdictions find objectionable. While some maintain that sub-federal entities may enact such laws under sovereign proprietary powers and other constitutional prerogatives, others argue that these measures impermissibly invade federal commerce and foreign affairs authorities and may, in some cases, be preempted by federal statute. In 2000, the U.S. Supreme Court unanimously held in Crosby v. National Foreign Trade Council that a Massachusetts law restricting state transactions with firms doing business in Burma was preempted by federal statute. In its 2003 decision in American Insurance Association v. Garamendi, the Court reaffirmed the relevance of the dormant federal foreign affairs power to preemption analysis when it struck down a California law requiring certain businesses to disclose information regarding Holocaust-era insurance policies sold in Europe, but the scope of the 5-4 decision is unclear. In recent years, a number of states have proposed or enacted some type of divestment legislation against Sudan in response to the troubled situation in Darfur. States have also considered or adopted divestment legislation involving Iran, Cuba, or terrorist states in general. In February 2007, a federal district court held Illinois's Sudan sanctions law unconstitutional and permanently enjoined its enforcement (National Foreign Trade Council v. Giannoulias). Illinois subsequently repealed its statute, and the state's appeal in the case was dismissed as moot later that year. In 2012, a U.S. federal district court issued a preliminary injunction barring the enforcement of a Florida statute which, among other things, restricted the state or local governments from entering into contracts with certain entities that do business in Cuba. In recent years, Congress has enacted legislation authorizing states to prohibit investments in, or divest assets from, Sudan and Iran. The Sudan Accountability and Divestment Act of 2007 (P.L. 110-174) authorizes states and local governments to adopt divestment or investment prohibition measures involving (1) persons the state or local government determines are conducting business operations in the Sudanese energy and military equipment sectors or (2) persons having a direct investment in or carrying on a trade or business with Sudanese entities or the Government of Sudan, provided certain notification requirements are met. The Comprehensive Iran Sanctions, Accountability, and Divestment Act (P.L. 111-195) which was enacted in 2010, includes provisions authorizing state and local governments to divest from those businesses making investments of $20 million or more in Iran's energy sector after adequate investigation and notification have occurred. Both laws provide that a measure falling within the scope of the authorization is not preempted by any federal law or regulation.
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Climate change policy actions are underway at state, federal, regional, and international levels. As a party to the United Nations Framework Convention on Climate Change, the United States committed to the objective of achieving "stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system"; and to preparing "national action plans" to address emissions of greenhouse gases. The domestic debate intensified with the negotiations relating to the Kyoto Protocol, agreed to in December, 1997. Specifically, under the terms of the Kyoto Protocol, the United States would have committed to reducing its average annual net carbon-equivalent emissions of six gases—carbon dioxide (CO 2 ), nitrous oxide, methane, perfluorocarbons, hydrofluorocarbons, and sulfur hexafluoride—by 7% below 1990 levels (1995 for the fluorinated gases) over the five-year period 2008-2012. If it had been ratified by the Senate, the Kyoto Agreement would have moved the debate beyond the mix of "study," "no regrets," and "voluntary actions" policies of the George H. W. Bush, Clinton, and George W. Bush Administrations. The Clinton Administration, however, never submitted the Kyoto Protocol to the Senate, and subsequently President George W. Bush rejected it outright. In lieu of the approach of the Kyoto Protocol, featuring binding commitments to reduce emissions by developed and transitional nations, President George W. Bush proposed a two-pronged approach: one to focus on further research and development to better characterize global climate change and its causes, the other to reduce the amount of greenhouse gases emitted per unit of economic activity through voluntary actions. In addition, on July 27, 2005, the Bush Administration announced formation of a six-nation Asia-Pacific Partnership on Clean Development and Climate (APP), with the goal of meeting "national pollution reduction, energy security and climate change concerns, consistent with the principles of the U.N. Framework Convention on Climate Change (UNFCCC)" through "a voluntary, non-legally binding framework for international cooperation." Additionally, in May, 2007, the President announced that the United States would convene a meeting of the world's "major economies" that are responsible for most greenhouse gas emissions. Held in September, 2007, the final statements of the "Major Economies Meeting on Energy Security and Climate Change" emphasized the need to integrate such meetings into the overall UNFCCC negotiations. The U.S. summary of the meeting focused on the "aspirational" nature of reduction goals, reflecting the Administration's rejection of mandatory reduction targets. A second meeting was held in January, 2008. Meanwhile, the Congress engaged in oversight and consideration of legislative initiatives. A bill addressing climate change, S. 2191 , reached the Senate floor in 2008, but after a series of parliamentary maneuvers, the Senate failed to invoke cloture. With the new Administration taking office in January 2009, changes in congressional membership, and new chairman of a key House committee, Energy and Commerce, new legislative initiatives are expected for the 111 th Congress. Because of the uncertainties associated with global climate change—the extent to which global climate change is occurring, what the effects might be and their magnitude, the economic and social consequences that would follow from actions to reduce emissions of greenhouse gases, the relationships between emissions and economic activity, the costs of actions or of taking no action, the time frame of impacts, etc.—each individual's perception of what, if anything, to do is strongly influenced by personal and community values; perceptions of human progress and adaptability; experience, education and training; and outlook in how to cope with risks and uncertainty. These differing perspectives of persons affect their observations and interpretations of the issue, influencing their decisions on whether policy interventions are necessary and, if so, what kinds of intervention. At the same time, personal perspectives can change; new knowledge, education, and/or moral suasion may impact on policymaking and individual and corporate behavior, and may also be necessary to create conditions for successfully implementing initiatives relating to climate change. The many personal proclivities and professional constructs that help shape an individual's perspectives on environmental issues in general, and global climate change in particular, can be grouped into three perspectives that affect proposed policies. These perspectives, which can intertwine and overlap, are: that environmental problems are the result of inappropriate or misused technologies, and that the solutions to the problems lie in improving or correcting technology; that environmental problems are the result of market failures, and that the solutions to the problems lie in ensuring that market decisions take into account all costs, including environmental damages; and that environmental problems result from a combination of ignorance of, indifference to, and even disregard for, the ecosystem on which human life ultimately depends, as well as for the other living creatures that share the planet; and that the solutions to environmental problems lie in developing an understanding of and a respect for that ecosystem and in providing mechanisms for people to express the priority they place on the environment in their daily choices. Each of these perspectives can be considered a "lens" through which individuals and policy communities view the issue—a lens that provides a particular focus on the nature of the problem and for the kinds of actions to solve it. For shorthand, they might be termed the technological lens , the economic lens , and the ecological lens , respectively. Each perspective and its associated policy approaches generally are sufficiently distinct that a dominating tendency in policy options can be discerned. As policy frameworks, these lenses incorporate terminology and methods associated with diverse academic disciplines and professions, including not only engineering, economics, and ecological sciences, but also various social sciences, jurisprudence, theology, and others. As policy frameworks, they should not be confused with any one academic discipline or profession; rather, they are perspectives on policymaking, on how to focus on a policy issue. While the lenses can be analyzed as distinct perspectives, most of the time for most people they represent predilections rather than conscious alternatives. The lenses differ primarily in what aspects of the issue come into focus, resulting in some being magnified, others obscured, or even distorted. The appropriateness of this focusing is dependent on the characteristics of the specific issue and the orientation of the policymaker. Thus, a policymaker viewing global climate change through one lens—say, the technological lens—is not necessarily disregarding economic or ecological factors, although these factors tend to lie outside, and may be less discernible, than the more clear focus on technological options. Ultimately, given the diversity of policymakers and the potential overlapping of viewpoints, any global climate policy considered will likely involve a mix of initiatives representing all of the perspectives. Such a mix may reflect mutual accommodation as much as conscious agreement that a combination of approaches better ensures progress toward mitigation goals. The purpose here is not to suggest that one lens is superior to another, but rather to articulate the differing perspectives in order to facilitate communication among different parties and interests. Viewed through the technological lens, an environmental problem is an "opportunity" for ingenuity, for a technical "fix." This technologically driven philosophy focuses on research, development, and demonstration of technologies that ameliorate or eliminate the problem. Many uncertainties can be ignored if technology is available to render them irrelevant (a presumption underlying the "pollution prevention" concept, for example). From this perspective, policy entails the development and commercialization of new technologies; government's role can include basic research, technical support, financial subsidies, economic mechanisms, or the imposition of requirements or standards that stimulate technological development and that create markets for such technologies. The relationship between environmental protection and technological development was recognized early in the environmental debates and policymaking of the 1960s and 1970s. Particularly in the area of mobile source pollution control, standards anticipated technological development to achieve emissions reductions—commonly called "technology-forcing." Although some in industry argued that this was not an efficient means of encouraging technology (particularly when the deadlines for compliance were short), the process undoubtedly stimulated development. Regulatory mandates can directly stimulate the commercialization of technology by creating market opportunities. These mandates can be performance-based (meet an emissions level), or technology-based (specify the performance of the technology used). For example, California and 14 other states have enacted legislation or regulations mandating that greenhouse gas emissions from new passenger vehicles be reduced by 22% in model year (MY) 2012 and 30% in MY2016. The degree to which these sorts of mandates have forced technologies has depended on the perceived seriousness of problems (resulting in accelerated time frames for development, and in very high levels of required performance), the ease of developing the needed technology, and the impact of anticipated costs on consumers. Along with the use of a regulatory approach to forcing technology, the federal government has also taken an active role in assisting private industry in developing pollution control technology. Some environmentally important industries did not have strong research and development sectors in the late 1960s and 1970s, or did not have ones that could easily be redirected toward pollution control. This led to governmentally directed research and developmental efforts toward pollution control technology. For example, the EPA spent approximately $2 billion supporting development of a feasible flue gas desulfurization (FGD) device for electric utility use to control sulfur oxides. At that time (late 1960s), the utility industry had no central research effort (the Electric Power Research Institute (EPRI) was not started until 1972), and individual utilities devoted their engineering efforts to improving mechanical efficiency of generation, not the chemical engineering necessary for desulfurization. Many utilities also were opposed to adding a chemical process on their plants, preferring other control techniques, such as tall stacks and low sulfur coal. The success of the Government's efforts is indicated by the fact that the FGD device is now the performance and reliability standard by which new, emerging control devices are measured. The federal government has also promoted the development of hybrid electric and fuel cell vehicles in the United States through joint government-industry research and development aimed at the introduction of high efficiency cars and trucks, as well as tax incentives for the purchase of new advanced technology vehicles. The technological lens reflects a traditional American "can-do" faith in technology, and in the country's ability to find a "technology-fix" to meet the needs of most problems. Such an approach attempts to increase the effectiveness of technology so that social problems can be solved at little or no additional cost. Consumers' desires and needs are taken as a given. The technological response is an effort to achieve an acceptable level of environmental protection without unduly restricting the choices available to those consumers. For example, consumers want to drive. Viewed through the technological lens, policymakers see their role as making that activity less environmentally harmful at minimal cost to consumers, not as restricting that desire or even necessarily as offering alternatives to driving such as mass transit. Efforts to diminish consumer use of the automobile would be seen as a last resort. The technological lens provides a view of the economy in which technology permits consumers to continue their preferred behaviors while concomitantly achieving environmental goals. It is not necessary for consumers to change their behavior significantly to adjust to the " new reality " of an environmental problem. Viewed through the technological lens, global climate change is seen as a problem requiring a reorientation of the energy sector from carbon-based fossil fuels to a more "environmentally friendly" energy system based on renewables and conservation. As stated by Worldwatch Institute: The end of the fossil fuel age is now in sight. As the world lurches from one energy crisis to another, fossil fuel dependence threatens at every turn to derail the global economy or disrupt its environmental support systems. If we are to ensure a healthy and prosperous world for future generations, only a few decades remain to redirect the energy economy. This view was reflected in a speech of President Clinton on April 21, 1993: the challenge of global climate change "must be a clarion call, not for more bureaucracy or regulation or unnecessary costs, but instead for American ingenuity and creativity, to produce the best and most energy-efficient technology." The focus on technology was evident in the Clinton Administration's 1993 Climate Change Action Plan: These [long-term] policies must address technologies of energy supply and use, and condition markets for the long-term transition away from activities, fuels, and technologies that generate large emissions of greenhouse gases. The policies contained in the Action Plan are directed primarily at creating effective markets for investments in existing or nearly commercially available technology that reduce greenhouse gas emissions. The core of a long term strategy must ensure that a constant stream of improved technology is available and that market conditions are favorable to their adoption. The Action Plan is likely to stimulate a modest acceleration in technological development.... Such gains will lay the foundation for the development of technologies that could contribute to significant reductions in greenhouse gas emissions in both the United States and abroad.... Research and development into the technologies that could contribute to greenhouse gas emission reductions will be a critical part of the long term effort. These views were reiterated in President Clinton's 1998 $6 billion Climate Change Technology Initiative. As stated by then National Economic Council Chair Gene Sperling: We think that this [Climate Change Initiative] package is a very good example of what we spoke about when we said that there were win-win opportunities for positive incentives that would clearly show how we can address the issue of climate change and strengthen our economy at the same time. This "win-win" perspective on climate change policy also represented the core of the George W. Bush Administration's approach. The President stated that his alternative could "grow our economy and, at the same time, through technologies, improve our environment." In supporting his new National Climate Change Technology Initiative, he stated: America's the leader in technology and innovation. We all believe technology offers great promise to significantly reduce emissions—especially carbon capture, storage and sequestration technologies. So we're creating the National Climate Change Technology Initiative to strengthen research at universities and national labs, to enhance partnerships in applied research, to develop improved technology for measuring and monitoring gross and net greenhouse gas emissions, and to fund demonstration projects for cutting-edge technologies, such as bioreactors and fuel cells. This technology focus also is the central element of the Asia-Pacific Partnership: "to facilitate the development, diffusion, deployment, and transfer of existing, emerging and longer term cost-effective, cleaner, more efficient technologies and practices among the Partners through concrete and substantial cooperation so as to achieve practical results." Looking through the technological lens, policymakers may see technological development as cost-effective, thus improving the economy, not penalizing it. This "win-win" perspective appeared clearly in the George W. Bush Administration's 2002 Climate Action Report : "President [George W.] Bush said last year [2001] that technology offers great promise to significantly and cost-effectively reduce emissions in the long term. Our national circumstances—our prosperity and our diversity—may shape our response to climate change, but our commitment to invest in innovative technologies and research will ensure the success of our response." According to proponents, the cost of a technological approach to the climate change issue appears to net out to zero, or even to save money, depending on how the benefits from increased efficiency are estimated. The technological lens tends to focus cost-benefit analysis on a "bottom-up" methodology that evaluates the relative costs of projected compliance techniques. As summarized by National Academy of Sciences, "technological costing develops estimates on the basis of a variety of assumptions about the technical aspects, together with estimates—often no more than guesses—of the costs of implementing the required technology." Assumptions are technological, in terms of technological performance; economic, in terms of cost-effectiveness; and behavioral, in terms of penetration rates. In the year 2000, DOE's five National Laboratories—Oak Ridge, Lawrence Berkeley, Argonne, National Renewable Energy, and Pacific Northwest—estimated the benefits of a technological approach for reducing carbon emissions. The five laboratories analyzed scenarios for technologies to reduce carbon emissions in a cost-effective manner (see Table 1 ). In discussing their results, the National Laboratories concluded: In both the Moderate and Advanced scenarios and in both timeframes (2010 and 2020), the estimated annual energy bill savings exceed the sum of the annualized policy implementation costs and the incremental technology investments. This finding is consistent with many economic-engineering studies and with the views of many economists. Such a conclusion raises the question: "If technological fixes such as enhanced energy efficiency could actually save money, why aren't people voluntarily doing it now?" One possible answer is that the projections are wrong: the technological fixes are mirages, and the market has correctly ignored them. An alternative answer, the one focused on by the technology lens, is that widespread commercialization of these technologies is blocked by technological, economic, or institutional barriers. For example, a barrier might be that the initial cost of an energy efficient appliance is higher than a lower efficiency alternative, even though the lifetime cost is less; this can be a barrier to a purchaser who is not aware of the comparative life time costs and/or who cannot afford the upfront cost despite the long-term savings. An activist viewing the problem through the technology lens would look to methods for overcoming that barrier, such as providing information on lifetime costs and/or financial help. Technology proponents tend to look favorably on governmental assistance in overcoming such barriers. This assistance can include public sector research, development, and demonstration efforts; incentives to private enterprise through direct funding, beneficial tax treatment for research expenditures, and cost-sharing programs to help overcome technical barriers and to improve the conditions for commercialization; governmental subsidies to technology; regulatory interventions that create markets for new technologies; and regulations to address institutional and market barriers, such as energy efficiency labeling requirements. Some of these incentives (e.g., hybrid and fuel cell vehicles tax credits) were enacted as part of the Energy Policy Act of 2005, and increased energy-related research and development funding was authorized by the Energy Independence and Security Act of 2007. A key issue in low-carbon technological development has been volatile energy prices: while high energy prices create investment opportunities in new technologies (e.g., solar and wind generation of electricity, alternative fuels for autos), low prices diminish the attractiveness of those investment options. As discussed in the next section, a carbon tax or cap-and-trade program could create a more positive long-term investment climate for energy alternatives by establishing a predictable floor for prices of high-carbon energy sources. The technology lens focuses attention on two basic issues: what drives technological development, and what barriers impede it. From this perspective, government can help stimulate the former and help remove the latter. For those who envision technological fixes that can achieve environmental goals with minimal economic costs, governmental intervention may be a necessary antidote to market failures and unnecessary barriers. But even for those who would rely primarily on markets and minimize the role of government, the technological perspective is considered optimistic, dynamic, and oriented toward the future. Viewing environmental issues through an economic lens focuses attention on markets, price signals, and market imperfections. In this view, the recognition of environmental problems should lead to adjustments in market signals, changing producers' inputs and handling of wastes, as well as the composition and level of consumer demand, so as to maximize net social welfare. Cleaning the environment entails costs, which can be weighed against benefits. The government's role in this scenario is to ensure the correct market signals. To ensure correct signals, the government can: make consumers and producers aware of information on economic costs and benefits; adjust prices through taxes or fees; and affect supply through tradeable permits for products (as with leaded gasoline in the early 1980s) or for production-related emissions (as with sulfur dioxide emissions), or through other market-oriented devices. Viewed through the economic lens, the marketplace, with the correct signals, can operate to find the optimal solution. Economic considerations have been an explicit or implicit part of environmental policymaking since environmental quality became a federal issue in the 1960s. The use of economic mechanisms to implement environmental goals was debated in the 1960s and early 1970s, but usually rejected on various grounds. Excluding economic considerations from environmental protection proved difficult, however. As laws began to be implemented, economic costs became increasingly consequential, although generally masked under "practical" or "feasibility" concerns, as achievement of some environmental standards within specified deadlines proved impossible. Automobile standards were delayed; ozone compliance was postponed; and other issues were litigated. Economic concepts began to re-emerge in the debate over the environment with the need to extend deadlines and to provide more flexibility to polluters to achieve mandated standards. The preferred economic approach to environmental problems traditionally is the pollution tax. Economists observe that pollution imposes costs on society that are not incorporated in the price of the goods or services responsible for the pollution; these are called "external" costs. An ideal pollution tax "internalizes" these external costs by making the beneficiary of the polluting activity pay for the socially borne costs (polluter pays). As long as polluters find it cost-effective to reduce their emissions to avoid paying the tax, they would add pollution controls until further controls would have higher incremental costs than the tax. Likewise, innovators would be encouraged to develop new technology that reduce emissions at a cost less than the pollution tax. When the tax is set at the level at which the marginal costs of more control would equal the marginal benefits society gains by future reductions, society's net welfare is maximized. Despite the theoretical benefits of the pollution tax methodology, environmental taxes have received limited practical use in the United States, for technical as well as political reasons. There are no existing U.S. models of an emissions tax, although five European countries (Finland, the Netherlands, Sweden, Denmark, and Norway) have carbon-based taxes. The closest U.S. example is a tax on chemicals that deplete stratospheric ozone. With the economists' favor for pollution taxes not gaining policymakers' adherence, attention shifted to other economic mechanisms to increase polluters' flexibility in achieving environmental standards based upon regulation. Unlike a tax that focuses on the price (demand) for a pollutant, these mechanisms focus on the quantity (supply) of the pollutant permitted. The tradeable allowance system for sulfur dioxide control in the acid rain program (Title IV of the Clean Air Act Amendments of 1990) represented a significant step in the evolution of economic mechanisms. Commonly called a "cap- and-trade" system, the acid rain control program's success has led to calls for use of a similar system with other pollutants, including carbon dioxide. A cap-and-trade program like Title IV's is based on two premises. First, a set amount of a pollutant, such as SO 2 , emitted by human activities can be assimilated by the ecological system without undue harm. Thus the goal of the program is to put a ceiling, or cap, on the total emissions of the pollutant rather than limit ambient concentrations. Second, a market in pollution rights between polluters is the most cost-effective means of achieving a given reduction. This market in pollution rights (or allowances, each of which in the acid rain program is equal to one ton of SO 2 ) is designed so that owners of allowances can trade those allowances with other emitters who need them or retain (bank) them for future use or sale. Thus the allowance has value and hence becomes, in effect, the price of emitting sulfur. While market-based mechanisms such as cap and trade are sometimes regarded as the private market's alternative to a regulatory command-and-control program, the interactions are more complex. The so-called "market for pollution rights" would not exist if not for a governmental role in altering what the market would do in the absence of governmental action. If governmental regulations did not restrict SO 2 emissions, there would be no need for SO 2 allowances. Government creates the market and defines the boundaries of acceptable market responses. Under the SO 2 trading program, facilities may buy allowances to meet necessary reductions instead of installing equipment to control pollution. The choice depends on cost. By allowing polluters to choose their lowest cost abatement actions, implementing environmental goals through market mechanisms represents a general elevation of economic "efficiency" as the sine qua non of decision-making. Pragmatically achieving this efficiency presumes substantially complete knowledge by producers and consumers of costs, abatement alternatives, and product substitutions as well as substantial flexibility in achieving compliance. The market approach simultaneously maintains the general principle of "polluter pays" as the underlying ethical rationale for the distribution of costs among parties. Through the market, the "polluter who pays" includes not only the producer, but also labor, stockholders, and the consumer (who demands the product and who pays somewhat more for the embedded costs to control pollution). Those viewing environmental policy through the economic lens generally presume that governmental interference, whether through subsidies or regulation, should be minimal. In reality, the distribution of impacts through the market often leads to calls for political interventions that compromise efficiency and the "polluter pays" principle. The political process tends to weigh relevant differences between various groups affected by an environmental mandate, and special treatment may be deemed necessary to promote justice or fairness. For example, the sulfur dioxide allowance system contains numerous "special" allocations of allowances to various groups that argued for special consideration due to past, current, or future situations. These special allocations represent subsidies to these groups that a strict "polluter-pays" principle would not allow. Thus the "polluter-pays" principle is not a distributional principle that policymakers will necessarily treat independently of other concerns and criteria. The economic lens reflects a traditional American belief in individual choice and private markets—given the correct price signals, producers and consumers will adjust their behavior accordingly. This adjustment will be done in the most cost-efficient manner, and with a minimum of governmental involvement. Consumers' desires are seen as responsive to price. The issue then is for the price to reflect the costs of relevant externalities. With the right price, supply and demand will find the level that maximizes social welfare. Policymakers using the economic lens see consumers and producers adjusting their behaviors to the " new reality " of an environmental problem by responding to the price signals that take into account a particular environmental goal. But this approach creates clear winners and losers in terms of who will profit and who will pay the tab. As a result, policymakers adjust governmental intervention to achieve change at a pace and impact that are socially and politically acceptable. The economic lens focuses policymakers on market-based approaches to address global climate change; these include marketable permit (allowance) programs and various taxes, fees, and rebates, as well as research and development, education, and market-related information. Current proposals for controlling carbon dioxide and other greenhouse gas emissions center on either marketable permits programs (loosely based on the current sulfur dioxide program) or on a carbon tax. Meanwhile, the members of the European Union, in addressing their obligations under the Kyoto Protocol, have established a CO 2 trading program that covers about half their total CO 2 emissions. In addition, Finland, the Netherlands, Sweden, Denmark, and Norway have imposed carbon taxes. Debate in the United States about implementing carbon reductions has focused on tradeable permits, as manifested by numerous bills introduced in the U.S. Congress (e.g., S. 2191 in the 110 th Congress)—though occasionally a voice for carbon taxes is heard. The inclusion of domestic and international emissions trading systems and international joint implementation programs to implement any emission reduction requirements were a key element of the Clinton Administration's negotiating position at Kyoto. While rejecting the Kyoto Protocol, the George W. Bush Administration's Climate Change Initiative acknowledged the potential use for trading programs to address climate change. The Initiative directed the Secretary of Energy to recommend ways to ensure that entities that register reductions under current voluntary initiatives were not penalized under a future climate policy, and to give transferable credits to companies that achieve real reductions. In addition, the Administration stated: "If, in 2012, we find that we are not on track toward meeting our goal, and sound science justifies further policy action, the United States will respond with additional measures that may include a broad, market-based program...." Numerous bills have been introduced in Congress to mandate substantial reductions in CO 2 emissions implemented through a nationwide tradeable permit program, and twice the Senate has voted on proposals. In the 108 th Congress, S. 139 , which would have imposed a mandatory cap-and-trade greenhouse gas reduction program, failed in 2003 on a 43-55 vote. In 2005, a similar initiative was considered as an amendment during the Senate debate on the Energy Policy Act of 2005 and defeated on a 38-60 vote. These proposals would have capped U.S. greenhouse gas emissions, with the cap being implemented through a tradeable permit program to encourage efficient reductions. Although these initiatives failed, 13 Senators introduced S.Amdt. 866 during the debate on the Energy Policy Act of 2005; it stated that it is the Sense of the Senate that the Congress should enact a comprehensive and effective national program of mandatory, market-based limits and incentives on greenhouse gases that slow, stop, and reverse the growth of such emissions. The resolution passed by voice vote after a motion to table it failed on a 43-54 vote. Subsequently, in the 110 th Congress, the Environment and Public Works Committee approved S. 2191 , to establish a cap-and-trade system for greenhouse gas emissions, as amended, on December 5, 2007, by a vote of 11-8. The bill was reported ( S.Rept. 110-337 ) May 20, 2008, and Senate debate on a modified version of the bill ( S. 3036 ) began June 2. A motion to invoke cloture failed, however, June 6, on a vote of 48-36. The generally acclaimed success of the sulfur dioxide program notwithstanding, it may not translate easily to a marketable permit program for carbon dioxide. Fundamental differences exist: for example, the acid rain program involves over 2,000 new and existing electric generating facilities that contribute two-thirds of the country's sulfur dioxide and one-third of its nitrogen oxide emissions (the two primary precursors of acid rain). This concentration of sources makes the logistics of allowance trading administratively manageable and enforceable. However, carbon dioxide emission sources are not so concentrated. Although over 95% of the CO 2 generated from human activities comes from fossil fuel combustion, only about 40% comes from generating electricity. Transportation accounts for about 33%, direct residential and commercial use for about 12%, and direct industrial use for about 15%. Small dispersed sources in transportation, residential/commercial, and the industrial sectors are far more important in controlling CO 2 emissions than they are in controlling SO 2 emissions. This would create significant problems in administering and enforcing a tradeable permit program that attempts to be comprehensive or equitable. These concerns multiply as the global nature of the climate change issue is considered, along with other potential greenhouse gases, such as methane and nitrous oxide. In the view of most economists, a carbon tax would be the most efficient approach to controlling CO 2 emissions. The approach is generally conceived as a levy on natural gas, petroleum, and coal according to their carbon content, in the approximate ratio of 0.6 to 0.8 to 1.0, respectively. With the millions of emitters involved in controlling CO 2 , the advantages of a tax are self-evident. Imposed on an input basis, administrative burdens such as stack monitoring to determine compliance would be reduced. Also, a carbon tax would have the broad effect across the economy that some feel is necessary to achieve long-term reductions in emissions. In other ways, a tax system merely changes the forum, rather than the substance of the policy debate. Because paying an emissions tax becomes an alternative to controlling emissions, the debate over the amount of reductions necessarily becomes a debate over the level of tax imposed. Those wanting large reductions quickly would want a high tax imposed over a short period of time. Those more concerned with the potential economic burden of a carbon tax would want a low tax imposed at a later time with possible exceptions for various events. Taxing emissions basically would remain an implementation strategy; policy determinations such as tax levels would require political/regulatory decisions. Also, a tax would raise revenues; the disposition of these revenues would significantly affect the economic and distributional impacts of the tax. The difficulties in crafting a carbon tax or a multi-national trading program should not be underestimated. With the 1997 Kyoto Protocol now in force, many countries that ratified the protocol have developed appropriate implementation strategies to begin reducing their emissions of greenhouse gases. In particular, the European Union (EU) decided to establish an emission trading scheme as a cornerstone of its efforts to meet its obligation under the Kyoto Protocol. In deciding on this scheme, the European Commission (EC) adopted an initial "learning-by doing" trial period (2005-2007) to prepare the EU for Kyoto Protocol's emissions limitations that began in 2008. This first phase of the program had a series of problems, including over-allocation of allowances, thin trading volumes, and other issues that resulted in a very volatile market. From a high of about 30 euro per allowance in 2005, the allowance price dropped to less than 1 euro by mid-2007. The 2008-2012 Kyoto compliance phase of the European Trading System has been adjusted to address some of the problems identified in the first phase, resulting in a more stable and mature market system. More improvements are planned for the next phase beginning in 2013. The choice between a tradeable permit approach and a tax approach depends in part on one's sensitivity to the uncertainty in the benefits of reductions in greenhouse gases versus the uncertainty in the costs of the program. Those confident of the benefits to be received from reducing greenhouse gases tend to focus on the quantity of pollutants emitted and to argue for a specific, mandated emission level. For example, the Kyoto agreement mandates a specific allowable emission level based on a historical baseline (1990/1995, depending on the gas) for a specific compliance period (2008-2012). While a ceiling is placed on emissions, no ceiling is placed on control costs. Implementing such a reduction program through a market-based scheme, such as a tradeable permit program, would probably assure that the costs would be dealt with efficiently through the marketplace; however, those costs are not capped. This is the approach used under the current SO 2 control program. After a decade, results indicate that control costs under the SO 2 program are considerably less than they would have been under an alternative "command and control" scheme. However, there is no lid on the costs, which may rise in the future as growth in electricity generation pushes against the cap on emissions. Alternatively, a tax in effect places a ceiling on control costs, although the actual reductions achieved are subject to some uncertainty. For example, if a carbon tax of $100 a ton were levied, no polluter would pay more than $100 a ton to reduce carbon emissions. Thus, under worst-case conditions, the program costs would be $100 a ton. However, the actual reductions that such a tax might achieve would have to be estimated, based on economic simulations or actual monitoring. Reductions would not be guaranteed as any polluter could choose to pay the tax rather than to reduce emissions. Reductions could also vary over time as new technology or other events raise or lower the cost of reducing emissions. A carbon tax or tradeable permit program would affect economic behavior in at least three ways: (1) effectively reduce real income through higher prices and therefore reduce overall consumption of goods (particularly in the short-term); (2) encourage manufacturers and consumers to substitute less carbon-intensive (or carbon free) energy sources for current carbon-intensive (i.e., fossil fuel) energy sources; and (3) encourage research and development of innovative, less carbon intensive or more energy efficient technologies and their penetration into the marketplace. The ability and efficiency of the economy in making these adjustments over a specified period of time would largely determine the impact of a market-induced rise in the costs of energy generated from fossil fuels either through a carbon tax or a marketable permit program. Depending on the reduction achieved and the model employed, annual gross domestic product (GDP) losses resulting from carbon control are estimated to range from less than 1% to more than 4%, with most falling into a range of 1% to 3%. If a carbon tax were chosen, that tax would generate revenues—revenues sufficiently large to affect aggregate consumer demand. It is the contractionary pressure of these tax revenues that the Congressional Budget Office (CBO) cites as the major reason for a projected loss of 2% in U.S. GDP from a $100 per ton carbon tax phased in over 10 years. The disposition of those tax revenues would greatly affect the impact of the carbon tax on the economy. Thus the impact of a carbon tax on the economy would depend on a combination of policies beyond just the level of the tax. The tax level necessary to achieve a given reduction is also subject to a wide range of estimates. The Stanford Energy Modeling Forum compared 13 models under a series of control scenarios with common assumptions (where possible), including one that would have stabilized carbon emissions at 1990 levels by the year 2000. About half of the models studied estimated the carbon tax necessary to meet the stabilization target in the year 2000 to be about $30 per ton or less, while the other half estimated the necessary carbon tax to be about $100 or more. Further studies by the Stanford Energy Modeling Forum on the cost to comply with the Kyoto Protocol, and on the global compliance cost of various stabilization scenarios, resulted in a similarly wide range of estimated tax levels. Because the problem of greenhouse gas emissions is seen in terms of internalizing a currently external cost, the economic lens implies that the marketplace is the most efficient means of controlling undesirable pollutants. The private sector can solve the problem if given sufficient incentive with minimal governmental interference. The Government's role primarily consists of providing a market-based signal to private industry about the external cost (e.g., emission taxes, tradeable permits, etc.). In reality, the Government's role is more involved. For taxes, this includes determining the tax level, any phasing-in period, escalation, and recycling of revenues received. For permits, this includes the total numbers of permits allowed, initial allocation formulas, any phasing in period, penalties, transaction procedures, and tax liability. While an economic approach would supplement the policy process in implementing a greenhouse gas reduction program, it would not be a substitute for basic policy decisions and oversight. A limited or supporting governmental role is consistent with the overall perspective of the economic lens: private initiative, economic cost-effectiveness, concern about impact of environmental policy on economic policy, cost aversion, and reliance on market forces. The development of environmental protection as a national policy concern has reflected three factors: (1) the development of an environmental consciousness among the electorate, (2) a change in the climate of decision-making among individuals, businesses, and government at all levels, (3) the availability of opportunities to make concrete decisions based on environmental grounds (either in addition to or in opposition to other criteria, including economic ones). The underlying basis of an environmental consciousness is an understanding of the interconnectedness of the planet's biological processes, and a recognition that changes caused by humans may have ecological effects beyond those intended or foreseen. From this perspective, it is in humanity's self-interest (as well as in the interests of non-human life) to protect the basic biological processes that are the foundation of all life; humans can protect those processes by being conscious of humanity's environmental impact and by avoiding or mitigating that impact to the greatest extent necessary (accepting that some impact is unavoidable, and that ecological science has a crucial role in discovering the effects of human activities). A seminal characterization of the ecological perspective is A Sand County Almanac , by Aldo Leopold. He suggested that humankind has developed two ethical dimensions—the first dealing with the relation between individuals and the second with the relation between the individual and society. But, said Leopold: There is as yet no ethic dealing with man's relation to land and to the animals and plants which grow upon it.... The extension of ethics to this third element in human environment is, if I read the evidence correctly, an evolutionary possibility and an ecological necessity. Describing the need for an "ecological conscience," Leopold concluded that the environmental problem "is one of attitudes and implements"; the development of a "land ethic" requires "an internal change in our intellectual emphasis, loyalties, affections, and convictions." The challenge of the ecological approach was given global scope by the "Brundtland Report" of the World Commission on Environment and Development. Articulating the goal of "sustainable development," its forward described the challenge this way: If we do not succeed in putting our message of urgency through to today's parents and decision makers, we risk undermining our children's fundamental right to a healthy, life-enhancing environment. Unless we are able to translate our words into a language that can reach the minds and hearts of people young and old, we shall not be able to undertake the extensive social changes needed to correct the course of development. .... We call for a common endeavor and for new norms of behavior at all levels and in the interests of all. The changes in attitudes, in social values, and in aspirations that the report urges will depend on vast campaigns of education, debate, and public participation. The idea of "sustainable development" suggests future generations should enjoy the same opportunities for meaningful and fulfilling lives as the current generation. A sustainable society has been defined as "one that satisfies its needs without jeopardizing the prospects of future generations." The concept thus serves as an umbrella to encourage development of renewable resources and conservation of non-renewable resources. The emergence of the ecological perspective (or the "land ethic" or "sustainable development") is manifest in new values and practices of individuals, businesses, and Government. Within the federal government, the National Environmental Policy Act of 1969 represented a watershed in establishing the principle that major federal decisions should publically disclose and take into account environmental impacts. Originally resisted by many agencies, the idea of assessing the environmental consequences of decisions through "Environmental Impact Statements" has now become routine. Also, over the past two decades, the federal government has taken steps to foster public awareness of environmental values through support for environmental education. In addition, the federal government has used procurement policies to support environmental goals; for example, by requiring purchases of paper of specified recycling content and authorizing payment of a premium for it, and has revised statutes to make federal facilities subject to these requirements. The change in societal values resulting from an increased ecological consciousness also affects the perspectives of corporate decision-makers. Despite the often confrontational relationship between federal environmental policymakers and industry, a consequence often attributable to the command-and-control regulatory approach to environmental policy, industry itself has increasingly recognized that community environmental values are part of the social milieu in which industrial production occurs. A 1994 article in the chemical industry publication Chemical Week reviewed the industry's perceptions of pollution control. It noted that, in the early 1970s, most corporations viewed environmental management as a "threat" and that pollution control expenditures were "nonrecoverable investments." The article observed that, in 1970, "economist Milton Friedman described the actions of any company making pollution control expenditures beyond that 'required by law in order to contribute to the social objective of improving the environment' as 'pure and unadulterated socialism'." In contrast, the article said that major corporations currently are espousing the benefits of proactive environmental management, stewardship, and environmental leadership. The chemical industry, which was suffering from poor public perceptions, particularly after the Bhopal incident, was at the forefront of this shift, as indicated by remarks of Robert Luft, Senior Vice President of Du Pont Chemicals: "Our continued existence requires that we excel in safety and environmental performance.... We must shift our mindset from 'meeting regulations' to 'meeting public expectations'." This new attitude, or climate, of decision-making is providing many businesses and individuals with new alternatives and opportunities to choose environmentally preferred options either in concert with more traditionally based economic criteria or in opposition to such "self-interest"-based criteria. For example, the chemical industry today sponsors an international "Responsible Care" campaign ; and prodded by environmental groups and EPA, the American Chemistry Council (ACC) has committed the industry to testing of high-use chemicals. An independent but related ACC initiative is the Green Chemistry Institute, a nonprofit organization with the mission of promoting pollution prevention using "economically sustainable clean production technologies." In addition, EPA and the American Chemical Society jointly sponsor annual "Green Chemistry Challenge Awards" to recognize pollution prevention through innovative chemistry; the first Green Chemistry Award was presented in 1996. Individuals, as consumers and citizens, are also exercising options to express an environmental consciousness that extends beyond immediate economic self-interest. Consumers' responses to such environmental problems as solid waste disposal indicate that individual behavior and community programs can and will reflect environmental values. For example, recycling programs have increased in recent years, despite questionable economics and the significant consumer inconveniences involved. Such a trend suggests the power of aesthetics and the perceived intrinsic value of the environment as a force which influences people's preferences and priorities. Likewise, driven by public demand, several states offer electricity consumers the opportunity to purchase "green power" (i.e., electricity produced from renewable energy and other low-polluting sources), rather than power produced from conventional, more polluting sources. The ecological lens magnifies elements that are psychological, philosophical, and theological. A policy decision to address a pollution problem generally involves a sophisticated and sometimes lengthy educational process of which economics and technological availability are only components. In this view, environmental education, Smokey the Bear, and environmental interest groups from the Audubon Society to Greenpeace to Population Connection represent efforts to inculcate the sense of moral obligation toward the environment—to acculturate people to the importance of the environment as essential to long-term human health and welfare. Such efforts can promote a climate of opinion in which environmentally responsible decisions are socially endorsed and environmentally irresponsible decisions are stigmatized as not socially acceptable. Pollution protection gets on the national agenda not on the basis of affordability or whether control technology exists, but because an environmental problem is recognized as a threat to human health or welfare. The ecological approach views the problem of environmental policy implementation to be the moral education of individuals and institutions to the dimensions of the ecological crisis, changing the climate in which decisions are made, and providing opportunities for individuals and institutions to make decisions based on ecological concerns, rather than having those choices limited to alternatives dictated solely by economic criteria. One could argue that global climate change is the quintessential issue for an ecological lens, as it so clearly involves far-reaching dimensions including the standing of future generations, non-human life, and distributional justice around the globe. The ecological lens provides a decision criterion in the face of uncertainty or of competing preferences. Aldo Leopold observed that the land ethic "may be regarded as a mode of guidance for meeting ecological situations so new or intricate, or involving such deferred reactions, that the path of social expediency is not discernible to the average individual." No situation is better described as "so new and intricate" or as having "such deferred reactions" than global climate change. An ecological perspective on global climate change focuses attention on an enlightened public to implement stewardship through a changed value system. Numerous international and domestic entities are supporting activities to foster governmental, corporate, and public awareness of the global climate change issue and to encourage remedial actions. (Other entities provide "neutral" information and analysis on the issue, and still others actively lobby against the viewpoint that action is justified at this time.) These organizations support activities that translate into concrete actions through a variety of mechanisms, including voluntary programs for businesses and alternative "green" options that allow for individual consumers to make ecologically responsible decisions even when they cost more than do traditional choices. The current umbrella for activities to foster action is the U.N. Framework Convention on Climate Change, under which a range of activities, from research and development to education, are sponsored. Manifesting the ecological perspective, the Framework Convention defines the signatories' objective to be the protection of ecosystems from "dangerous anthropogenic interference with the climate system ... to allow ecosystems to adapt naturally to climate change, to ensure that food production is not threatened and to enable economic development to proceed in a sustainable manner." Economic and human concerns are seen as interdependent with ecological processes. The potential policy agenda could include virtually all human endeavors and relationships, from industrial policy to North-South equity, from population policy to energy policy, from domestic concerns to the restructuring of international institutions. From the ecological perspective, achieving such a broad policy agenda would require an active federal governmental role that involves educating the citizenry about the need to act on the risk of global climate change, providing the public with a role model in terms of government's own decisions and priorities, and developing opportunities for individuals to make ecologically responsible decisions even if those decisions are not economic in a traditional sense. The federal role has included four kinds of activities that reflect environmental stewardship. First, making decisions that take into account potential consequences for global climate change and taking actions that support and promote environmentally "friendly" products or processes (for example, through procurement policies or through product labeling). Second, internationally exploring the possibilities of achieving consensus on further greenhouse gas emissions reductions and on inter-related economic and human issues. Third, supporting education of the public on environmental concerns generally and about global climate change specifically, and fostering the inculcation of environmental values in educational programs. Fourth, fostering mechanisms that permit the public to express their environmental values in everyday decision-making. Similar activities are being promoted through various corporate and nonprofit initiatives, as well. For example, a 1998 corporate initiative under the auspices of The Pew Center On Global Climate Change was created to engage business in developing efficient, effective solutions to the climate problem. Accepting "the views of most scientists that enough is known about the science and environmental impacts of climate change for us to take actions to address its consequences," the Center believes "businesses can and should take concrete steps now in the U.S. and abroad to assess their opportunities for emission reductions, establish and meet their emission reduction objectives, and invest in new, more efficient products, practices and technologies." Besides this commitment to stewardship, "major companies and other organizations are working together through the Center to educate the public on the risks, challenges and solutions to climate change"; undertaking "studies and policy analyses that will add new facts and perspectives to the climate change debate in key areas such as economic and environmental impacts, and equity issues"; and engaging in an international effort designed to increase the global understanding of market mechanisms, and to work with developing countries to assess emission reduction opportunities." The ecological perspective emerges from individual actions both in terms of support for educational endeavors—as in support for environmental interest groups—as well as through market choices based on ecological impacts rather than on pure economic costs. Indeed, these actions can go against prevailing economic or technological trends. For example, people may choose to pay more for a product or a service because it is perceived as being more "green" or "climate friendly" than alternatives based on traditional economic or technological considerations. In a sense, customer preferences can outrun the marketplace by creating a demand for a product that producers did not anticipate. In such cases, economic and technological mechanisms follow the ecological imperative, rather than defining limits to it. As noted earlier, some states now offer consumers a "green electricity" alternative to conventionally produced electricity in response to consumer demand. Many actions to reduce emissions of greenhouse gases can serve multiple social ends—such as energy conservation and pollution prevention that are thought to improve the economic efficiency with which human needs are met. Governments and corporations have taken a lead in fostering energy conservation and efficiency in use, particularly in developed countries. In the U.S., EPA and DOE sponsor a range of energy efficiency programs under the rubric, "Energy Star," to promote energy-efficient lighting, buildings, and office equipment. DOE funds research and demonstration, pursuing energy efficiency in transportation, industry, utility, and buildings sectors. There is also an Alliance to Save Energy, a nonprofit coalition of prominent business, government, environmental, and consumer leaders who promote the efficient and clean use of energy worldwide, arguing benefits for the environment, the economy, and national security. While technological in thrust, these EPA and DOE activities involve educating and informing prospective consumers to persuade them not only of potential cost savings but also of social benefits to be gained. Thus technology (and markets) can be the tool for meeting the "moral imperative" associated with by the ecological perspective. Internationally, the George W. Bush Administration's Asia-Pacific Partnership on Clean Development and Climate has parallels. It involves encouraging the partners, including the developing China, India, and South Korea, to adopt more sustainable environmental policies, especially in using energy sources and technologies that constrain greenhouse gas emissions. Similarly, government and corporate initiatives for pollution prevention, through, for example, source reduction and product stewardship, foster systemic changes that have the potential to reduce global climate change risks. EPA estimates that its WasteWise program—a voluntary partnership between EPA and businesses to prevent waste, recycle, and buy and manufacture products with recycled materials—reduced greenhouse gas emissions by more than 22.1 million metric tons of carbon dioxide equivalent in 2007. Thus, from the ecological perspective, with a public more aware of the problem of global climate change and with the availability of relevant technological and/or economic alternatives, the implementation of the broader agenda through appropriate measures becomes possible: making available options that permit people to exercise their moral obligation. Each of the three lenses implies fundamentally different ways of assessing policy actions to address global climate change. Crucial variations emerge in perspectives on cost analysis, scientific uncertainty, and the role of government. The technological lens focuses attention on the outcome of the innovation; actions are justified if they resolve the pollution problem, and costs and benefits should be weighed in terms of the outcome, not in terms of the transitional costs. In contrast, those viewing the issue through the economic lens tend to focus on costs and benefits as the critical metric for evaluating policies; actions are justified when the benefits outweigh the costs, but not otherwise. The ecological perspective basically suggests that policy choices can be based on a recognition of "rights" rather than costs and benefits; the principles of protecting life and of preserving the ecosystem for future generations govern choices. These differing viewpoints have implications for the timing and focus of invested resources. Looking through the technological lens, a policymaker would focus on investing resources directly in technical options. Some investment in understanding the problem may be necessary to delineate technical options, but new technologies may make extensive research in understanding the problem moot (as when a process change eliminates use of a chemical of concern). Looking through the economic lens, a policymaker would typically first invest resources in understanding the problem and the costs and benefits of alternatives. That assessment would reveal whether society would be better off adopting policies and committing resources to action (e.g., to reduce carbon dioxide emissions). Looking through the ecological lens, a policymaker who perceives a risk to health and/or ecological systems would tend to promote immediate action. Investments in understanding the problem and the costs and benefits would be undertaken only to the extent appropriate to ensure cost-effectiveness of those actions. Because the ecological lens portrays benefits largely in non-economic terms (sustainability, equity), efforts to quantify and monetize those benefits may be viewed as inappropriate—even immoral. Instead, people are provided with alternatives to act on the problem, allowing them to choose a "responsible" option, even if it costs more than a traditionally defined "economic" option. Those using the technological lens see it as a "far-sighted," economically justifiable approach to global climate change. Technology is seen as the impetus for improved efficiency in the economy, concomitant with improved environmental protection. Although the development of technology may be encouraged for a variety of reasons, its commercialization is ultimately based on cost-effectiveness. In terms of the substance of the environmental issue, the user of the technological lens is typically agnostic or indifferent. The current economic system is viewed as inefficient since it does not consider decisions on a "life-cycle" basis. When considered on this broader perspective, reductions in carbon emissions may be possible at no net costs to the economy—even at net savings. Under the technological lens, the parameters of cost analysis change. Concepts like "life-cycle" costs are pivotal in making the cost-effectiveness case for new technology. Existing barriers (institutional or financial) to the rapid and widespread commercialization of new technologies are seen as artificial constraints to be overcome by government and individuals. Ultimately, the development of new technologies can create new industries and new jobs, changing the economic baseline. The focus of analysis is on cost-effectiveness of solutions, not so much on the benefits of the policy. The view through the economic lens fits the global climate change issue within the boundary of market economics. The motivations of people in reducing pollution is unimportant; the critical assumption is that people will act in their own self-interest as dictated by price signals. The global climate change issue becomes another consideration in setting prices—an externality that needs to be internalized. If that price increment does not result in significant reductions, it is because none is economically justified. Under the economic lens, the potential impacts of controlling greenhouse gases on the economy versus expected benefits is a central variable in determining the degree and time frame of reductions. Economic efficiency is the primary criterion for assessing emission reduction programs. Any existing inefficiencies in the economic system are assumed to reflect market reality and to be difficult to eliminate (and eliminating them may be undesirable). Uncertainty about the potential benefits is understood to be a factor in determining the stringency of any reduction program and a potential reason for stretching out compliance. For this lens, cost-benefit analysis is very important in assessing potential control programs. To the extent that new technologies are projected to be cost-effective and to overcome any existing market barriers or distortions, they are included in the cost-benefit analysis as viable alternatives to existing control options. Those looking through the ecological lens are suspicious of attempts to measure the economic effects of global climate change options. Most efforts to measure economic effect involve comparing a carbon control scenario with a "baseline" projection. The baseline generally is defined as the path the economy would take assuming no changes attributable to adoption of climate change policies. However, the baseline also tends to connote a path with no distortion; it is the path from which distortions are measured. This conveys some normative legitimacy on the baseline. If global climate change arguments are correct, then the current path is not sustainable in the long run, and the baseline means little—a concern reflected in proposals to incorporate "green accounting" into major economic indicators, such as the Gross Domestic Product (GDP). Arguably, if an ecological perspective returned the actual path to long-term sustainability, that scenario would represent the more reasonable baseline. Discussions of economic "growth" and "distortions" are relative to one's perspective on the long-term potential for economic growth in a world with increasing carbon dioxide concentrations. Commonly, those looking through the ecological lens tend to dismiss economic cost analysis, and particularly cost-benefit analysis, as being of limited usefulness in the overall debate on global climate change, while acknowledging that they can have utility in developing and choosing specific options. From the ecological perspective, people should respond to the global climate change crisis because of its threat to important values, such as the fate of future generations, not because action can be justified on the basis of some narrowly defined cost-benefit analysis. Traditionally, such analysis tends to place value only on those benefits that can be easily quantified, while dismissing or ignoring many values that would be seen as governing through the ecological lens. Viewed through the ecological lens, lives and such values as intergenerational equity should not be quantified as a commodity. What people need are alternatives to many of the choices that the marketplace provides based on traditionally defined economic considerations. At the same time, a burgeoning area of study is ecological economics, and in particular analyses to determine the economic benefits of ecosystems services, which include climate regulation. Such studies may serve to defend environmental values that are rarely accounted for in traditional economic analyses; they also provide another example of the intertwining of the viewpoints. Although some would prefer that science dictate the timing and magnitude of environmental policymaking, scientific knowledge actually represents a continuum of knowledge and uncertainty. Policy initiatives go forward when a sufficient majority of the society concludes that what is known about the problem outweighs the uncertainties, or that the risks of delay despite uncertainty are not acceptable. In some cases, increases in knowledge about an environmental problem lead to more uncertainty, not less. In other cases, increased knowledge about a problem leads to widening the issue, not narrowing it. In the case of global climate change, at least three parameters help determine how one is willing to balance the knowledge-uncertainty aspect of science. These three parameters involve one's perception of the potential risk of the problem, the potential effectiveness of any reduction program, and the potential cost of the solution. If one perceives the potential risk of the problem to be slight, the potential effectiveness of any response to be questionable, and/or the potential cost to be high, one will tend to require a high threshold with respect to scientific certainty before one is willing to act. Conversely, if one perceives the potential risk to be high, the potential effectiveness of any response to be reasonable, and the potential cost to be low, one will likely be willing to act at a substantially lower threshold with respect to scientific certainty. Each of the three lenses contributes to differing views on these parameters and on different courses of action. For example, being optimistic that energy efficiency can be gained at low cost, the technology lens can accept a somewhat lower threshold with respect to scientific certainty because the risk of high cost is discounted. Likewise, the ecological lens' concern about unintended consequences and the protection of future generations lends itself to accepting a lower threshold with respect to scientific certainty because of the precautionary need to protect the biosphere regardless of cost. In contrast, the economic lens leads one toward a cost aversion response, because the uncertainty may mean fewer benefits, a less effective response, and potentially high cost. Those viewing the issue through this lens likely seek more certainty before any significant investment is made in any solution. In a study of the effects of personal beliefs and scientific uncertainty on climate change policy, two researchers, Lave and Dowlatabadi, concluded that uncertainty and the degree of optimism of the decisionmaker were both important, but less so than whether the policymaker's decision criterion hinged on minimizing expected costs or on being as precautionary as possible. The former criterion, focused on costs, essentially reflects the economic lens; the latter, focused on the "precautionary principle," essentially derives from the ecological lens. In a mix of scenarios, Lave and Dowlatabadi found that those focused on minimizing expected costs would most often support moderate abatement given existing uncertainties, while those focused on being precautionary would more often support stringent abatement despite costs. This interplay of uncertainty, information, and costs is summarized in Table 2 . The perspective on uncertainty can have tangible policy implications—as evidenced by the ongoing debate between those who believe action to address global climate change is justified and those who do not. Faced with a fundamental problem, such as the potential for global climate change, a policymaker who is looking through the technological lens and focusing on technical fixes tends to take an activist view of the government's role—to support innovation and commercialization. In the same situation, a policymaker who is looking through the economic lens and focusing on the costs and benefits of action tends to view the government's role as limited—to ensuring that any misfunctioning of the market is corrected. And a policymaker who is looking through the ecological lens and focusing on the need for action to solve the problem tends to see the government actively playing crucial roles—to inform public understanding, to seek public commitment, and to make available options for solving the problem. These differing propensities on the role of government among the three perspectives are summarized in Table 3 . As described in this report, these differences have consequences for one's expectations for government action, depending on the lens one views global climate change through. At the same time, these differing expectations can have consequences for how one views the lenses themselves: that is, persons with a predisposition for limited government are likely to find the economic lens a more appropriate way to approach the issue than the other two lenses, whereas persons with a predisposition for activist government may be more comfortable with the technology and/or ecological lenses. The technological, economic, and ecological "lenses" represent ways of viewing responses to environmental problems. None is inherently more "right" or "correct" than another; rather, they overlap and to varying degrees complement and conflict with each other. Most people hold to each of the lenses in varying degrees and combinations. For example, a person who is quite concerned about the potential of global climate change from an ecological perspective, but concerned also about the economic costs and the effectiveness of a reduction program, might see a "no regrets" policy as most prudent under the circumstances. In contrast, an ecological perspective combined with a strong technological perspective would see no reason for not pushing forward with a strong reduction program without delay. A third possibility could be a risk aversion perspective deriving from cost-benefit concerns combined with a technological perspective, a combination that could lead one to a strong research and development program combined with phased-in and selective technological incentives based on potential cost-effectiveness. The combination of possibilities are many, depending on the depth of commitment to any one perspective or to any particular aspect (seriousness, effectiveness, costs) of the problem. Table 3 summarizes the three lenses identified in this report. As indicated, they reflect differing assumptions about the nature of the problem, the means to a solution, and the governmental role in crafting that solution. The lenses are not mutually exclusive, but rather reflect differing emphases on what is a very complex issue. These different emphases can be seen when examining the lenses according to different policymaking criteria; the governmental role differs substantially between the lenses. In actual implementation, any global climate change response would involve the government in multiple roles: promoting new technology, ensuring that the marketplace functions properly, and educating the public. Table 4 presents other policymaking criteria. Once again, one sees conflict and complementarity across the different lenses. Eliminating non-market barriers can be a key to technological development, a removal that those peering through the economic lens would likely see as appropriate, although difficult. Similarly, those employing the technological lens have no objection to the ecological orientation of those using that lens, although they might question the need for such considerations—especially since those looking through the ecological lens might demand such thorough analysis of the implications of new technologies that its costs of development could be greatly increased or its adoption might be delayed. However, those viewing through the economic lens might object to the perspective given by the ecological lens, if it were to give weight to values or concerns that could not be justified through cost-benefit analysis (analysis to which those peering through the ecological lens might object). Elements of all three lenses can be seen in the policies promoted during the George W. Bush Administration and in the actions of the Congress—although different perspectives dominate. For the Administration, the technological (and to a lesser degree, the ecological) lens appeared very important to the long-term success of its initiatives. The focus of Administration initiatives was on development and use of technology to achieve reductions without significant economic pain. That the Administration rejected a mandatory program suggests that the economic lens heavily influenced the design of its climate change program. Unlike the Clinton Administration, the George W. Bush viewed costs to be a major obstacle to reducing greenhouse gases in the near term. For the Congress, the failure to date to enact any comprehensive climate change legislation seems to reflect a focus on increasing certainty about the problem and on the costs of actions, consistent with the economic lens. While Congress did ratify the 1992 Framework Convention on Climate Change and enacted several global climate change provisions in the 1992 Energy Policy Act, a "go-slow" approach is manifest by such actions as the Senate's unanimous vote of 95-0 in support of S.Res. 98 , which stated the Administration should sign no agreement that would result in serious harm to the economy or that did not include developing countries (along with developed countries) within its control regime. In addition, the resolution stated that any agreement submitted to the Senate include a detailed and comprehensive economic impact assessment of the treaty. Yet, while similar concern about the economy was expressed in S.Amdt. 866 in 2005, that action also put the Senate on record for taking action. Action was initiated in 2008 with the reporting of and floor debate on S. 2191 , which would have established a cap-and-trade program to address climate change. This approach itself is consistent with viewing the issue from an economic perspective—but the fact of action suggests either a shift toward perceived benefits outweighing costs, or, perhaps, a refocusing through other policymaking lenses. The effort by various interests to convince the public that their perspective is correct, and that those of others reflect either wishful thinking, misinformation, or excuses, will likely continue. Such efforts will be affected by improvements in the scientific understanding of global climate change, and of the domestic and international implications for strategies for addressing it. However, the pivotal decision-making point—whether that understanding warrants action or not—will be mediated in large part by the lens through which policymakers view the new knowledge. Ultimately, it is the balance between all three perspectives that will shape policy options and eventually determine the character and timing of any policy response to the problem.
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The 1992 U.N. Framework Convention on Climate Change requires that signatories, including the United States, establish policies for constraining future emission levels of greenhouse gases, including carbon dioxide (CO2). The George H. W. Bush, Clinton, and George W. Bush Administrations each drafted action plans in response to requirements of the convention. These plans have raised significant controversy and debate. This debate intensified following the 1997 Kyoto Agreement, which, had it been ratified by the United States, would have committed the United States to reduce greenhouse gases by 7% over a five-year period (2008-2012) from specified baseline years. Controversy is inherent, in part, because of uncertainties about the likelihood and magnitude of possible future climate change, the consequences for human well-being, and the costs and benefits of minimizing or adapting to possible climate change. Controversy also is driven by differences in how competing policy communities view the assumptions underlying approaches to this complex issue. This paper examines three starting points from which a U.S. response to the convention is being framed. These starting points, or policy "lenses," lead to divergent perceptions of the issue with respect to uncertainty, urgency, costs, and government roles. They also imply differing but overlapping processes and actions for possible implementation, thus shaping recommendations of policy advocates concerning the federal government's role in reducing greenhouse gases. A technological lens views environmental problems as the result of inappropriate or misused technologies. The solutions to the problems lie in improving or correcting technology. The implied governmental role would be to provide leadership and incentives for technological development. An economic lens views environmental problems as the result of inappropriate or misleading market signals (prices). The solutions to the problems lie in ensuring that the prices of goods and services reflect their total costs, including environmental damages. The implied governmental role would be to improve the functions of the market to include environmental costs, so the private sector can respond efficiently. An ecological lens views environmental problems as the result of indifference to or disregard for the planet's ecosystem on which all life depends. The solutions to the problems lie in developing an understanding of and a respect for that ecosystem, and providing people with mechanisms to express that understanding in their daily choices. The implied governmental role would be to support ecologically based education and values, as well as to promote "green" products and processes, for example through procurement policies, efficiency standards, and regulations. Some initiatives are underway; all the perspectives are relevant in evaluating them and possible further policies. The purpose here is not to suggest that one lens is "better" than another, but rather to articulate the implications of the differing perspectives in order to clarify terms of debate among diverse policy communities.
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Russian President Vladimir Putin appears to have made a strategic decision to reorient Russiannational security policy from a posture of antagonism, if not hostility, toward the United States andits allies, to a policy of more cooperation with the United States and the West. Indications of thisshift were discernible even before the terrorist attacks of September 11. But Putin seized uponSeptember 11 as an opportunity to transform dramatically the bilateral relationship along cooperativelines, making that date appear to be a real turning point in U.S.-Russian relations. Among the more notable results of this shift in Russian national security policy were: Russia's political and military cooperation with the U.S. campaign against the Taliban regime in Afghanistan,including U.S. military deployments in former Soviet states in Central Asia; Moscow's decision toclose its electronic intelligence base in Cuba; and the softening (nearly to the point of abandonmentin some cases) of Russia's previously tough positions on NATO enlargement, the ABM Treaty,missile defense, and strategic nuclear force reductions. This report will examine the implications of the shift in Russian national security policy for near-term U.S.-Russian relations and for broader U.S. security interests. It will seek to show themotives behind Putin's decision to reorient Russian policy and assess the prospects for the newpolicy's endurance. This report will also examine the Bush Administration's response(s) to the newRussian policy, congressional interests and congressional levers to influence U.S. policy towardRussia, as well as competing opinions on what U.S. policy toward Russia should be. President Putin is the unchallenged - and seemingly unchallengeable - master of the Russianpolitical scene today. He has no credible political rivals and has enjoyed consistently high standingin Russian public opinion polls (over 70% approval rating) for more than two years. Yet fewforesaw these developments in August 1999, when a physically and politically exhausted PresidentYeltsin plucked Putin from political obscurity to become Russia's fifth Premier in two years. Priorto the premiership, Putin had headed the FSB, Russia's internal security agency for a year (July1998-August 1999), and before that had been a nearly invisible, though increasingly influential, bureaucrat in the Presidential Administration (1996-1998). Many in Russia and the West initiallyviewed Putin as a political lap dog for Yeltsin. (1) Within days of becoming premier, Putin confronteda crisis involving the breakaway republic of Chechnya and terrorist bomb attacks in Russia. Putinadopted a very tough policy toward Chechnya, which he rode to popularity and power. Yeltsinabruptly resigned as President on December 31, 1999 (six months before the expiration of his term),naming Putin Acting President. Three months later (March 26, 2000), Putin was elected Presidentin his own right. The national security policy that Putin inherited from Yeltsin, and that he continued to pursue for a year or more after succeeding Yeltsin, was shaped by Yevgeny Primakov, who served asForeign Minister and then Premier in the late 1990s. (2) Primakov was loath to relinquish Moscow'srole and status as a great power. He saw the United States as Russia's natural, inevitable foe. Inview of Russia's diminished economic, political, and military means, Primakov sought to build anundeclared coalition of states, with Russia at its head, to oppose what he saw as U.S. globaldomination. He called this a policy of "multi-polarity." Primakov viewed China, India, and Iran askey partners and sought support among other states that opposed U.S. policy and/or resented U.S.power. In December 1998, as U.S. and British planes bombed Iraq in a dispute over U.N. armsinspections, Primakov called for a Russia-China-India alliance to oppose U.S. "global hegemonism." This was the essence of Primakov's vision of Russian national security policy - a Eurasian-basedstrategy of coalition politics, led by Russia, aimed at diminishing U.S. influence and thwarting(most) U.S. goals, worldwide. (3) During Putin's first year in power, while dealing with the initial military phase of the conflictin Chechnya and consolidating his domestic political position, the new Russian leader showed somesigns of flexibility on national security policy but seemed mainly to continue along the path laid outby Primakov. (4) But after a year or so - by mid-2001at the latest, i.e., before September 11 - Putinappeared to be moving away from the Primakov vision. After September 11, it became clear thatPutin was moving Russia in a different direction. The first meetings between Presidents Bush and Putin (their brief meeting in Slovenia in June 2001 and a month later at the G-8 summit in Genoa, Italy) were notable for the emphasis (in public,at least) on personal rapport over political substance. Much was made of President Bush's assertionthat he had "looked into" Putin's "soul" and found him "to be very straightforward and trustworthy." Putin responded publicly with praise for the new and untested U.S. President. It is not clear whether,and/or to what extent, the softening of Russian policy toward the United States may have beeninfluenced by personal rapport between the two leaders. Some believe that Putin, a career KGBforeign intelligence officer, was unlikely to be swayed by such ephemera as personal chemistry andhad made up his mind in advance to seek a friendly relationship with Bush and improved relationswith the United States. Even before September 11, there was softening of Russia's previously outspoken opposition to U.S. missile defense plans and to the U.S.-backed accession to NATO of the former Soviet Balticrepublics of Estonia, Latvia, and Lithuania. Putin may have concluded there was an inevitabilityrelated to U.S. missile defense and NATO enlargement and sought to moderate the outcomes asmuch as possible, if only marginally, rather than continuing to fight and gain nothing in the process. This could be seen in Moscow's abandonment of its "red line" rhetoric regarding Baltic accessionto NATO (5) and its movement toward modifying theABM Treaty. September 11, however, seemedto provide a turning point or breakthrough in U.S.-Russian relations. Immediately after the September 11 attacks, it was obvious that if the United States was going to take action against Al Qaeda and its host, the Taliban regime in Afghanistan, Russian cooperationwould be very valuable, perhaps indispensable. Many observers initially assumed that Moscowwould adopt a tough position along the following lines: Now the Americans need us. Very well,what is the most that we can extract from them and the minimum cooperation that we must offer inreturn? This assumption was based on the belief that Putin, the ex-KGB agent, viewed the UnitedStates negatively, only grudgingly had begun to soften Russian policies, and would gladly revert toa harder line once the September 11 attacks had strengthened his hand. (6) Events showed that Putintook a different view. He appears to have decided immediately after the terror attacks to seize uponthose epochal events as an opportunity to transform U.S.-Russian relations. Although Putin may have decided to move Russia closer to the United States before September 11, the Bush Administration did not appear eager to reciprocate at that time. To the contrary, mostof the Administration's top agenda items regarding Russia were negative issues for Moscow: missiledefense; the ABM Treaty; NATO enlargement; Russian transfers to Iran of nuclear reactors, missiletechnology, and conventional arms; Russian support of Iraq; Russian abuses in Chechnya; andsuppression of press freedom in Russia. September 11 gave Putin the opportunity to change thesubject. The new dominant issue would be cooperation against international terrorism. Since late1999, Putin had been trying to interest Washington in the idea of joint action against terrorism as thenew core issue for bilateral cooperation. Neither the Clinton nor the Bush Administration wasreceptive to this, in view of Putin's claim that his military campaign in Chechnya was a primeexample of anti-terrorism in action. On September 11, only hours after the attacks, Putin, using the hot line, was the first world leader to speak to Bush, in Air Force One, about the tragedy. Putin reminded Bush that Russia hadsuffered a series of dreadful terrorist bombing attacks against apartment buildings in Moscow andother cities two years earlier that had killed hundreds of Russians. Putin attributed those attacks toradical Islamic Chechen terrorists. (7) Beyond personaland official condolences, Putin informed hisAmerican counterpart that he was ordering the immediate cancellation of military exercisesscheduled to begin the next day that included long-range bomber flights in the direction of the UnitedStates, Canada, Great Britain, Norway, and Iceland. Sailing orders for Russian submarine andsurface naval units were also cancelled. (8) He mayhave wished to avoid false alarms. In a somberspeech to the Russian people, Putin compared the September 11 attacks to Nazi atrocities, whichsome observers took as a sign of Putin preparing the public for a possibly dramatic shift in Russianpolicy, i.e., strategic cooperation with the United States. Within days, the Bush Administration began to focus on action against Al Qaeda and the Taliban regime. The possibility of U.S. military deployments in Central Asia was prominentlymentioned by U.S. officials and in the press. The immediate response from Russian officials wasstrongly negative. Even Defense Minister Sergei Ivanov, perhaps Putin's closest political associate,said on September 16 that there were "no prospects" for U.S. military forces to operate in any of theC.I.S. states. Putin personally intervened to change that policy. He publicly contradicted his defenseminister and declared that U.S. military deployments in Central Asia could be viewed positivelyunder certain circumstances. U.S. Air Force and Special Forces units reportedly began flying toUzbekistan and Tajikistan on September 19. (9) There are divergent accounts of Moscow's initial role in the U.S. deployments to Central Asia. Some say that at first Russian officials tried to prevent Central Asian leaders from offeringWashington military bases on their territory. Others say that Moscow facilitated, or at least did notstand in the way of, the U.S. deployments. (10) Perhaps there is some truth in both accounts, reflectingearly divisions in Moscow on this issue. Ultimately, Russia could not prevent sovereign states inCentral Asia from hosting U.S. military forces if they saw it as in their interest to do so, which wasclearly the case in Uzbekistan. But Russian influence in Tajikistan is very strong, and some say thatU.S. deployments there would not have been possible if Moscow had objected strongly. (11) The factthat U.S. combat forces were deployed in large numbers to military bases in Central Asian Sovietsuccessor states would have been unimaginable a few months earlier. Regardless of his own initialreaction to this development, Putin put the best face on it, offering political and logistical assistance. Russian cooperation in the campaign against the Taliban was not based solely on a desire to draw closer to the United States. Moscow had long viewed the Taliban as a serious threat to Russiansecurity because of that regime's role in promoting the spread of radical Islam in Central Asia. Thiswas an immediate threat to the secular Central Asian regimes along Russia's southern frontier, whichmight ultimately destabilize Russia's own large Muslim population. (12) To counter Taliban-supportedinsurgency, Russia provided covert and open support to the anti-Taliban Northern Alliance. Despitea five-year Russian effort, however, the Taliban had expanded its control to over 90% of Afghanterritory by September 2001 and squeezed the Northern Alliance into a small pocket near theAfghan-Uzbek border. Thus, U.S. operations in Afghanistan after September 11 served a doubleinterest for Moscow: the opportunity to demonstrate concrete strategic cooperation with Washington,and the elimination of a serious security threat on its vulnerable southern flank. Russian support for the U.S.-led campaign in Afghanistan was not limited to the deployment of coalition forces in Central Asia. Russia greatly increased its arms supplies to the NorthernAlliance, including heavy weapons such as tanks, artillery and helicopters. In addition, Russianmilitary specialists such as tank commanders, artillery officers, pilots, and other skilled personnelwere attached to Northern Alliance forces during the decisive operations in October-November 2001. U.S. Defense Department officials credit these Russian efforts with having contributed substantiallyto the rapid defeat of the Taliban in the North. (13) At the same time that Moscow was giving Washington unprecedented cooperation in Afghanistan, it was showing a willingness to compromise on missile defense, the ABM Treaty, andstrategic force reductions. In mid-November, in the run-up to the Bush-Putin summit in Washingtonand Crawford, Texas, U.S. and Russian media carried reports of a possible negotiating breakthroughthat might result in a big "package deal" on these issues. (14) These reports proved premature, however,because the United States did not back off many of its demands and positions. The Novembersummit yielded few major substantive results and three weeks later Bush announced that the UnitedStates would unilaterally withdraw from the ABM Treaty. Putin, while "regretting" the U.S.decision, insisted that it was "not a tragedy," and that it would not destabilize otherwise excellentbilateral relations. As with NATO enlargement, Putin appears to have decided that it was futile tocontinue trying to resist the inevitable, and that Russian interests were best served by minimizingthe damage on missile defense and the ABM Treaty and by getting the best deal he could on strategicnuclear force reductions. On this, too, Putin eventually yielded on virtually all substantive pointsin the Treaty on Strategic Offensive Reductions (Treaty of Moscow) signed on May 24, 2002. (15) During this evolution on strategic nuclear issues, another significant indication of Putin's shift in national security strategy received relatively little public attention. On October 17, 2001, Putinannounced that Russia would close its electronic intelligence base at Lourdes, Cuba. This listeningpost, established in 1964, was Moscow's largest and most important intelligence facility outside itsborders and was considered a thorn in the side by the United States. (16) To the extent that Russiaviewed the United States as an adversary, the base at Lourdes, which was manned by 1,500 Russiansand provided 60%-70% of Russia's electronic intelligence data on the United States, was asignificant strategic asset. The decision to close it was more than a symbolic move; it was a strategicdecision. (17) Other aspects of Russian defense policy under Putin support the idea of a shift away from confrontation toward cooperation with the United States and the West. One of the most significantmoves was Putin's decision (August 2000) that Russia's strategic nuclear forces would beunilaterally reduced from nearly 6,000 deployed warheads to 1,500 in this decade. (18) Thisacknowledgment of Russia's inability or unwillingness to maintain quantitative parity with theUnited States in strategic nuclear forces was a significant step. In 2001, the Ministry of Defenseannounced plans to further reduce Russian military manpower from 1.2 million to 850,000. In 2002,the government announced plans to accelerate the transition from a mainly conscript to a mainlyprofessional army. In the long-run, a smaller professional force may be more capable in manyrespects than a mass conscript army. But mass was traditionally the Russian Army's strong suit andthe basis of its presumed offensive capability vis-a-vis NATO. In the early 1990s, Russian defense spending was cut drastically and procurement of major new weapons systems virtually came to a halt. (19) Thegovernment's fiscal situation improved substantiallyafter 1999 and defense spending has increased somewhat, but the increment has gone mostly to paymilitary salaries. Large-scale serial production of major weapon systems has not yet resumed. (20) In the late 1990s, into the early stage of Putin's presidency, Russian military exercises were given an almost ostentatiously anti-NATO, anti-American edge. This tendency has been reducedsince September 11. Also, in the past two years, Putin has instituted major personnel changes in themilitary high command, removing a number of outspoken advocates of anti-western, anti-U.S.military policies. (21) The case of the Russian nuclear submarine Kursk, which sank on August 12, 2000, sheds light on the shift in Russian defense policy in several respects. The military exercise in which the Kursk sank was the prelude to sending a powerful Russian flotilla into the Mediterranean, reportedly meant"to send NATO a signal of Russia's intention to maintain a 'blue-water' offensive naval strategy." (22) The Mediterranean deployment was cancelled. Most of the Russian military establishment claimedthat the Kursk sank after colliding with a U.S. or British submarine and stuck to that story for morethan a year. In July 2002, the Russian government released an official report that a faulty torpedohad exploded inside the Kursk . In the meantime, Putin replaced the Commander and DeputyCommander of the Northern Fleet, the Navy Chief of Staff, and the Minister of Defense, amongothers. In a televised interview soon after the Kursk sank, Putin said that, "[O]ur armed forcesshould match our needs on one hand and the possibilities of the state on the other," adding that themilitary must be "compact, modern and well paid.... We have been talking about military reform forhow long? At least eight years and perhaps a whole ten years, but there has been little change in thisarea." (23) After the Kursk , Putin beganto make changes. That was thirteen months before September11, 2001. Soon after September 11, a somewhat skeptical Polish analyst wrote that there were two key questions in judging Putin's policy. The first was whether Russia really sought full-fledgedcooperation with the West; the second was the price of such cooperation. "Russian participation inan anti-terrorist offensive," he continued, "together with only moderate demands in return, might bea substantial indication of Russian preparedness to become a reliable partner of the West. It is examtime and we can only hope that Russia will not fail." (24) Putin appears to have passed this test. If Putin really has fundamentally reoriented Russian policy toward cooperation and integration with the West, one may well ask why. Does the former KGB agent have a cultural or ideologicalaffinity for the United States and the West? I.e., does he like us? Does he like westerndemocracy? Most observers would say, "no." Instead, Putin's change of course seems to be based on a soberassessment of Russia's vital interests and its current limitations. First and foremost, from the day Putin became Acting President to the present time, he has insisted that Russia's most urgent need and his top priority is the reconstruction and vitalization ofthe economy. In a speech on December 13, 1999, he warned that, "Russia is in the midst of one ofthe most difficult periods in its history. For the first time in 200 or 300 years, it is facing a real threatof sliding to the second, possibly the third, echelon of world states." The catastrophic economiccollapse of the 1990s had to be reversed in order to ensure the strength of the state, the dignity andwell-being of the Russian people... and Putin's political future. Putin established as a primary goalfor Russia the transition to a functioning market economy whose gross domestic product (GDP) wasgrowing at a healthy, sustainable rate. This would assure rising living standards for Russian citizensand provide the basis for a strong central state. Putin sees Russia's economic reconstruction and vitalization proceeding from its integration in the global economic system dominated by the advanced industrial democracies, i.e., economicintegration with the West. He said this clearly in his April 2002 State of the Nation address. "I mustonce again make a firm statement today on our priorities as far as Europe is concerned.... [W]hat isclear are our... numerous and concrete steps towards integration with Europe. We will continue towork actively with the European Union, designed to create a single economic space." (25) It isaxiomatic that this requires a relatively benign international environment for Russia. Russia'seconomic integration with the West cannot be accomplished in an atmosphere of political/militaryconfrontation or antagonism with the West and/or with the United States. It follows from this that Russian national security policy must support Russia's preeminent economic objectives. Putin underlined this point in a conference of Foreign Ministry officials,including virtually all ambassadors, who were ordered to Moscow for the purpose (July 12, 2002). This was the second such conference in the 202-year history of the Foreign Ministry. The first wasconvened by Mikhail Gorbachev in 1986 to lay down his principles of "new thinking" in foreignpolicy and of "glasnost" and "perestroika." Putin also intended to lay down new principles. Helectured the assembled foreign policy bureaucracy, criticizing them on various shortcomings, andnoted that under his leadership, "Russia has managed to get out of the long period of confrontation"and now sought "truly reliable, businesslike" relations. He went on to say that the new basis ofRussian-U.S. relations "lies in a new reading of the national interests of the two countries...." Lestthey miss the point, he declared, "I will reemphasize: the confident partnership between Russia andthe U.S.A. is not only in the interests of our people. It exerts a positive influence on the entiresystem of international relations and therefore remains one of our absolute priorities ." (26) (Emphasisadded.) General Vasily Lata, former Deputy Commander of Russian Strategic Rocket Forces, putit more bluntly. "Economic policy is dictating all the other aspects of international relations.... Putinsees that without positive economic development, Russia has no future." (27) Putin's drive for economic integration with the West alone may be sufficient explanation for his abandonment of the Primakov line and his reorientation of Russian national security policytoward cooperation with the West. But there are probably other factors as well. Putin is known asa realist. He is intelligent and well informed. He has first-hand understanding of the West, havingserved for years as an intelligence officer in Germany. Many observers believe that underlyingPutin's frequent assertion that Russia must adjust its foreign and defense policies to its (limited)capabilities is his conclusion that Primakov's concept - of maintaining Russia's status as a greatpower and the leader in the struggle against American "hegemonism." - was a losing strategy inview of the preponderance of U.S. economic, political, and military power compared to Russia. (28) Putin may also have had doubts about the wisdom of Primakov's reliance upon China as a key partner and preferably an ally, vis-a-vis the United States. Russian-Chinese relations are friendly andthe two states share a number of important interests, including: opposition to U.S. or internationalinterference in a country's internal affairs on the basis of human rights violations; opposition to thespread of radical Islam in Central Asia; mutual support in suppressing separatist tendencies inChechnya and Tibet; and resentment of the economic dominance of the advanced industrialdemocracies. Both states felt threatened by proposed U.S. missile defense plans and by the principleof U.S.-led military intervention in Yugoslavia's Kosovo conflict without U.N. or OSCE approval. (29) As both China's and Russia's relations with the United States soured in the late 1990s and into thefirst year of the Bush Administration over these and other issues, (30) Russo-Chinese condemnationsof "global hegemonism," a thinly veiled reference to U.S. dominance and unilateralism, seemed tosome to be moving in the direction of alliance against the United States, as envisioned byPrimakov. (31) There is ample reason, however, for Moscow to be wary of such a policy. While Primakov and like-minded Russian nationalists saw China as an opportunity to be exploited in the short-term tocounterbalance U.S. predominance, other Russians saw - and see - China as a long-term threat. Thebasic reasons for this are the apparent trajectories of Russian decline and Chinese ascendance andRussian concerns about a possibly dangerous China as a neighbor in the future. Russia is by far thelargest nation in the world in terms of territory, but whereas the Soviet population in 1991 was 286million, Russia's population then was only 149 million. Today it stands at 144 million - despitesubstantial net in-migration of ethnic Russians from other Soviet successor states - and it is fallingrapidly. Russia is experiencing an extraordinary demographic crisis. Putin frankly acknowledgesthis as one of Russia's most urgent problems. In April 2002, the Russian State Committee onStatistics ( Goskomstat ) published its official projections for the population of the Russian Federationin the year 2050. There were three variants: optimistic - 126 million; pessimistic - 77 million; andmedian (presumably the most realistic official estimate) - 100 million. (32) Furthermore, the RussianFar East and Eastern Siberia, that huge expanse east of Lake Baikal, a territory larger than thecontiguous 48 United States, has a population of barely 6 million, which is contracting more rapidlythan the general population as Russians migrate back toward the European heartland to escape harshclimatic and economic conditions. In contrast, China's population today is about 1.3 billion, and growing. China faces a perceived scarcity of land and resources. Much of resource-rich Eastern Siberia and the Russian Far East wasseized from China by Tsarist Russia in the second half of the 19th century, in what the Chinese call"unequal treaties." Nearly all the territory yielded by China to other imperialist states (notably:Britain, France, Germany, and Japan) in 19th and 20th century "unequal treaties" hasbeen recoveredby China. Russia is the outstanding exception. The giant Asian neighbors have officially resolvedvirtually all territorial issues along their 3,000 mile border and they have concluded numerous otheragreements, including a 25-year Friendship Treaty signed in July 2001. They have important,mutually beneficial trade relations. Both parties want and need continued friendly relations in thenear- and medium-term future as they focus on domestic development. Many Russians worry,however, that eventually China could become a threat. Russian concerns about China tend to focus on the possibility of China becoming a superpower with sustained economic growth that eventually generates great political and military power,vis-a-vis a relatively weak Russia. China experts are by no means agreed that China will continueto enjoy rapid economic growth and become a superpower. Another school of thought foreseesstagnation, economic decline, and instability for China. (33) Curiously, this scenario too is a source ofconcern for Russia. In a troubled and unstable China, there could be uncontrolled populationmovement toward Russia's sparsely populated eastern regions. More worrisome for Moscow is theprospect that the Chinese Communist Party - or its successor - having already virtually abandonedMarxist-Leninist ideology as a legitimizing principle, might turn to patriotic nationalism as a meansof maintaining political legitimacy and national cohesion. Increased Chinese nationalism couldrevive territorial claims against Russia - as Mao did in the 1960s-1970s. Thus, it is arguable thatwhether China evolves into a superpower, or fails in its transition and becomes a troubled, unstablestate, the prospects for Russia in either case could be disturbing. (34) This may be another reason whyPutin turned away from Primakov's policy of reliance on China against the United States. Someanalysts suggest that eventually, Moscow may have to turn to the United States and NATO forsecurity against China. In the first two years after the collapse of the Soviet Union, Russian national security policy seemed remarkably (critics would say, naively) pro-American. Yeltsin and his Foreign MinisterAndrei Kozyrev seemed to say to the United States, "Just tell us what you want...." By late 1993,this began to change. The continued sharp contraction of the economy and commensurateimpoverishment of much of the population eroded Yeltsin's popularity. His erratic, undisciplined,hands-off leadership style made things worse. Communists and ultra nationalists dominated theDuma through the mid- to late 1990s. This political opposition and a rising Russian disillusionmentwith perceived U.S. unresponsiveness to Russian needs and interests gave rise to increasingassertiveness and nationalism in Russian foreign and defense policy. In January 1996, Yeltsinappointed Primakov to replace the pro-western Kozyrev, and U.S.-Russian relations became morestrained. Many observers in Russia, Europe, and the United States caution that Putin's new national security policy, like Yeltsin's a decade earlier, lacks solid domestic political support. Indeed, thedominant view among Russian specialists is that the new policy is so much Putin's policy that it isvirtually a one-man show. Some say that Defense Minister Sergei Ivanov, a Putin loyalist, is perhapsthe only senior leader who truly embraces the policy. (35) Senior military leaders, the Foreign Ministrybureaucracy, the majority of political elites - and indeed much of the general population - is said tobe opposed to, or not very supportive of, the policy of cooperation with the United States. (36) Somespecialists dispute this view, claiming that even "most conservative political elites, in privatediscussions , admit that Putin's course of integration with America and the West is the only way tomodernize the economy." (Emphasis added.) According to the same source, "although Putinpersonally makes key decisions, there is an impressive brain trust behind the president... a talentedand deep cadre in the Russian bureaucracy that supports the president's policy toward the UnitedStates." (37) While there may be uncertainty about the level of political support for Putin's policy of integration with the West, there is little doubt about his overall political strength and popularity. Asnoted above, Putin is the unrivaled master of the Russian political stage and continues to enjoypublic approval ratings over 70%. (38) Putin wasfortunate to come to power near the beginning of aneconomic upturn. The Yeltsin regime's attempt to implement a rapid transition from the mostmilitarized command economy in history to a rudimentary market system led to a recession in whichoutput fell by 40%-50%, followed by a financial crisis in 1998. After the financial crisis, the sharplydevalued ruble and major increases in the world price of oil spurred a mini economic boom in Russia(1999 to 2001). Domestically, Putin got political credit for the improving economy. He then seizedthis opportunity to adopt an ambitious - and potentially risky - reform strategy. The first elementof that strategy is domestic economic reform. The second element is integration into the globaleconomy. The third element is strategic partnership with the United States and the West. (39) If it istrue that the public is not generally supportive of his pro-western policy, this is not reflected in anydecrease in his popularity or political effectiveness. Putin successfully has extended government control over the principal broadcast media. He has curbed the power of the previously independent business "oligarchs" as a class, driving some of theminto exile and neutralizing or winning the support of others. Putin has enjoyed strong support in theDuma since the beginning of his presidency. The Communist Party of the Russian Federation(CPRF) is the only major party that opposes his shift toward cooperation with the United States. InApril 2002, the dominant pro-Putin bloc in the Duma staged a political coup, stripping the CPRF ofmost of its committee chairmanships and other leadership posts. (40) Now there appears to be noeffective parliamentary opposition to Putin's domestic or foreign policies. Furthermore, the RussianConstitution (tailored to Yeltsin's specifications in late 1993, after he forcibly disbanded theprevious parliament), concentrates political power in the President's hands to such an extraordinarydegree that Russia is a "super-presidential" republic. The institutional power of the presidency,combined with Putin's personal prestige and popularity, are such that there is no significant politicalopposition in Russia today. At present, there is no effective means of translating unhappiness withPutin's pro-western course into political pressure that could force him to change that policy - as longas he personally believes in it. Those who are concerned about the lack of support for Putin's pro-western policy caution, however, that Russia's large and unwieldy government bureaucracy could find many ways to delay,obstruct, undermine, and sabotage that policy. As the shift in Russian national security policy became evident in 2001, some in the United States saw it as a short-term tactical response to the September 11 attacks and their aftermath. In thisview, a principal goal of Putin was to assure that Russia was on the right side of - and not targetedor jeopardized by - any U.S.-led anti-terrorist operations and also to channel the upsurge of U.S.anti-terrorism sentiment into support for Russia's campaign in Chechnya. As Putin's policy hasevolved, however, most analysts have come to see it as a fundamental strategic reorientation ofRussian policy, based on Putin's assessment of Russian national interests - domestic economic aswell as geostrategic. Those who see the new Russian policy as a strategic decision argue that the numerous changes of position that Putin has made on major issues in relations with the United States are cumulativelyso substantial that they seem too high a price to pay in exchange for some short-term tacticalobjective(s). Putin has declared repeatedly that Russia's economic future is tied to its integrationwith the West. The bulk of his domestic economic and national security policies point in thatdirection. Many of the above concessions that Moscow made to Washington in the past year couldbe difficult or impossible to reverse. The change in Russia's strategic relationship with China may also fall into this category. Although the Chinese and Russian governments do not say so officially, there can be little doubt thatBeijing was and is displeased with Putin's turn away from the Primakov policy of strategiccooperation with China, toward integration with the West (see p. 29-30, below). From the Chineseperspective, this was the third time in five years that Moscow had "surrendered" to the West afterinitially declaring strong opposition to western policy. The first case was the accession to NATOof Poland, Hungary, and the Czech Republic. From 1995 to 1997, Moscow insisted that taking theformer Warsaw Pact states into NATO would poison East-West relations, with dire political andmilitary consequences. In the end, Yeltsin acquiesced, flew to Paris, and signed the NATO-RussiaFounding Act (May 27, 1997). (41) The second perceived "surrender" was over the U.S.-led NATO military intervention in Yugoslavia during the Kosovo conflict. Moscow consistently took the Serbian side, to the point thatthe NATO air war precipitated a crisis with Russia in the spring of 1999. Russia enlisted Chinesesupport in this clash with the West. After U.S. planes accidentally bombed the Chinese Embassyin Belgrade, China became even more strongly committed to this cause. In the end, however,Moscow decided to join in the NATO pressure on Yugoslav President Slobodan Milosevic to acceptNATO's terms on Kosovo. (42) In the Chinese opinion, the third "surrender," Putin's post-September 11 concessions to the United States, is more sweeping and strategic in scope. Again, Moscow had made a point ofsoliciting Chinese support for resistance to U.S. missile defense plans and in support of the ABMTreaty, and then abandoned that policy - and China. Moscow and Beijing also had emphasized theirstrategic cooperation in co-sponsoring the Shanghai Cooperation Organization (SCO, July 2001),an underlying, though undeclared, principle of which was Sino-Russian cooperation to thwart U.S.influence in Central Asia. (43) Within months,Russia cooperated with U.S. military deployments toCentral Asia, into states bordering on China's sensitive western frontier. Moscow did not consultwith Beijing prior to this move. (44) The fact that Putin and Bush cemented their post-September 11 strategic cooperation in a private meeting during the APEC Conference in Shanghai (October 2001) may have seemed afurther affront to the Chinese. By demonstrating, yet again, Russia's unreliability as a partner andpotential ally of China vis-a-vis the United States, Putin may have forfeited the option of the "Chinacard" that Primakov had worked so hard to create. This too would seem a very high price for Putinto pay for some short-term tactical objective. This is not to say that Russia's new western orientation is permanent and unchangeable. The economic revival that Putin seeks through integration with the West could eventually strengthenRussia to the point that it is able revert to previous patterns of antipathy toward the West. On theother hand, the economic revival that Putin seeks, and other changes in Russia and in theinternational environment, might transform Russia and its perception of its place in the world suchas to anchor it in the West. In any case, Putin seems to acknowledge that for the near- andmedium-term future, cooperation with the West is a necessity. In its first year-and-a-half, the Bush Administration, with missile defense as a high priority, tooka harder line toward Russia than its immediate predecessors. Before September 11, theAdministration saw Russia on most issues as "part of the problem." After September 11 and the waron terrorism, the Administration has tended to see Russia generally as "part of the solution." Some would argue that this generalization is too glib and glosses over the fact that reportedly there are significant splits within the Administration on Russia policy. The conventional wisdomholds that Vice President Cheney and Defense Secretary Rumsfeld take a harder, less conciliatoryline toward Moscow. Secretary of State Powell is reportedly more willing to compromise. NationalSecurity Advisor Rice's position is less clear-cut, but reportedly more often leans toward Cheney andRumsfeld. (45) Secretary Powell has been knownto quip that he sometimes has an easier timediscussing U.S.-Russian relations with Foreign Minister Ivanov than with Defense SecretaryRumsfeld. Putin's willingness to acquiesce on many issues - even some that Moscow had long heldto be core interests that it would defend tenaciously - is seen by some as validating the lessconciliatory approach reportedly favored by the Vice President and Defense Secretary. The Bush Administration made the most of Russian cooperation in Afghanistan. Pentagon spokesmen praised Russia's contributions, but it is primarily a U.S. operation, the outcome of whichmay serve Russia's security needs as much as America's. Other aspects of America's war againstterrorism are less pleasing to Moscow. Some Russian officials have publicly fretted over the duration of the U.S. military presence in Central Asia. The Central Asian governments, however, appear to view longer term U.S. militarypresence as powerful assistance in their struggles against radical Islam and also as a healthycounterweight to the previously predominant influence of Russia and China. Russians who are waryof China's ambitions in the region may also welcome the United States as a helpful counterweight. (46) Many Russians criticized the Georgia Train and Equip Program (GTEP), announced by the Bush Administration in March 2002, of sending a U.S. military contingent to Georgia to assessGeorgian military, security, and border forces to help them combat Chechen, Arab, Afghani,al-Qaeda, and other terrorists who allegedly have infiltrated Georgia. (47) In view of the tensionbetween Moscow and Tbilisi over alleged Russian support for the Abkhazian separatist movementin Georgia, and Russia's continued occupation of military bases in Georgia against the wishes ofthe Georgian government, and Russian claims that Georgia is harboring Chechen terrorists, someRussians have expressed concern that U.S. training and equipment might be turned against Russianinterests. Some Russians also worry that the small (150 men) U.S. military contingent in Georgiamight grow and become more permanent. U.S. officials reply that GTEP is a temporary missionwhich also serves Russian interests, in that it will enhance Georgia's ability to deal with securitythreats arising from the presence of Chechen refugees and fighters in the Pankisi Gorge area ofGeorgia, adjacent to Chechnya. (48) After September 11, the Bush Administration substantially reduced, although it did not entirely stop, its criticism of Russian human rights abuses in Chechnya. The Bush Administration pushed ahead with plans for NATO enlargement, likely to include the former Soviet republics of Estonia, Latvia, and Lithuania. At the same time, the Administrationreached out to Moscow, agreeing to a new NATO-Russia Council in which Moscow will have anequal voice, and vote, on certain issues (see below, p. 24-25), but not on core Alliance collectivesecurity issues or on admitting new members. After the inconclusive November 2001 Washington/Crawford, Texas summit, the Bush Administration went ahead with withdrawal from the ABM Treaty and stuck to its guns on strategicnuclear force reductions, eventually yielding only on designating the resulting agreement aninternational treaty, subject to legislative approval, as the Russians - and the U.S. Senate - haddemanded. (49) Between the two summit meetings,news of the Bush Administration's Nuclear PostureReview ruffled Russian feathers. The new NPR continued to list Russia as a potentially hostile stateagainst which nuclear contingencies might have to be planned, despite U.S. claims that it no longersees a Russian "threat" as the basis for sizing and structuring U.S. nuclear forces. (50) The Bush Administration has been more forthcoming in addressing what Putin says is his top priority, Russian economic interests. On June 4, 2002, the U.S. Department of Commerce madegood on a pledge the President made the previous year, officially certifying Russia as a "marketeconomy." This will facilitate bilateral trade, ease the burden that Russian exporters face inanti-dumping and countervailing duty procedures, and bring Russia a step closer to WTOmembership. The Russian government hailed this as an important step. Some critics of BushAdministration policy toward Russia fault the length of time the Commerce Department took to act,arguing that certification should have been completed before the November 2001 Bush-Putinsummit, and certainly before the May 2002 summit. But certification came two weeks after the Maysummit. This could be interpreted as an insult, a sign that Russia's most urgent interests are not sourgent in Washington. On the other hand, others could argue that the deliberate pace of CommerceDepartment action was a positive sign that Russia was finally being treated like a "normal country,"the issue handled in a businesslike way, decided on its merits because real commercial issues wereat stake, not pushed through as a political case requiring special handling. Moscow complains about still being subject to the "freedom-of-emigration " requirements ofthe Jackson-Vanik amendment (Title IV of the Trade Act of 1974), which is linked to grantingRussia "permanent normal trade relations" (PNTR) status. At their November 2001 summitmeeting, Bush promised Putin that he would work with the Congress to grant Russia PNTR status.Two bills have been introduced in the 107th Congress ( H.R. 3553 and S. 1861 ) to grant PNTR status to Russia. Some critics of U.S. policy toward Russia argue that the BushAdministration has not made the lifting of the Jackson-Vanik amendment's application to Russia ahigh enough priority. (51) In the past year, President Bush has repeatedly stated his wish to see U.S. trade with and investment in Russia increase. Many Russian officials are disappointed with the level of U.S. tradeand investment. (52) Having grown up in acommand-economy environment, many Russians may notfully appreciate that trade and investment flows are mainly responsive to market forces rather thanto political pronouncements. Under Putin's leadership, the Russian government has madeadministrative changes and the legislature has enacted laws aimed at creating a more market-friendlyclimate for trade and investment. Most western specialists agree, however, that although a good starthas been made, the task is far from complete and that foreign business interests want to see moreimplementation of market reforms, especially in such areas as contract enforcement, protection ofshareholders' rights, reform of the banking sector, and clarification of tax authority among federal,regional, and local governing structures. (53) The shift in Russian national security policy and the Bush Administration's responses to thatshift have important implications for future relations between two nations. Below is a briefdiscussion of possible effects of the new dynamic in U.S.-Russian relations on selected issues, withan eye toward issues of congressional interest and congressional means of exercising influence onthose issues. In the decade of the 1990s, U.S.-Russian relations lurched from declarations of the end of the Cold War, to pledges of "strategic partnership" and "alliance," to disillusionment, recrimination, andneo-Cold War antagonism. The new leadership in both Washington and Moscow seem intent onavoiding such dramatic swings. At the Bush-Putin summit in May 2002, the two leaders issued aJoint Declaration on the New Strategic Relationship, couched in relatively realistic terms, listingspecific, concrete areas of planned cooperation and identifying issues on which their interestsdiverged. The two pledged that their countries would, "...continue an intensive dialogue on pressinginternational and regional problems," noting candidly that, "Where we have differences, we willwork to resolve them in a spirit of mutual respect." To help keep bilateral relations on an even keel,Bush and Putin established the Consultative Group for Strategic Security, which includes the U.S.and Russian foreign and defense ministers. Implicit in the Presidents' Joint Declaration, and in theStrategic Offensive Reductions Treaty signed the same day, is Russia's recognition of current U.S.geostrategic dominance. This statement in the Joint Declaration, affirmed by both leaders butreflecting Putin's priorities, is the key: "...[T]he security, prosperity, and future hopes of our peoplesrest on a benign security environment, the advancement of political and economic freedoms, andinternational cooperation." (54) An importantelement of U.S.-Russian economic partnership iscooperation in key sectors such as energy and finance and in improving Russian corporategovernance. Russia could gain a great deal from an economic partnership with the United States. The United States is the world's largest market, generates the most investment capital, and has aleading role in the policies of international financial and economic institutions such as the IMF,World Bank, EBRD, OECD, and WTO. (55) If Putin continues to believe that Russia's economic recovery and future prosperity require "a benign security environment"and economic cooperation with the United States, Russia may be agood deal more cooperative on security issues in the next few years than in 1996-2000. SomeRussian foreign policy specialists suggest that the United States should come to regard Russia inmuch the same way it regards France: as an important country, an ally with shared strategic interests,but a "thorny ally" with which it also has significant policy differences. As noted above, Putin began promoting the idea of U.S.-Russian cooperation against terrorism well before September 11. This remains a key element in both countries' security agendas, althoughwith the Taliban regime gone, their emphases and priorities differ somewhat. Both countriesexcoriate Al Qaeda and like-minded radical Islamic movements. Cooperation in Central Asia maycontinue on that basis as long as Russia does not feel threatened by the U.S. presence there. At theirMay 2002 summit, Presidents Bush and Putin announced that the U.S.-Russia Working Group onAfghanistan would be given a broader mandate and renamed the U.S.-Russia Working Group onCounter terrorism, which would, among other issues, address the threats posed by nuclear,biological, and chemical terrorism. But whereas Moscow characterizes Chechen rebels almostexclusively as terrorists, Washington has doubts about the accuracy of that picture. Similarly, theBush Administration's denunciation of Yasser Arafat's leadership as irremediably tainted by its linksto terrorism, is not shared by Moscow, among others - although the Russian government flatlycondemns Palestinian suicide bombings. (56) In the1990s, Russian support for Iraq was a sore spot inU.S.-Russian relations, particularly during Primakov's stewardship of Russian policy. Some Russianofficials, scholars, and think-tank analysts recently hinted that Moscow might not object too stronglyto U.S. military action against Iraq, provided that: a) Washington does not act unilaterally and, b)Russian economic interests in Iraq are respected. (57) U.S.-Russian activities in the area of preventing WMD proliferation have two distinctly different aspects. The first involves cooperative efforts to safeguard dangerous nuclear, chemical,and biological materials and related weapons technologies inside Russia and other Soviet successorstates. This has been addressed in the past through high-level initiatives such as the Nunn-LugarComprehensive Threat Reduction (CTR) program, in which Congress has taken a leading role. (58) Intoday's atmosphere of U.S.-Russian strategic cooperation, such programs are believed likely tocontinue, and perhaps increase. For example, the Russian Federation Debt Reduction forNonproliferation Act of 2001 ( S. 1803 ), would authorize the President to engage indebt-for-nonproliferation exchanges to reduce the amount of Soviet-era debt owed by Russia to theUnited States. (59) Another example is the so-called"10 plus 10 over 10" plan, backed by the UnitedStates and adopted at the G-8 summit in Canada in June 2002. This plan, if implemented, would addup to $10 billion from the other six (non-U.S.) G-7 countries to the $10 billion pledged by the UnitedStates, over the next ten years, to finance WMD nonproliferation programs in Russia and otherSoviet successor states. The other key aspect of the Russian WMD proliferation issue concerns Russian transfers of nuclear reactors and ballistic missile technology to certain states, particularly Iran. (60) This has beena vexing issue in U.S.-Russian relations since the mid-1990s. The Clinton and Bush Administrationsand the Congress have treated these as very high priority issues, but have had little success inconvincing Russia to halt either its nuclear reactor construction program at Bushehr, Iran, or thecovert transfers of missile technology from Russian institutes and enterprises to Iran. (61) Moscowargues that the Bushehr reactor project is legal, proper, and safe. Washington replies that while theprogram may be legal - in that it violates no treaties or international obligations to which Russia isa party - it will be used by Iran to advance a clandestine nuclear weapons program which will be agrave security threat to the United States, its allies and friends, and to Russia as well. (62) The question of missile technology transfer is less clear cut. Different Russian authorities have claimed at various times that: a) there were no such transfers; b) there were some unauthorizedtransfers, but they have been stopped; c) the transfers were/are being done illegally by shadowyentities that elude Russia's best efforts at export control; d) the alleged illicit transfers are oflegitimate dual-use technology not covered by the Missile Technology Control Regime (MTCR). (63) One of the results of recent Bush-Putin summitry was a decision to address questions of Russian nuclear reactor and missile technology transfers to Iran more systematically. A standing bilateralworking-level group was established for this purpose. There had been some speculation that anunderstanding might be reached in which Russia would complete the single Bushehr reactor, withenhanced safeguards, but would provide no additional nuclear cooperation to Iran. In late July,however, the Russian press reported that the Ministry of Atomic Energy (MINATOM) had adopteda plan to build five new nuclear reactors in Iran over a ten-year period, three more at Bushehr andtwo at another site. According to a senior Bush administration official, "... the White House wasinfuriated by that and extremely surprised.... What we were told was: It's a draft and it's not done." A high-level U.S. delegation made a previously planned visit to Moscow to urge Russia to cancelthis deal. Recent reports quote the head of MINATOM as saying that the ten-year plan was"theoretical" and might be reevaluated in light of "political factors." (64) While the outcome of the Russia-Iran agreement remained unclear, reports of new Russian ties with Iraq and North Korea drew attention. On August 16, 2002, Iraq's Ambassador in Moscowannounced that the two countries would soon sign an economic cooperation agreement worth $40billion. A senior Russian official confirmed that a five-year agreement with Iraq, encompassing theoil, electrical, chemical, agricultural, and transport sectors, under consideration for several years, hasbeen approved by the relevant ministries and is being readied for signing. He also said the contractswould not violate U.N. sanctions against Iraq. The official U.S. response downplayed the reporteddeal. A White House spokesman said that Putin remained a strong supporter of the war againstterrorism and that Washington expected Moscow to continue honoring the sanctions regime againstIraq. (65) Also in mid-August, Moscow announcedthat North Korean leader Kim Jong-il would soonvisit the Russian Far East. Putin is expected to meet with him there. Continued Russian nuclear reactor and missile technology transfers to Iran could become a critical test of Putin's policy of cooperation with the United States. On the one hand, Moscow seesTeheran as a stable, friendly regional power and a vitally important market for its cash-strappednuclear power and defense industries. On the other hand, the United States sees Iran as a leadingstate sponsor of international terrorism and is absolutely committed to trying to prevent Iran fromacquiring nuclear weapons and long-range missiles. Some observers question whether Putin's claimof being America's chief ally in the fight against terrorism can be considered credible in the face ofcontinued - and expanded - Russian nuclear cooperation with Iran. Congressional support for theRussian Debt for Nonproliferation Act ( S. 1803 ), inter alia , might be adversely affectedby such a Russian policy. (66) It may be that the Russian reactor construction program in Iran was drafted by enthusiasts at the Ministry of Atomic Energy or elsewhere, without prior Kremlin approval, and that it will ultimatelybe buried. Alternatively, the ten-year, five-reactor plan might be a negotiating ploy aimed at gettingWashington to agree to a more limited expansion of Russian nuclear cooperation with Iran. A morecynical interpretation might be that the reported plan is a ruse, meant to be floated and thenwithdrawn as a "concession," to ease U.S. pressure on the original Bushehr project. Similarly, the Russia-Iraq economic cooperation agreement can be interpreted in different ways. Baghdad is eager to muster as much international support as possible in the face of a possible U.S.military attack, and may have offered Moscow an especially rich plum in order to bolster Russia'ssupport. Moscow may have been motivated primarily by financial gain. On the other hand, Russia'sdeal with Iraq, together with the Iranian reactor plan and the invitation to Kim Jong-il -encompassing all three elements of Bush's "axis of evil" - may be a signal that Moscow isdispleased with current U.S. policy. During the Cold War, arms control often dominated the U.S.-Soviet agenda. Moscow has sought to maintain that arrangement, which inherently treats the two parties as equals and providesopportunities for Moscow to try to restrain Washington from further tilting the military balance inAmerica's favor. The Bush Administration takes the position that the Cold War is over and thatfriendly states do not need arms control treaties to protect them from one another. Some in theAdministration and Congress also maintain that Russia is too weak economically, politically, andmilitarily to prevent the United States from acting unilaterally in its best interests on vital questionsof nuclear forces and missile defense. Many others, critical of the unilateral approach, argue thatRussia remains a nuclear superpower and that U.S. security and nonproliferation are best served bymaintaining the arms control process with Russia. There is general agreement that in the Strategic Offensive Reductions Treaty, Moscow acceded to the U.S. position on virtually every substantive issue. (67) Most observers think that the Treaty willwin approval easily in the Senate. It is also widely believed that Putin's political power and prestigeensure parliamentary approval of the Treaty in Moscow. Both sides officially agree (Russiareluctantly) that the ABM Treaty and the (unratified 1993) START II Treaty are both dead letters. That leaves missile defense as the principal item remaining from the old strategic arms controlagenda. Russia still seeks to slow or shape U.S. missile defense activities as much as possible, arguing that missile defense will be destabilizing bilaterally and globally, and will accelerate nuclearweapons proliferation among non-weapon states. (68) Russian authorities appear to understand,however, that acting alone, they lack the leverage to prevent the Bush Administration from goingforward as rapidly as possible with missile defense, a strategic initiative to which it is deeplycommitted. Although Washington and Moscow continue to disagree on missile defense, the JointDeclaration at the May 2002 summit suggests that Washington has the upper hand. In it the UnitedStates and Russia: ... acknowledge that today's security environment is fundamentally different than during the Cold War. ... agreed to implement a number of steps aimed at strengthening confidence and increasingtransparency in the area of missile defense, including the exchange of information, ... reciprocalvisits to observe missile defense tests, and observation aimed at familiarization with missile defensesystems.... ... agreed to study possible areas for missile defense cooperation, including the expansion ofjoint exercises... and the exploration of ... programs for joint research and development of missiledefense technologies.... ... will, within the framework of the NATO-Russia Council, explore opportunities forintensified practical cooperation on missile defense for Europe. (69) It would seem that Russia's main hopes for altering or slowing U.S. missile plans defense lie outside the realm of bilateral relations. Moscow will probably continue trying to rally internationalopposition to missile defense, including opposition from U.S. allies in Europe and Asia. Congress,through the budget process and other means, has a critical role in the future of missile defense. Inview of the sharp divisions within the Congress over missile defense in general and the BushAdministration approach in particular, this is bound to remain a contentious issue. Russia, having given up trying to block NATO enlargement, including accession of former Soviet republics Estonia, Latvia, and Lithuania, has removed some of the drama from the issue. Under these circumstances, NATO states, and Congress, can consider which candidates to invite tojoin the Alliance on the basis of their merits, without being overly concerned about possible negativeresponses from or repercussions with Russia. The creation of the NATO-Russia Council in May 2002 opens a new chapter in relations between Russia and the Alliance formed 53 years earlier to resist Soviet encroachments in Europe. The new Council, which will bring Russia together with the 19 (at present) Alliance members todiscuss security issues, is similar in many respects to its predecessor, the NATO-Russia PermanentJoint Council (PJC), created in May 1997. The new Council, however, is both more ambitious andmore limited than its predecessor in important ways. It is more ambitious in that it will give Russiaan equal voice and an equal vote in its deliberations and decisions. It is more limited in that the PJCset out to address a very broad but vaguely defined range of issues, global in scope, numberingfifty-six in all. The new Council begins with a more narrowly and clearly defined work plan: counterterrorism, nonproliferation, arms control and confidence-building measures, theater missile defense,peace keeping and crisis management, search and rescue at sea, civil emergency preparedness, andmilitary-to-military cooperation and military reform. (70) In the old PJC, characterized initially as 19+1, the Russian representative took an antagonistic, obstructionist position. In response, Alliance members adopted the practice of arriving at a commonNATO policy before a PJC meeting and presenting Russia with a fait accompli , which Moscowderisively characterized as 19 vs.1. (71) The newCouncil, characterized as NATO-at-20, begins witha higher level of trust on both sides, but also with built-in safeguards. The Council will operate onthe basis of consensus, but if it fails to reach consensus on an issue, that issue can be withdrawn andreferred to the North Atlantic Council, NATO's main decision-making body. Also, any memberstate can request that an issue be withdrawn from the NATO-Russia Council. It remains to be seenwhat kind of role Russia will play in the new NATO-at-20 Council. Optimists hope that Russia willbehave like an ally, if at times a "thorny ally." Skeptics worry that Russia will try to use the newCouncil to weaken and divide the Alliance. Some critics also worry that certain Alliance members,particularly small states near Russia, may feel intimidated by Russia's presence in the Council andmight not speak or act as they would otherwise. In an indication of increased congressional interest in NATO, Senators Daschle and Lott reestablished a bipartisan Senate NATO Observer Group (SNOG) of Senators that will monitordevelopments in NATO in light of the new relationship with Russia and the run up to the Praguesummit (November 2002), when invitations to join NATO will be extended to candidate members. Adding new members to the Alliance, of course, would require Senate approval. The high priority that Putin gives to domestic economic development, and the linkage between that and his reorientation of Russian national security policy, increase the importance of economicissues in U.S.-Russian relations. During the Cold War, bilateral economic relations usually weresubordinated to political considerations by both sides. That attitude still lingers in both countries. Bilateral trade and U.S. investment in Russia to date have been minuscule by global standards. Afunctioning market economy in Russia, however, could provide a major market for U.S. goods,services, and investments. Such a development could be mutually profitable and further anchorRussia in the capitalist West. (72) Putin and Bush both say they want the relationship between their two countries to be more "businesslike." The U.S. Commerce Department's certification of Russia as a market economy isa step in that direction. As Congress and the Administration consider another step in that direction- "graduating" Russia from Jackson-Vanik amendment restrictions - several trade issues mayreceive prominent attention. Chief among these are steel, chicken, and oil. A trade dispute over Russian steel exports to the United States arose in the late 1990s as U.S. steel imports surged. Analysts attributed the sudden growth in steel imports to a rapid increase inU.S. demand, insufficient domestic capacity, and the appreciation of the dollar. The U.S. steelindustry filed a number of anti-dumping complaints with the Department of Commerce and the U.S.International Trade Commission against foreign steel exporters, including Russian steel, claimingthat the steel was being sold in the United States at less than fair value. In lieu of completing theCommerce and ITC antidumping investigations, Russia agreed in 1999 to two pacts that imposequotas and set minimum prices on Russian steel exports to the United States. Russian steel exportersand political leaders were not pleased with this outcome, but could have faced costlier restrictionsif the antidumping investigations had run their course and high dumping tariff margins were imposedon Russian steel. (73) On March 5, 2002, the BushAdministration imposed tariffs on steel imports,including Russian steel, to protect domestic producers. U.S. policy on steel remains a source ofaggravation with Moscow, among others. At about the same time that the Bush Administration imposed steel tariffs, a dispute arose over U.S. poultry exports to Russia. Poultry is the largest single U.S. export product to Russia. Russiais the largest single foreign market for U.S. poultry exports. (74) Russia's domestic poultry industrysuffered in the 1990s as the overvalued ruble made imports highly competitive and U.S. imports wona large market share. On March 1, 2002, the Russian Veterinary Service suspended the issue oflicenses for imports of poultry from the United States, citing health concerns over bacterialcontamination and growth hormones. A complete ban was imposed on March 10. Many in theUnited States saw this as retaliation for the U.S. steel tariff. (75) High-level U.S. remonstration resultedin Russian authorities announcing an end to the import ban on April 15; but that did not end theproblem. The Russian Veterinary Service allowed the resumption of some U.S. poultry shipments,but continued to block most imports, pending agreement on a new, more stringent veterinarycertificate. Negotiations over the new certificate dragged on for months while most U.S. poultryremained shut out of the Russian market. On July 24, U.S. trade officials said that they were closeto agreement with their Russian counterparts on a new certificate that would again allow U.S. poultryto enter Russia. (76) The third major trade issue, oil, highlights the potential for cooperation rather than friction. Russia currently is the world's second largest oil producer and exporter, behind Saudi Arabia, whichleads in both categories. Russia's proven oil reserves are twice as large as those of the United States. Although Russia's reserves are much smaller than Saudi Arabia's, its production has beencomparable to Saudi Arabia's. According to a prominent recent assessment, Russia is now engagedin a contest with Saudi Arabia for dominance in the world energy market. (77) As the global economyslowed in 2001-2002, Saudi Arabia and its OPEC partners cut their oil production to shore up prices. In both 2000 and 2001, Russia increased its oil output. (78) Russia's political and corporate leadersare portraying Russian oil companies as reliable sources of supply, willing and able to add outputto the market to keep prices reasonable and thus help revive the global economy. This has economicas well as political significance. Economically, it helps Russia integrate itself into the industrializedWest. Politically, Russia's energy policy increases its leverage in its prospective partnership withthe United States. (79) Russia is not expected to replace Saudi Arabia as the oil price setter - as Saudi Arabia replaced Texas decades ago. What Russian export policy might do, however, is increase competition, keepingoil prices at stable, moderate levels. This would help avoid inflationary pressure in the United Statesand other developed countries. On August 6, 2002, OPEC Secretary-General Alvaro Calderonarrived in Moscow to discuss disagreements over the volume of Russia's oil exports and targetprices. Calderon told journalists that while OPEC believes that oil should cost $22-$28 a barrel,Russia prefers a lower range of $20-$25. (80) At the Bush-Putin summit in May 2002, the two leaders emphasized the importance of Russia's role as a reliable oil supplier in partnership with the United States. Their Joint Statement on the NewU.S.-Russian Energy Dialogue pledged bilateral cooperation aimed at reducing volatility andenhancing predictability of global energy markets and supplies. They foresaw enhanced interactionbetween U.S. and Russian energy companies in exploration, production, refining, transportation, andmarketing. In the Joint Declaration, Bush pledged to encourage U.S. investment to further developand modernize Russia's fuel energy and sector and expand its oil and gas production. (81) He alsopledged cooperation with Russia's energy transportation infrastructure. In August 1999, the Paris Club of official government creditors (of which the United States is an influential member), provided a "framework agreement" reducing Russian interest payments onits Soviet-era debt (of over $50 billion) and deferring payment of principal until after 2001. InFebruary 2000, Russia reached an agreement with the London Club of commercial creditors, writingoff 36.5% of Russia's $32.8 billion Soviet-era commercial debt outright, with the remainder to beconverted into 30-year eurobonds with lower interest rates and an 8-year grace period. This amountsto a total of 52% debt forgiveness in current net value terms. "Comprehensive" Paris Clubnegotiations have begun, to determine whether western government creditors will grant Russia morelarge-scale debt forgiveness, or offer debt rescheduling without forgiveness. Germany, which holds48% of that debt, is calling for full repayment. Some of Moscow's critics contend that Russia'srecent economic upturn and its substantial increases in defense spending should be taken intoaccount by western governments considering further debt forgiveness for Russia. The United States holds about 5% of Russia's Paris Club debt, about $3 billion. Some Members of Congress have expressed interest in helping Russia reduce its Paris club debt as a way ofaccelerating economic recovery, or for more targeted aims, such as funneling more money intoRussian nonproliferation activities. In December 2001, the Senate unanimously passed the RussianFederation Debt Reduction for Nonproliferation Act of 2001 ( S. 1803 ), sponsored bySen. Biden, and sent it to the House, where it is being considered as part of the State Departmentauthorization bill ( H.R. 1646 ). This bill would link U.S. debt forgiveness for Russiato Russian efforts in WMD nonproliferation. The Bush Administration is believed to have beenleaning toward supporting Russia's quest for debt forgiveness. The House International RelationsCommittee held hearings on this bill July 25, 2002. Political support for this idea, however, mightbe adversely affected by Russia's reported plan to build more nuclear reactors in Iran. As noted above, implicit in Putin's strategic decision to seek integration of Russia with the West is a rejection of the Primakov vision of a Russian-Chinese axis of cooperation against theUnited States as the core of Russia's national security strategy. Beijing and Moscow continue toproclaim good will and harmonious relations between them. Indeed, both countries want and needcalm, friendly, stable bilateral relations. And the Cold War-era, triangular, zero-sum game ofU.S.-Soviet-Chinese relations no longer holds sway. Nevertheless, Putin's turn toward the West does have significant implications for Russian-Chinese and U.S.-Chinese relations. There is stillsome triangularity in these relationships. Putin's western orientation works to the advantage of theUnited States vis-a-vis China by reducing Russian support for China vis-a-vis the United States. An analysis carried by Reuters after the May 2002 Bush-Putin and NATO-Russia summits, entitled, "Russia Ends Cold War with NATO, China Shivers," calls attention to Chinese concernsthat Russia's geostrategic shift could bring U.S.-led forces right up to China's western borders. "Itis probably something that is very ... worrying," said one western diplomat in Beijing, "because thereis a risk of isolation of China." (82) If Russia turnedtoward strategic cooperation with the UnitedStates while the antagonism in U.S.-Chinese relations remained, that could leave Beijing in theposition of being, or appearing to be, the leading anti-American power. That could be a costly andrisky position for China, at a time when it is still struggling to accelerate and complete its economicmodernization. The antagonism in U.S.-Chinese relations noted above (p. 11), however, has not remained unchanged. In the past year there has been a warming, or at least an easing of tension, between thetwo. At the outset, the new Bush Administration promised a tougher approach to China than eitherthe Clinton or the earlier Bush Administration, describing China as a "strategic competitor" of theUnited States. In the aftermath of the collision ( April 1, 2001) of U.S. and Chinese military aircraftnear Hainan Island, the antagonism on both sides deepened. After this rocky start, however, theevents of September 11 appeared to alter the policies in both Washington and Beijing. The BushAdministration appeared to see the potential for Sino-U.S. cooperation against global terrorism asa priority, and U.S. officials down-played differences and problems in the relationship as they soughtChinese support with Asian states and in U.N. initiatives. For their part, after September 11 Chineseleaders have taken steps to improve Sino-U.S. relations, soften U.S. criticism of their policies, anddemonstrate that China can be a responsible global player. (83) The apparent softening of Chinese policy (or rhetoric) toward the United States is probably driven by many factors. One of these is likely to be domestic political struggle in the run up to the16th Communist Party Congress (Fall 2002), at which key leadership changes are expected, includingthe succession to President Jiang Zemin. Many analysts have described part of the internal politicaldynamic as a conflict between proponents and opponents of western-style economic reforms. Relations with the United States gets caught up in this because those who favor moremarket-oriented reform of the economy also tend to favor closer economic and political cooperationwith the advanced industrial democracies, including the United States. Many opponents of furthermarket reform also oppose more opening to the West. Thus, disagreement and political conflict overforeign policy among Chinese political elites can become a subset of - and sometimes even asurrogate for - struggle over fundamental domestic issues. It is also possible that concern grew among Chinese leaders in 2001, after the crisis surrounding the April 1 collision of the U.S. EP-3 aircraft and the Chinese jet fighter, and especially afterSeptember 11, that relations with the United States were deteriorating to a dangerous level. Witha new and unpredictable Administration in Washington that seemed inherently unfriendly to China,Beijing may have decided independently to ease some of the tension as a precautionary measure,regardless of Russian policy. At some point in 2001, Putin's policy shift toward the West probably entered into Chinese calculations and debates about relations with the United States. Those in the Chinese leadership whoopposed the hard-line confrontational approach to the United States could use the Russian shift asan argument against a dangerous Chinese course that risked conflict with America, without theprospect of Russian support. Those in Beijing who advocated a tougher line toward Washingtonmust have been encouraged by Primakov's policy of partnership with China against the globalhegemon - and discomfited by Putin's abandonment of that policy. In the internal Chinese debateover policy toward the United States, Putin's westward tilt may not have been the most importantconsideration. But it most likely was one of the factors that shaped, and is shaping, Chinese policy. Thus, it seems likely that Russia's turn toward the West influenced China to move in the samedirection - although not to the same degree nor for the same reasons. There is an active debate about the appropriate U.S. response to Putin's policy of integrating Russia with the West. American, European, and Russian critics of Bush Administration policytoward Russia make many of the same arguments. The essence of their criticism is that the UnitedStates should do more to reciprocate Putin's cooperativeness and ensure that Russia stays on thiscourse. Some argue that Putin's shift toward the West lacks strong domestic political support and therefore is fragile. Some compare Putin to Gorbachev, warning that Putin's pro-western policycould meet a similar fate - arousing domestic opposition like that which led to the August 1991 coupthat almost toppled, and fatally undermined, Gorbachev's leadership. Others, who see Putin'spolitical position as relatively secure, warn that Putin himself might conclude that his cooperationwith the United States is not yielding the desired reciprocity from Washington, leading him to moveaway from a "failed" policy. Another line of criticism is based on a longer-term view. I.e., Russia'scurrent weakness may be such that it has no choice but to accede to heavy-handed U.S. dominance- however, Russia is likely to recover and once again be a great power, and when it does, it willharbor resentment and animosity toward the United States because of arrogant and short-sighted U.S.policies that ignored Russian vital interests and offended Russian national dignity. All three versionsof this criticism cite the same list of U.S. actions that allegedly are offensive to Moscow, such aswithdrawal from the ABM Treaty, missile defense, NATO enlargement, and U.S. militarydeployments in Georgia and Central Asia. On the other hand, many observers believe that the Administration's approach to Russia is fundamentally sound. Some supporters of Administration policy argue that Russia simply does notmatter very much any more - that with a population smaller than Brazil, a GDP smaller than theNetherlands, and armed forces that have little ability to project power beyond its borders, Russiashould not be treated deferentially, as a great power, by the United States. Some who hold this vieware dismissive of Russia - whether Russia succeeds in becoming a modern state with a functioningmarket economy is their business, not ours. Others view the relationship in terms of "tough love,"helping Russia adjust to its proper status as a regional, rather than a global, power. Still others,focused on the Cold War rivalry, are happy to see Russia as a weak, defeated foe and want to keepit that way. Some supporters of U.S. policy toward Russia contend that Putin's repeated concessions to U.S. positions and acceptance of faits accomplis , acknowledging U.S. force majeure , confirmthecorrectness of that policy - that there was, and is, no need to make undue concessions to Moscow,because Russia has no choice but to go along with the United States, due to Russia's weaknessvis-a-vis the United States and because of Russia's objective need to join the western world, on theWest's terms. Some of those who oppose being deferential to Moscow say that many of Putin's domestic policies are undemocratic, and that the United States should not hesitate to criticize such tendenciesand press the Kremlin to do better. They argue that U.S. silence in the face of Russian governmentabuses such as restrictions on freedom of the press and religion, control over the formation ofpolitical parties, persecution and imprisonment on false charges of political dissidents, and massivehuman rights violations in Chechnya, are a betrayal of U.S. values and a signal to Russian authoritiesthat the United States is not really serious about democracy in Russia as long as Moscow cooperateson security issues. Those who question the wisdom of Administration policy warn that at some point, if Washington is not more forthcoming to Moscow, Russian policy may swing back in the directionthat Primakov favored, and that this would be a tremendous lost opportunity for the United States. Others reply that to the extent that there is a danger of Putin's pro-western policies being reversed, it will hinge not on whether the United States and the West reward Russia, but on whetherPutin's domestic economic policies succeed. After all, these observers contend, Putin's fundamentalrationale is that Russia must integrate with the West in order to reconstruct its economy and achievea decent living standard for its people. If that goal, or appreciable progress in that direction, is notachieved in a reasonable period of time, the pro-western policy will be difficult to sustain. If this istrue, then the United States has not only a humanitarian interest but also a strong self interest inRussia's economic recovery.
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Russian President Putin appears to have made a strategic decision to shift Russian policy toward cooperation with the United States and the West. This is a major departure from the policy that Putininherited from his predecessors, which saw Russia as the leader of a coalition aimed at opposing U.S."global domination." Putin seized upon the events of September 11 to promote his new policy by: cooperating with the United States against Al Qaeda and the Taliban regime in Afghanistan; softening Russianopposition to NATO enlargement, including admission of former Soviet republics, and establishinga new cooperative relationship with NATO; acquiescing in U.S. decisions regarding withdrawal fromthe ABM Treaty, strategic nuclear force reductions, and missile defense; and closing Russia's largemilitary intelligence base in Cuba. The principal reason given by Putin for the new policy is that Russia must integrate with the West in order to reconstruct its own economy and achieve a decent living standard for its people. Putin also acknowledges Russia's weakness and inability to act globally in opposition to the UnitedStates. He may also have rejected as unwise, the previous policy of de facto alliance with Chinaagainst the United States, instead seeing China as a possible long-term threat to Russia. Putin's new policy does not seem to enjoy strong support among Russian political elites, the military and foreignpolicy establishment, and the general public. Putin's overall political power and prestige, however,may be sufficient to sustain the policy. The Bush Administration responded positively to the new Russian policy after September 11. The Administration, however, did not make many concessions on key issues related to arms control,missile defense, and NATO. It has been more forthcoming on some economic issues. The implications of Russia's pro-western policy are overwhelmingly positive for the United States in the war on terrorism and in relations with Russia and China. Russia's strategic choice ofintegration with the West reduces the danger seen by some of Russo-Chinese cooperation againstthe United States. By depriving China of its erstwhile Russian partner, it may encourage China toseek improved relations with the United States - or risk geostrategic isolation. Some sore points remain between Washington and Moscow in which Congress takes a strong interest, such as Russia's continued and possibly expanded plans to construct nuclear reactors in Iran,its support of Iraq, and its heavy-handed policy in Chechnya. There is also friction on some tradeissues. Critics of Bush Administration policy argue that it has not been sufficiently responsive to Putin and risks losing the new cooperativeness. Others reply that Russia has no choice but to continue itspro-western course, in view of Russia's weakness and its self-interest in integrating with the West. In this view, the endurance of Russia's pro-western policy ultimately may depend on Putin's successin reviving the economy and improving Russians' well-being.
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The issue of state courts using servicemember's military service as a factor in child custody hearings has been the subject of legislative action by the U.S. Congress since 2007. The catalysts behind the legislation were allegations from servicemembers that their military service, with the possibility of deployment in support of contingency operations, could be used as a factor in child custody cases to their detriment. Active duty, reserve, and National Guard military members who are single parents with custody of one or more dependents are subject to temporary duty, mobilization, and deployment requirements, often for extended periods. Temporary duty assignments, mobilization, and deployments to areas that do not allow the military member's dependent(s) to accompany them (such as aboard ships or in hostile fire zones) require the servicemember to have contingency plans providing for the care and well-being of their dependent(s) to include temporary custody arrangements if necessary. In some instances, custody battles have ensued when the military parent leaves for duty and the other parent decides to file for temporary or permanent custody of the child in the absence of the servicemember. In other instances, the parent with temporary custody decides he or she does not want to relinquish the child upon the servicemember's return from deployment and subsequently files for permanent custody. The premise behind the proposed legislation is that a servicemember's deployment or potential for future deployments should not play a role in child custody decisions by courts. At the heart of the debate is the potential conflict between the protection of the rights of servicemembers, which is arguably a federal responsibility, and child custody issues, which are traditionally thought of as domestic relations matters within the purview of the States. Although over a century ago, the United States Supreme Court noted in Ex parte Burrus, 136 U.S. 586 (1890) that, ''the whole subject of the domestic relations of husband and wife, parent and child, belongs to the laws of the states and not to the laws of the United States,'' proponents of federal military child custody legislation insist there is precedence for federal intervention where federal interests—such as the rights of servicemembers—are at stake. The most recently proposed military child custody legislation— H.R. 1898 with full text in Appendix A —was introduced on May 8, 2013, and seeks to amend Title II of the Servicemembers Civil Relief Act (50 U.S.C. app. 521 et seq.). The increased deployment of servicemembers resulting from the conflicts in Iraq and Afghanistan has raised difficult child custody issues that some argue could potentially impact the welfare of military children and the ability of servicemembers to effectively serve their country. Of primary concern is the potential for state courts to use a servicemember's previous deployments or the possibility of future deployments when making child custody decisions. According to a 2010 Department of Defense (DOD) report, Approximately 142,000 members of the Armed Forces (active, Guard, and Reserve) are single custodians of minor children. Additionally, a number of servicemembers have re-married and reside in a household comprised of one biological parent and his or her new spouse. Most complex of all situations, perhaps, are those in which a single servicemember has physical custody of a child without ever having obtained an order of custody from any court. When any of these custodial-servicemember parents deploy, attend military training, or attend a service-mandated school, the question arises: "Who takes care of the children while I'm gone?" Child custody cases are traditionally a state matter. And the question of "who takes care of the children while I'm gone" is traditionally answered by a state court family law judge. However, proponents of federal child custody legislation argue the lack of uniform state laws in the treatment of deployed and deploying military parents complicate child custody matters and that the potential exists for state courts to use a servicemember's deployment, or potential deployment, against them when making child custody determinations. Those proposing a national standard for determining military child custody cases argue such legislation would eliminate this possibility by prohibiting state courts from using deployment or the possibility of deployment against a servicemember when making child custody determinations. Opponents, however, argue that such legislation encroaches on the historical precedent of a state's right to adjudicate family law matters, would ultimately place the legal rights of the servicemember above those of the best interest of the child, and is not necessary given that the Servicemembers Civil Relief Act (SCRA) already protects a servicemember's rights in child custody proceedings. Congressional interest in federal legislation for military child custody cases stems from Congress's authority to raise and support the standing armed forces of the U.S. and Congress's authority to, "make rules for the Government and regulation of the land and naval Forces" as well as to "provide for organizing, arming, and disciplining, the militia, and for governing such part of them as may be employed in the Service of the United States." The issue of state courts potentially using military service and deployments against servicemembers in determining child custody cases first came to the attention of Representative Michael R. Turner of Ohio via the 2004 case of Kentucky National Guard Lieutenant Eva Slusher. Lieutenant Slusher (formerly Crouch) temporarily lost custody of her daughter to her ex-husband after serving twelve months on active federal duty followed by an additional four months of temporary duty in order to attend Officer Training School (total of 16 consecutive months on active duty). After a two-year legal battle, Lt. Slusher ultimately regained custody of her daughter after a state appellate court reversed the trial court's decision. Since 2008, some Members of Congress have proposed amendments to the Servicemembers Civil Relief Act (50 U.S.C. App. §§501-597b) that would establish a national standard for litigating child custody cases in which the child custodian is in military service. The latest version of the proposed legislation— H.R. 1898 (May 8, 2013)—mandates: If a court renders a temporary order for custodial responsibility for a child based solely on a deployment or anticipated deployment of a parent who is a servicemember, then the court shall require that, upon the return of the servicemember from deployment, the custody order that was in effect immediately preceding the temporary order shall be reinstated, unless the court finds that such a reinstatement is not in the best interest of the child; Would prohibit a court from using deployment or the possibility of deployment as the sole factor in determining the best interest of a child; Seeks to establish that nothing in H.R. 1898 shall create a Federal right of action or otherwise give rise to Federal jurisdiction or create a right of removal; and, Establishes that where State laws applicable to child custody proceedings involving a temporary order provide a higher standard of protection to the rights of the parent who is a deploying servicemember than the rights provided under H.R. 1898 , the appropriate court shall apply the higher State standard. Similar language has passed only in the House on seven separate occasions; six times as part of the House version of the National Defense Authorization Act (FY08/09/10/11/12/13), and once as a stand-alone bill by voice vote in 2008 ( H.R. 6048 ). However, all versions of the proposed legislation have failed to pass in the Senate where concerns exist over enacting federal legislation that would preempt State laws and their approach to child custody issues. The only existing federal statutory protection for single-parent servicemembers involved in child custody disputes is the Servicemembers Civil Relief Act (SCRA) (50 U.S.C. App. §§501-597b), formerly known as the Soldiers' and Sailors' Civil Relief Act (SSCRA). The purpose of this act is (1) to provide for, strengthen, and expedite the national defense through protection extended by the SCRA to servicemembers of the United States to enable such persons to devote their entire energy to the defense needs of the Nation; and (2) to provide for the temporary suspension of judicial and administrative proceedings and transactions that may adversely affect the civil rights of servicemembers during their military service (applicable excerpts from the SCRA pertaining to child custody can be found in Appendix C ). In response to Congress's earlier attempts at passing federal child custody legislation, language was passed in the FY2008 National Defense Authorization Act ( P.L. 110-181 ) that amended Sections 201(a) and 202(a) of the SCRA clarifying its applicability to child custody cases. Under the SCRA, judges must grant a stay of legal proceedings applicable to any civil action or proceeding, including any child custody proceeding, in which the defendant's military service affects their ability to participate in the proceedings. However, such stays are mandatory for only the first 90 days after a servicemember's deployment after which time they may apply for an additional stay based on the continuing material effect of military duty on the servicemember's ability to appear. Entry of such additional stays is at the discretion of the court and many times are not granted based on resolving custody issues in the interest of the affected child/children. Proponents of federal child custody legislation argue the SCRA is inadequate when it comes to the rights of servicemembers dealing with child custody issues. Although it protects the rights of the servicemember to be present at the custody proceedings by requiring judges to grant a stay of legal proceedings, proponents argue the SCRA does not prevent courts from using the servicemember's military service against them in making the final custody determination. In addition, proponents point out the SCRA does not provide procedures for entry of temporary custody arrangements nor does it provide guidance on how courts should balance servicemembers' interests against other relevant interests, including the best interest of the child. Opponents argue the SCRA provides military parents protection in concert with state laws and without federal litigation. In a May 22, 2012 letter to the Senate Armed Services Committee, William T. Robinson III, President of the American Bar Association, wrote that, "The SCRA prevents any permanent change in parental rights until a reasonable time following an absent servicemember's return" and "unlike the proposed legislation, the SCRA applies to all cases, including support and visitation rights, those involving custody over an incapacitated adult and the considerable cases where there is no original custody order in place." In 2010, the DOD submitted a Priority DOD Appeal to the FY2010 Defense Authorization Bill ( H.R. 2647 , Section 584) arguing that in many of the high-visibility child custody cases, the basic and generally easily met prerequisites for automatic 90-day stays under the SCRA were simply not followed (DOD's priority appeal can be found in Appendix D ). In other cases, judges simply ignored the SCRA or it was not properly pled. In the DOD's assessment, this indicates a lack of education about the effect and use of the SCRA rather than a problem with its substantive limitations. At the heart of the legislative debate is the potential conflict between the protection of the rights of servicemembers, which is arguably a federal responsibility, and jurisdiction over child custody issues, which traditionally falls within the purview of the States. Representative Turner and other proponents argue that federal legislation protecting servicemembers in child custody cases will provide a national uniform standard for determining military child custody cases instead of the multiple legal precedencies used amongst the states. Citing differences in state laws on the question of whether deployment or the potential for deployment can be used as criterion by courts in child custody determinations, proponents argue this lack of a national standard creates the risk for servicemembers that their military service will be used against them in determining the best interest of the child. Proponents also argue that difference in state laws could provide an opportunity for ex-spouses to venue shop until they find a state that will alter previously settled custody agreements. Furthermore, proponents also point out that many servicemember custody battles may involve up to three states which further compounds the problem; the state of the original custody order, the state where the child is residing, and the state where the servicemember is stationed. Proponents argue federal legislation establishing a national standard for resolving military child custody cases would resolve the inconsistencies among the states, create more certainty in the process, and enhance military readiness and morale. Opponents of a federal standard argue that the issue of child custody and any family law matter are the proper province of state law. In a 2011 white paper on federal military child custody, the American Bar Association (ABA) noted that, rather than encouraging states to pass laws, proposed legislation would federalize the area of child custody, removing any incentive for states to pass or improve existing custody laws protecting servicemembers. According to the ABA, the states have the background and expertise to write, pass and enforce such legislation. In addition, the ABA argues there is "no single national standard" for the return of child custody after a deployment, nor should there be. The ABA writes, Throughout the area of family law, the states have been preeminent, as against the concept of "single standard" whether in the area of military pension division, grounds for divorce for military personnel, or establishment of family support. Each case is unique, and a single national standard would tie up military cases involving custody into a federal straightjacket.... It is not the province of federal law to provide detailed and specific instructions on how to handle child custody cases, whether these involve custodial parents who are members of the armed forces, the State Department, the Central Intelligence Agency or the federal civil service. Congress should not interject itself into writing rules for custody and visitation; this is the responsibility of state courts. Opponents also argue that passage of federal child custody legislation would lead directly to federal court involvement where the final custody determination will be made by federal judges who are not versed in family law issues—not to mention the increased cost, delay, and uncertainty for all parties involved due to increased oversight by the federal courts. Furthermore, opponents argue that states have residency requirements that must be met that in effect, limit or make difficult the possibility of "venue shopping" or multiple jurisdiction venues. Although both sides of the debate agree that no court should show a bias for a non-deploying parent or a prejudice against a military parent solely because military service may require the servicemember to be temporarily away from the child, they disagree on the extent to which deployment or the threat of deployment plays in determining the best interest of the child. When courts make child custody determinations (specifically, the home in which to place the child) the ultimate criteria for determination is usually cited to be "the best interest of the child." A decision in "the best interest of the child" could include considering the wishes of the child's parents, the wishes of the child, the child's relationship with each parent, siblings and other persons who may substantially impact the child's best interests, the child's comfort in his home, school and community, and the mental and physical health of the involved individuals. There is rarely, if ever, a single variable that plays as the sole determiner in child custody decisions. Therefore, although a DOD review of 33 military child custody cases did not reveal a single instance in which deployments or threat of deployments was the sole factor in withholding custody or loss of custody from a servicemember, the effects of deployments on the child's best interest was considered by courts in some cases as one of the myriad of factors analyzed in determining the best interest of the child. Supporters of federal legislation argue this is not always the case and all too often, state courts disproportionately use a servicemember's military service against them, therefore, a federal standard is needed to prohibit a court from using deployment or the possibility of deployment when determining the best interest of a child. However, opponents point to the DOD's study as evidence there is no reported child custody case in which deployment or the threat of deployment was the sole factor in any initial determination of custody or loss of custody by a servicemember. Furthermore, opponents argue such legislation, if enacted, would ignore any potential effects deployments would or could have on a child and would ultimately place the rights of servicemembers over those of the best interest of the child—which is and should be the ultimate determinant in child custody cases. Likewise, they contend this change would only affect one element—military service considerations—in custody hearings and, arguably, would not "federalize" such cases. Legal experts and opponents of federal child custody legislation point out that proposed legislation would allow any loser of a military child custody case at the state level to seek a better outcome in federal court. Although language in the most recent legislative proposal ( H.R. 1898 , May 8, 2013) states, "Nothing in this section shall create a Federal right of action or otherwise give rise to Federal jurisdiction or create a right of removal," most legal analysts agree such a provision is misleading. According to the American Bar Association (ABA), such language would not prevent removal to federal court under 28 USC § 1442a and cannot prevent federal review of the enforcement of a right conferred under federal statute. Sighting the legal precedence established in Puerto Rico v. Russell & Co., 288 U.S. 476, 53 S.Ct. 477, 77 L.Ed. 903 (1933), the ABA points out that, "Federal jurisdiction may be invoked to vindicate a right or privilege claimed under federal statute." In the opinion of the ABA, federal rights such as those proposed in H.R. 1898 would lead directly to federal court involvement in military child custody cases. According to the ABA, Whenever counsel wants to avoid unpleasant results in state court, the procedure of removal to federal court is the logical next step. While Mr. Turner's bill doesn't create a federal right of action, it says nothing about the existing remedy of removal under 28 U.S.C. § 1442a if the defendant is a servicemember-parent. Such a transfer will add months and months onto the custody litigation, while a federal judge decides whether to take the case or send it back to state court ... It's simple: there's nothing in the proposed legislation which bars removal to federal court. [emphasis in original] Although efforts at child custody legislation has received general support in the House, having passed on seven separate occasions and with sixty members from both sides of the aisle signing on to a previous version ( H.R. 6048 , 110 th Congress) as co-sponsors, this has not been the case in the Senate. All seven federal child custody bills passed in the House and introduced in the Senate since 2008 have not made it out of Senate committees. Most in the Senate agree there should be some level of protection for military personnel in child custody disputes, but they oppose federal legislation as a means to provide it. Most concerns in the Senate center on the potential for federal intrusion in what is traditionally a state matter and the opinion that the Servicemembers Civil Relief Act adequately provides protection to servicemembers in child custody disputes. In a July 28, 2009 letter to Representative Turner, Senator John McCain noted that Child custody laws and litigation, as you know, have traditionally been the province of the States. I suggest that we need to proceed with care in considering federal legislation that would preempt the States in their approaches to the child custody issues you have identified ... I'm am not convinced at this point that there needs to be a nationwide standard in view of the historical federal deference to the State legislatures and the obvious concern that the States have shown about this issues. I also have some concerns about the opposition that has been raised to your proposal from Associations with expertise in this area. The Senate Veterans' Committee, the committee with jurisdiction over the Servicemembers Civil Relief Act, has opposed the legislation you have advanced. In addition, the American Bar Association, led by its Standing Committee on Legal Assistance for Military Personnel, issued a resolution in February 2009 that opposed modifying the SCRA in the way you have suggested. In what appears to be a compromise and concerted attempt at acquiring more data to support any decision on the matter, the Senate Armed Services Committee (SASC) supported a House Armed Services Committee (HASC) recommendation that would require the Secretary of Defense to submit to both committees a report on judicial cases involving child custody disputes in which the service of a deployed or deploying member of the armed forces, active or reserve, was an issue in a child custody dispute. In their support for the report, as required by the 2010 National Defense Authorization Act ( P.L. 111-84 , Section 572) the SASC wrote, The committee [SASC] believes that comprehensive factual information regarding State courts' actual experience with this issue and an assessment of the scope and nature of this problem is essential before any federal preemption of State legislation would be warranted. (Results of this report, accomplished by the DOD and submitted in May, 2010, are discussed below.) The SASC report, although supportive of the House recommended report from the DOD, went on to express apprehension towards federal child custody legislation by expressing the preference to emphasize personal responsibility of the servicemember, along with the DOD's oversight responsibility, in preparing and coordinating effective family care plans. The Senate's version of the 2009 National Defense Authorization Act ( S. 1390 ) included a "Sense of Senate" on the preparation and coordination of family care plans and made the following finding: Family Care Plans provide a military tool to document the plan by which members of the Armed Forces provide for the care of their family members when military duties prevent members of the Armed Forces from doing so themselves. Properly prepared Family Care Plans are essential to military readiness. Minimizing the strain on members of the Armed Forces of unresolved, challenged, or voided child custody arrangements arising during deployments or temporary duty directly contributes to the national defense by enabling members of the Armed Forces to devote their entire energy to their military mission and duties. When Family Care Plans are properly prepared and coordinated with all affected parties, the legal difficulties that may otherwise arise in the absence of the military custodial parent often can be minimized, if not eliminated. It should be noted that although Family Care Plans are an effective tool in arranging for the terms of care for dependent family members of servicemembers in the event of a deployment or extended active duty, they are not legally binding and do not codify the terms of any existing or any potential future custody dispute between a servicemember and his or her ex-spouse. It is simply a plan—ideally with the consent of both the servicemember and the ex-spouse—for the care of the dependent(s) while the servicemember is gone. However, if properly drafted with the concurrence of both parties and with proper legal assistance, the terms of the Family Care Plan may be used—on a case-by-case/state-by-state basis—as supporting evidence in any potential custody dispute resulting from the servicemember's deployment or active duty service associated with the execution of that Family Care Plan. The Senate committee responded to the House version of the FY2013 National Defense Authorization Act ( H.Rept. 112-479 , Part 1, sec 564) with a recommendation to obtain the views of the Council of Governors regarding such legislation. The committee (SASC) directs the Secretary of Defense to request the views and recommendations of the Council of Governors regarding legislative proposals to amend title II of the Servicemembers Civil Relief Act (50 U.S.C. App. 521 et seq.) (SCRA), or otherwise to establish federal law that would prohibit State courts from considering the absence of the service member by reason of deployment, or the possibility of deployment, in determining the best interest of the child in cases involving child custody. As the Supreme Court noted in Ex parte Burrus, 136 U.S. 586 (1890), over a century ago, ''the whole subject of the domestic relations of husband and wife, parent and child, belongs to the laws of the states and not to the law of the United States.'' The committee [SASC] is concerned that the implications of preemptive legislation that would extend beyond existing procedural protections in the SCRA and that would create a standard for adjudicating child custody disputes are not warranted either by case law or the proactive legislation enacted by more than 40 States. A federal legal standard would preempt the efforts of the States over a matter traditionally left to State courts. State Governors should be afforded the opportunity to formally express their views prior to congressional action being taken. This recommendation by the SASC did not make the final Senate version of FY2013 NDAA ( S. 3254 ) and thus, was not included in the final version of the FY2013 NDAA ( P.L. 112-239 ). Overall, DOD has generally opposed repeated congressional attempts at federal child custody legislation with the exception of a brief period in early 2011 when then Secretary Gates had a seemingly change of heart near the end of his tenure. However, during the earlier stages of these legislative efforts, former Secretary Gates had expressed DOD's opposition to federal child custody legislation in a September 25, 2009 letter to Representative Turner: In response to the New York Times story about Specialist Mendoza and your most recent letter, I asked my staff to take a fresh look at this issue. Our General Counsel has reviewed the various state law protections for Service members. We find that, at present, some level of protection for Service members facing child custody issues exists in approximately 28 states, but the states' approaches to the issues vary widely. Many of these variances no doubt reflect different societal dimensions of the problem in different communities across the country. Thus, we have concluded that it would be unwise to push for federal legislation in an area that is typically a matter of state law concern. However, Secretary Gates did go on to acknowledge in the letter a number of steps that he and DOD should take in an effort to ensure protection of Service members in child custody cases to include Personally contacting the governors of each of the states that have yet to pass legislation addressing the special considerations of child custody cases in the military and to urge them to pass such legislation; Including concerns over child custody matters on the list of the Department's 10 Key Quality of Life Issues that were presented to governors, state legislators and other state officials; Improving liaison efforts between the Department's Office of Legal Policy and the Department's ten Regional State Liaisons to aggressively reach out to state officials whose legislators have not addressed military custody concerns to provide them with appropriate and effective draft language and to develop a general strategy for focusing on those states with the largest military populations; Having the military service Judge Advocates General and Staff Judge Advocate to the Commandant ensure they are doing all they can to work with the American Bar Association (ABA) to publicize, emphasize and support the ABA's national pro bono project to provide Service members free legal representation from some of the country's most accomplished child custody practitioners; and, Engaging with the military services to update and standardize Family Care Plans (FCPs) across the services... The Department is convinced that these efforts can resolve far more issues in favor of our Service members than can new federal legislation. In addition to Secretary Gates' September 2009 letter, DOD also issued a Priority Department of Defense Appeal to the FY2010 Defense Authorization Bill, H.R. 2647 , Section 584 ( Appendix D ), stating, The Department opposes section 584. This proposal, which has been included in substantially the same form for the last three legislative sessions, would disrupt State domestic schemes, discourage passage of broader, more helpful State laws, and increase cost, delay, and uncertainty due to increased oversight by the Federal courts. The Department applauds the efforts by almost thirty States to pass legislation that addresses the special circumstances facing parents who have dropped their own affairs to take up the burdens of the nation, and encourages the remaining States to consider similar legislation. The Department also recognizes the complexities of such cases, and the difficulties in balancing the interests of the Servicemember against the best interest of the child and the consequences of a parent's absence due to military service. The States, however, are in the best position to balance these equities within the context of their domestic relations laws. To complement the exceptional efforts of the State, DoD is revamping its Family Care Plan (FCP) guidance to the Services, further obviating the need for this legislation. Although Section 584 of H.R. 2647 did not pass in the Senate, language in the FY2010 National Defense Authorization Act ( P.L. 111-84 , Section 572) did pass requiring DOD to submit to the Committees on Armed Services of the Senate and House of Representatives a report on all known reported cases since September 2003 involving child custody disputes in which the deployment status of a service member of the Armed Forces, whether a member of a regular component or a reserve component, was an issue in the custody dispute. The report, which was submitted to Congress on May 14, 2010, looked at 33 reported appellate cases decided since 2003 and an America Law Review Annotation, "Effect of Parent's Military Service Upon Child Custody," 21 A.L.R. 6 th 577 (2007). The DOD report concluded: As the research into reported cases and the other evidence gathered during preparation of this Report have shown, no custody battle is decided by a single factor and there is no judicial trend and no reported case suggesting that servicemembers are losing custody of their children solely because of their military service. [emphasis in original] Moreover, it is abundantly clear that the legislatures of the states are the appropriate venue for balancing the competing equities of the deploying servicemember and the best interest of the child. Federal legislation in this area would be counter-productive at best and harmful at worst. The United States Supreme Court has indicated on any number of occasions that matters related to child custody and visitation or other "adjustments to family status" are best left to state—and not federal—courts. see Ankenbrandt v. Richards and Kessler, 504 U.S. 689, 703-04 (1992). There is no evidence of any trend in family courts to remove custody of minor children from servicemembers solely as a result of deployment or the prospect of deployment. The vast majority of cases reported by the media in which such allegations have been made involve servicemembers who ultimately prevail in litigation against their former spouses (or the other biological parent of the child involved), and who are understandably unhappy about the expense in attorney fees and time that such litigation causes. However, no legislation can prevent dedicated ex-spouses from filing change of custody actions and efforts at "one size fits all" statutes that mandate a particular outcome based on a single factor are ill-advised and unworkable. [emphasis in original] The Department believes that effective legislation on the state level more appropriately address the issues of child custody related to military service. Moreover, the most effective measure to minimize the potential disruption of child custody litigation involving deployed or deploying servicemembers is an appropriate Family Care Plan, which emphasizes early consultation with the non-custodial parent concerning custody arrangements in the event of deployment. Although military service was not the sole factor—positively or negatively—in the custody decisions presented, the DOD's report does exclude such service as playing a contributing role in the final decision as to the best interest of the child. Thus, the House Armed Services Committee was not wholly satisfied with the DOD's report and expressed concern with its conclusions with language in H.Rept. 111-491 on the FY2011 National Defense Authorization Act ( H.R. 5136 ). The committee is concerned the Department limited the scope of the report to cases where military service was the sole factor in determining custody instead of cases where it was an issue in the custody dispute. The committee is aware that during a hearing held by the House Veteran's Affairs Subcommittee on Economic Opportunity in February 2010, the Department of Defense (DOD) witness testified that the department had to ''resort to anecdotal data'' in the course of preparing the report mandated by the National Defense Authorization Act for Fiscal Year 2010. The report discusses the challenges faced with gathering data through available case law research tools and the limited information to conduct detailed research required by the National Defense Authorization Act for Fiscal Year 2010. From this, the committee concludes that there is not sufficient data available to ascertain the full scope of how many members of the Armed Forces experience the loss of child custody as a result of their service. Although the committee is encouraged with the Department's efforts to encourage states to change their laws to better support service members and its efforts to better educate service members who may have potential child custody issues; the committee continues to support the need for congressional legislation to provide maximum protection for our service members and their children, who, while deployed, remain at risk of having that deployment used against them to determine or change child custody arrangements. Nevertheless, on February 15, 2011 outgoing Secretary Gates sent a letter to Representative Turner withdrawing his objections to the federal child custody legislation. No specific reason was cited by Secretary Gates for his change in position and the judge advocates in the Pentagon who had consistently opposed the proposed legislation were not consulted before the letter was sent. In the letter, Secretary Gates wrote, I have been giving this matter a lot of thought and believe the Department of Defense should change its position to one where they are willing to consider whether appropriate legislation can be crafted that provides Service members with a federal uniform standard of protection in cases where it is established that military service is the sole factor involved in a child custody decision involving a Service member ... we should work with Congress to pursue an acceptable legislative formula. Since Secretary Gates' reversal in position and his departure in July, 2011, DOD support for federal child custody legislation has been somewhat in question. In testimony before the HASC, former Secretary of Defense Leon Panetta's support for child custody legislation was questioned as well as his support in opposing efforts by the Uniform Law Commission in drafting the Uniform Deployed Parents Custody and Visitation Act (UDPCVA) of 2012. In response to such questioning, Secretary Panetta stated, "As I indicated to you in my letter, I support the efforts that you've made, you've provided tremendous leadership on this issue, and I will do the same with regards to the amendments on the Senate side." However, when the legislation passed in the House version of the FY2013 National Defense Authorization Act, Secretary Panetta responded with a letter to Representative Turner on April 30, 2012 stating, "the bill as written ... and now passed by the House ... needs a small but critical revision and that without it, the bill would appear to constitute a federal mandate to state courts that they, in certain circumstances, subordinate the best interest of the child to the interest of an adult service member. As I [Secretary Panetta] understand it, the best interest of the child should always be the highest priority in child custody cases." Secretary Panetta expressed his concern by writing, As a lawyer and former legislator, I am sensitive to avoiding legislation that dictates an outcome in certain court cases, without regard to the best interests of the parties before the court in the particular situation—that is especially important when children are involved. One potential solution is to add the words "as the sole factor" between the words "deployment" and "in determining" at lines 25-26 of page 2 of the bill. We believe this simple addition preserves a degree of flexibility that enables the court to always fashion a remedy in the best interest of the child. The language "as the sole factor" was incorporated into the latest legislative proposal ( H.R. 1898 ). However, no further statements have been made by DOD since former Secretary Panetta's letter to Representative Turner. It is unclear which side of this debate recently-confirmed Secretary of Defense Hagel will take. The American Bar Association (ABA) is on record opposing any federal child custody legislation through ABA Resolution 106, passed in 2009. Resolution 106 argues against congressional action to place in federal law a set of protections for military members who have custody and are being deployed or returning from deployment. The resolution points out that this is the responsibility of the states, about 40 of whom have already passed such legislation. Specifically, the resolution states: RESOLVED, That the American Bar Association opposes the enactment of federal legislation that would: (a) create federal question jurisdiction in child custody cases, including cases involving servicemember-parents, (b) dictate case outcomes or impose evidentiary burdens in state child-custody matters involving servicemember-parents, (c) co-opt the discretionary authority of state courts, in cases involving servicemember-parents, to determine the best interest of the child and award custody accordingly, (d) pre-empt the growing body of state laws that comprehensively address servicemember domestic relations matters, including child custody, FURTHER RESOLVED, That the American Bar Association urges the states to enact legislation prohibiting denial of child custody to a servicemember based solely on absence due to military deployment. The National Governors Association went on record opposing federal efforts to intervene in military family matters that are addressed by state law. In a May 20, 2010 letter to both the Senate and House Armed Service Committees, Governors James Douglas (Vermont) and Joe Manchin III (West Virginia), on behalf of the nation's governors, wrote, The nation's governors oppose federal efforts to intervene in sensitive and complex military family matters that are addressed by state law. The challenges of repeated and extended deployments of our service men and women place a great strain on military families. States recognize these challenges and are taking steps to support and protect the rights of both servicemembers and the needs of their children. To date, nearly 30 states have passed substantive legislation tailored to address family law complexities surrounding deployed parents. In addition, states continue to work closely with the Department of Defense regarding special considerations for military child custody cases. States have the systems, social services resources and expertise in place to appropriately and efficiently address domestic relations issues. Consequently, congressional intervention is not warranted and could have unintended adverse consequences for those it is trying to help. We urge Congress to reject legislative attempts to preempt state family law with federal legislation. The Adjutants General Association of the United States (AGAUS), consisting of the fifty-four Adjutants General, represents the senior leadership of the Army National Guard and Air National Guard of the fifty states, the District of Columbia, Puerto Rico, Guam, and the U.S. Virgin Islands. AGAUS went on record in May 19, 2010 stating, "AGAUS believes domestic relations matters involving National Guard and other service component members are best adjudicated through the existing framework of state laws and court-integrated social services and their existing safeguards built into the federal Servicemembers Civil Relief Act." In their stated resolution, AGAUS opposes enactment of federal legislation that would: Create federal-question jurisdiction in child custody cases, including cases involving National Guard and other service component member-parents; or Dictate case outcomes or impose evidentiary burdens in state child-custody matters involving National Guard or other service component member-parents; or Infringe upon the sovereign authority of states to enact state laws, applied and enforced in state courts, to determine family law matters including child custody and to award custody based on a state court assessment of the best interest of the child; or Preempt state law that address child custody and other domestic relations matters so long as such laws do not discriminate against National Guard and other service component members based upon their military status or the performance of their military duties. AGAUS further resolved to urge states to enact legislation prohibiting a change of custody or denial of child custody to a National Guard or other service component member based solely on the service member's status or absence due to military deployment. Founded in 1969, the National Military Family Association (NMFA) is recognized as the leading non-profit organization focusing on issues important to military families. In a July 21, 2009 letter to the Senate Armed Services Committee, the NMFA went on record in their support for the ABA's Resolution 106 stating, "Based on our (NMFA) experience, we agree with the ABA that federal intervention in what has traditionally been a state matter would be burdensome to the states and stifle the efforts they have already made to address the issues. Educating state and local judges would also go a long way in alleviating confusion and misconceptions about the Servicemembers Civil Relief Act." The NMFA has also expressed their support of the Uniform Law Commission's, Uniform Deployed Parents Visitation and Custody Act (UDPCVA) and recommends its adoption by all 50 states. In response to federal legislative efforts, the Uniform Law Commission (also known as The National Conference of Commissioners on Uniform State Laws) drafted and approved the Uniform Deployed Parents Custody and Visitation Act (UDPCVA) in July, 2012 that addresses the issue of child custody and visitation that arise when parents are deployed in military or other national service. Established in 1892, the Uniform Law Commission provides states with non-partisan, draft legislation that seeks to bring standardization to critical areas of state statutory law. The UDPCVA offers a set of uniform codes that state legislatures can adopt to standardize custody rights for military parents who are deployed. Attorney Eric Fish, legal counsel for the Uniform Law Commission, acknowledges that state courts have struggled with issues such as how to determine jurisdiction when a member is assigned to a base in another state, whether a step-parent or grandparent can have visitation rights when a parent is deployed, and whether a temporary custody arrangement should be made permanent when a parent returns from deployment. According to Mr. Fish, "States are all across the board on those issues, so the impetus for the uniform act was to provide states with a well-conceived piece of legislation that takes the best practices from all the states that we have seen and give them some guidance." The Uniform Law Commission opposes any federal legislation that seeks to protect deployed servicemembers in child custody cases based on the argument that family law is a state's rights issue. According to Mr. Fish, while the proposed federal law and the UDPCVA share some similarities, the federal law is vague and would create unnecessary complexity to an already complicated area of law. Mr. Fish argues that the Uniform Law Commission's approach "maintains states' rights and protects service members across the country, without creating an invasive federal system that is just going to confuse child custody." Representative Turner disagrees with Mr. Fish's assessment and argues his bill would not create federal jurisdiction for custody matters, but instead would ensure minimum protections for military parents: "Our bill only establishes a floor minimum ... States could have and do have much more stringent pro-military custody statues." Representative Turner argues, "Our bill certainly permits the courts' taking into consideration the best interests of the child, however, it does not permit the service member's absence in serving our country to be used against them. The uniformed law that's currently being considered would do absolutely that and would result in service member's losing their children." According to data compiled by the Congressional Research Service Legal Division and the Uniform Law Commission, 46 of the States have passed some version of military child custody legislation that is in line with and/or incorporates some aspect of the Uniform Deployed Parents Custody and Visitation act (see Appendix E ) with the exceptions being Alabama, Massachusetts, Minnesota, and New Mexico (and the U.S. territories of Guam, Puerto Rico and the Virgin Islands). Of those four states without a current law, Massachusetts has legislation pending. The issue of military child custody will likely continue to be the subject of legislative action by the Congress until supporters of such legislation are satisfied that state courts are in fact, not using servicemember's military service as a the sole factor in determining child custody hearings. Although previous attempts at passing military child custody legislation indicates there is strong support in the House, the Senate remains cautious about passing legislation that, in their perspective, could potentially intrude on the rights and jurisdiction of the states to try such cases. Nevertheless, 46 states have taken action to pass some form of military child custody legislation. Therefore, the future debate in Congress will potentially center on the extent to which federal involvement in military child custody cases is needed given the perceived adequacies/inadequacies of each states laws. Ultimately, any legislation, whether federal, state, or a combination, will most likely hinge on determining what is in the best interest of the child/children as most legal experts agree, that is the most important factor when determining child custody cases. Appendix A. H.R. 1898 , 113 th Congress, 1 st Session, May 8, 2013 A BILL To protect the child custody rights of deployed members of the Armed Forces, and for other purposes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SECTION 1. PROTECTION OF CHILD CUSTODY ARRANGEMENTS FOR PARENTS WHO ARE MEMBERS OF THE ARMED FORCES. (a) CHILD CUSTODY PROTECTION.—Title II of the Servicemembers Civil Relief Act (50 U.S.C. App. 521 et seq.) is amended by adding at the end the following new section: ''SEC. 208. CHILD CUSTODY PROTECTION. (a) RESTRICTION ON TEMPORARY CUSTODY ORDER.—If a court renders a temporary order for custodial responsibility for a child based solely on a deployment or anticipated deployment of a parent who is a servicemember, then the court shall require that, upon the return of the servicemember from deployment, the custody order that was in effect immediately preceding the temporary order shall be reinstated, unless the court finds that such a reinstatement is not in the best interest of the child, except that any such finding shall be subject to subsection (b). (b) LIMITATION ON CONSIDERATION OF MEMBER'S DEPLOYMENT IN DETERMINATION OF CHILD'S BEST INTEREST.—If a motion or a petition is filed seeking a permanent order to modify the custody of the child of a servicemember, no court may consider the absence of the servicemember by reason of deployment, or the possibility of deployment, as the sole factor in determining the best interest of the child. (c) NO FEDERAL JURISDICTION OR RIGHT OF ACTION OR REMOVAL.—Nothing in this section shall create a Federal right of action or otherwise give rise to Federal jurisdiction or create a right of removal. (d) PREEMPTION.—In any case where State law applicable to a child custody proceeding involving a temporary order as contemplated in this section provides a higher standard of protection to the rights of the parent who is a deploying servicemember than the rights provided under this section with respect to such temporary order, the appropriate court shall apply the higher State standard. (e) DEPLOYMENT DEFINED.—In this section, the term 'deployment' means the movement or mobilization of a servicemember to a location for a period of longer than 60 days and not longer than 540 days pursuant to temporary or permanent official orders— (1) that are designated as unaccompanied; (2) for which dependent travel is not authorized; or (3) that otherwise do not permit the movement of family members to that location. (b) CLERICAL AMENDMENT.—The table of contents 18 in section 1(b) of such Act is amended by adding at the end of the items relating to title II the following new item: "208. Child custody protection." Appendix B. Status of H.R. 1898 and History of FY2013 ( H.R. 4201 ) Military Child Custody Legislative Efforts H.R. 1898 , 113 th Congress 5/8/2013: Referred to the House Committee on Veterans' Affairs. 5/24/2013: Referred to the Subcommittee on Economic Opportunity. H.R. 4201 Servicemember Family Protection Act, 112 th Congress 3/16/2012: Referred to the House Committee on Veterans' Affairs. 4/27/2012: Committee Consideration and Mark-up Session Held. (Markup report: CQ) 4/27/2012: Ordered to be Reported by Voice Vote. 5/18/2012 3:37 pm: Reported by the Committee on Veterans' Affairs. H.Rept. 112-488 . 5/18/2012 3:37 pm: Placed on the Union Calendar, Calendar No. 341. 5/30/2012 5:33 pm: Mr. Stearns moved to suspend the rules and pass the bill. 5/30/2012 5:33 pm: Considered under suspension of the rules. (consideration: CR H3234-3236) 5/30/2012 5:33 pm: DEBATE - The House proceeded with forty minutes of debate on H.R. 4201 . 5/30/2012 5:47 pm: At the conclusion of debate, the Yeas and Nays were demanded and ordered. Pursuant to the provisions of clause 8, rule XX, the Chair announced that further proceedings on the motion would be postponed. 5/30/2012 7:01 pm: Considered as unfinished business. (consideration: CR H3248-3249) 5/30/2012 7:07 pm: On motion to suspend the rules and pass the bill Agreed to by the Yeas and Nays: (2/3 required): 390 - 2 (Roll no. 295). (text: CR H3234) 5/30/2012 7:07 pm: Motion to reconsider laid on the table Agreed to without objection. 6/4/2012: Received in the Senate and Read twice and referred to the Committee on Veterans' Affairs. Bill was not incorporated in the FY2013 National Defense Authorization Act. Appendix C. Servicemembers Civil Relief Act ("SCRA") 50 U.S.C. App. §§ 501-597b—Applicable Excerpts § 501. Short title [Sec. 1] This Act [50 U.S.C. App. §§ 501 et seq. ] may be cited as the Servicemembers Civil Relief Act. § 502. Purpose [Sec. 2] The purposes of this Act are— (1) to provide for, strengthen, and expedite the national defense through protection extended by this Act to servicemembers of the United States to enable such persons to devote their entire energy to the defense needs of the Nation; and (2) to provide for the temporary suspension of judicial and administrative proceedings and transactions that may adversely affect the civil rights of servicemembers during their military service. TITLE I — GENERAL PROVISIONS § 512. Jurisdiction and applicability of Act [Sec. 102] (a) Jurisdiction This Act applies to— (1) the United States; (2) each of the States, including the political subdivisions thereof; and (3) all territory subject to the jurisdiction of the United States. (b) Applicability to proceedings This Act applies to any judicial or administrative proceeding commenced in any court or agency in any jurisdiction subject to this Act. This Act does not apply to criminal proceedings. (c) Court in which application may be made When under this Act any application is required to be made to a court in which no proceeding has already been commenced with respect to the matter, such application may be made to any court which would otherwise have jurisdiction over the matter. § 513. Protection of persons secondarily liable [Sec. 103] (a) Extension of protection when actions stayed, postponed, or suspended. Whenever pursuant to this Act a court stays, postpones, or suspends (1) the enforcement of an obligation or liability, (2) the prosecution of a suit or proceeding, (3) the entry or enforcement of an order, writ, judgment, or decree, or (4) the performance of any other act, the court may likewise grant such a stay, postponement, or suspension to a surety, guarantor, endorser, accommodation maker, comaker, or other person who is or may be primarily or secondarily subject to the obligation or liability the performance or enforcement of which is stayed, postponed, or suspended. (b) Vacation or set-aside of judgments. When a judgment or decree is vacated or set aside, in whole or in part, pursuant to this Act, the court may also set aside or vacate, as the case may be, the judgment or decree as to a surety, guarantor, endorser, accommodation maker, comaker, or other person who is or may be primarily or secondarily liable on the contract or liability for the enforcement of the judgment or decree. (c) Bail bond not to be enforced during period of military service. A court may not enforce a bail bond during the period of military service of the principal on the bond when military service prevents the surety from obtaining the attendance of the principal. The court may discharge the surety and exonerate the bail, in accordance with principles of equity and justice, during or after the period of military service of the principal. (d) Waiver of rights. (1) Waivers not precluded. This Act does not prevent a waiver in writing by a surety, guarantor, endorser, accommodation maker, comaker, or other person (whether primarily or secondarily liable on an obligation or liability) of the protections provided under subsections (a) and (b). Any such waiver is effective only if it is executed as an instrument separate from the obligation or liability with respect to which it applies. (2) Waiver invalidated upon entrance to military service. If a waiver under paragraph (1) is executed by an individual who after the execution of the waiver enters military service, or by a dependent of an individual who after the execution of the waiver enters military service, the waiver is not valid after the beginning of the period of such military service unless the waiver was executed by such individual § 514. Extension of protections to citizens serving with allied forces [Sec. 104] A citizen of the United States who is serving with the forces of a nation with which the United States is allied in the prosecution of a war or military action is entitled to the relief and protections provided under this Act if that service with the allied force is similar to military service as defined in this Act. The relief and protections provided to such citizen shall terminate on the date of discharge or release from such service. § 516. Extension of rights and protections to reserves ordered to report for military service and to persons ordered to report for induction [Sec. 106] (a) Reserves ordered to report for military service. A member of a reserve component who is ordered to report for military service is entitled to the rights and protections of this title and titles II and III during the period beginning on the date of the member's receipt of the order and ending on the date on which the member reports for military service (or, if the order is revoked before the member so reports, or the date on which the order is revoked). (b) Persons ordered to report for induction. A person who has been ordered to report for induction under the Military Selective Service Act (50 U.S.C. App. 451 et seq. ) is entitled to the rights and protections provided a servicemember under this title and titles II and III during the period beginning on the date of receipt of the order for induction and ending on the date on which the person reports for induction (or, if the order to report for induction is revoked before the date on which the person reports for induction, on the date on which the order is revoked). TITLE II — GENERAL RELIEF § 521. Protection of servicemembers against default judgments [Sec. 201] (a) Applicability of section. This section applies to any civil action or proceeding, including any child custody proceeding, in which the defendant does not make an appearance. (b) Affidavit requirement (1) Plaintiff to file affidavit. In any action or proceeding covered by this section, the court, before entering judgment for the plaintiff, shall require the plaintiff to file with the court an affidavit— (A) stating whether or not the defendant is in military service and showing necessary facts to support the affidavit; or (B) if the plaintiff is unable to determine whether or not the defendant is in military service, stating that the plaintiff is unable to determine whether or not the defendant is in military service. (2) Appointment of attorney to represent defendant in military service. If in an action covered by this section it appears that the defendant is in military service, the court may not enter a judgment until after the court appoints an attorney to represent the defendant. If an attorney appointed under this section to represent a servicemember cannot locate the servicemember, actions by the attorney in the case shall not waive any defense of the servicemember or otherwise bind the servicemember. (3) Defendant's military status not ascertained by affidavit. If based upon the affidavits filed in such an action, the court is unable to determine whether the defendant is in military service, the court, before entering judgment, may require the plaintiff to file a bond in an amount approved by the court. If the defendant is later found to be in military service, the bond shall be available to indemnify the defendant against any loss or damage the defendant may suffer by reason of any judgment for the plaintiff against the defendant, should the judgment be set aside in whole or in part. The bond shall remain in effect until expiration of the time for appeal and setting aside of a judgment under applicable Federal or State law or regulation or under any applicable ordinance of a political subdivision of a State. The court may issue such orders or enter such judgments as the court determines necessary to protect the rights of the defendant under this Act. (4) Satisfaction of requirement for affidavit. The requirement for an affidavit under paragraph (1) may be satisfied by a statement, declaration, verification, or certificate, in writing, subscribed and certified or declared to be true under penalty of perjury. (c) Penalty for making or using false affidavit. A person who makes or uses an affidavit permitted under subsection (b) (or a statement, declaration, verification, or certificate as authorized under subsection (b)(4)) knowing it to be false, shall be fined as provided in title 18, United States Code, or imprisoned for not more than one year, or both. (d) Stay of proceedings. In an action covered by this section in which the defendant is in military service, the court shall grant a stay of proceedings for a minimum period of 90 days under this subsection upon application of counsel, or on the court's own motion, if the court determines that- (1) there may be a defense to the action and a defense cannot be presented without the presence of the defendant; or (2) after due diligence, counsel has been unable to contact the defendant or otherwise determine if a meritorious defense exists. (e) Inapplicability of section 202 procedures. A stay of proceedings under subsection (d) shall not be controlled by procedures or requirements under section 202 [50 U.S.C. App. §522]. (f) Section 202 protection. If a servicemember who is a defendant in an action covered by this section receives actual notice of the action, the servicemember may request a stay of proceeding under section 202 [50 U.S.C. App. §522]. (g) Vacation or setting aside of default judgments. (1) Authority for court to vacate or set aside judgment. If a default judgment is entered in an action covered by this section against a servicemember during the servicemember's period of military service (or within 60 days after termination of or release from such military service), the court entering the judgment shall, upon application by or on behalf of the servicemember, reopen the judgment for the purpose of allowing the servicemember to defend the action if it appears that— (A) the servicemember was materially affected by reason of that military service in making a defense to the action; and (B) the servicemember has a meritorious or legal defense to the action or some part of it. (2) Time for filing application. An application under this subsection must be filed not later than 90 days after the date of the termination of or release from military service. (h) Protection of bona fide purchaser. If a court vacates, sets aside, or reverses a default judgment against a servicemember and the vacating, setting aside, or reversing is because of a provision of this Act, that action shall not impair a right or title acquired by a bona fide purchaser for value under the default judgment. § 522. Stay of proceedings when servicemember has notice [Sec. 202] (a) Applicability of section. This section applies to any civil action or proceeding, including any child custody proceeding , in which the plaintiff or defendant at the time of filing an application under this section— (1) is in military service or is within 90 days after termination of or release from military service; and (2) has received notice of the action or proceeding. (b) Stay of proceedings. (1) Authority for stay. At any stage before final judgment in a civil action or proceeding in which a servicemember described in subsection (a) is a party, the court may on its own motion and shall, upon application by the servicemember, stay the action for a period of not less than 90 days, if the conditions in paragraph (2) are met. (2) Conditions for stay. An application for a stay under paragraph (1) shall include the following: (A) A letter or other communication setting forth facts stating the manner in which current military duty requirements materially affect the servicemember's ability to appear and stating a date when the servicemember will be available to appear. (B ) A letter or other communication from the servicemember's commanding officer stating that the servicemember's current military duty prevents appearance and that military leave is not authorized for the servicemember at the time of the letter. (c) Application not a waiver of defenses. An application for a stay under this section does not constitute an appearance for jurisdictional purposes and does not constitute a waiver of any substantive or procedural defense (including a defense relating to lack of personal jurisdiction). (d) Additional stay. (1) Application. A servicemember who is granted a stay of a civil action or proceeding under subsection (b) may apply for an additional stay based on continuing material affect of military duty on the servicemember's ability to appear. Such an application may be made by the servicemember at the time of the initial application under subsection (b) or when it appears that the servicemember is unavailable to prosecute or defend the action. The same information required under subsection (b)(2) shall be included in an application under this subsection. (2) Appointment of counsel when additional stay refused. If the court refuses to grant an additional stay of proceedings under paragraph (1), the court shall appoint counsel to represent the servicemember in the action or proceeding. (e) Coordination with section 201 [50 U.S.C. App. §521]. A servicemember who applies for a stay under this section and is unsuccessful may not seek the protections afforded by section 201 [50 U.S.C. App. §521]. (f) Inapplicability to section 301 [50 U.S.C. App. §531]. The protections of this section do not apply to section 301 [50 U.S.C. App. §531]. § 524. Stay or vacation of execution of judgments, attachments, and garnishments [Sec. 204] (a) Court action upon material affect determination. If a servicemember, in the opinion of the court, is materially affected by reason of military service in complying with a court judgment or order, the court may on its own motion and shall on application by the servicemember— (1) stay the execution of any judgment or order entered against the servicemember; and (2) vacate or stay an attachment or garnishment of property, money, or debts in the possession of the servicemember or a third party, whether before or after judgment. (b) Applicability. This section applies to an action or proceeding commenced in a court against a servicemember before or during the period of the servicemember's military service or within 90 days after such service terminates. § 525. Duration and term of stays; codefendants not in service [Sec. 205] (a) Period of stay. A stay of an action, proceeding, attachment, or execution made pursuant to the provisions of this Act by a court may be ordered for the period of military service and 90 days thereafter, or for any part of that period. The court may set the terms and amounts for such installment payments as is considered reasonable by the court. (b) Codefendants. If the servicemember is a codefendant with others who are not in military service and who are not entitled to the relief and protections provided under this Act, the plaintiff may proceed against those other defendants with the approval of the court. (c) Inapplicability of section. This section does not apply to sections 202 and 701 [50 U.S.C. App. §§522 and 591]. Appendix D. Priority Department of Defense Appeal FY2010 Defense Authorization Bill Appendix E. State Child Custody Laws This appendix provides information and status concerning state law provisions related to U.S. servicemembers and child custody. The following chart, originally published in 2009, has been extensively updated by CRS to reflect developments in various states laws.
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The increased deployment of servicemembers beginning in 2001 as a result of Operations Enduring and Iraqi Freedom has raised difficult military child custody issues that in some cases potentially affect the welfare of military children as well as servicemembers' ability to effectively serve their country. Approximately 142,000 members of the Armed Forces (active, Guard, and Reserve) are single custodians of minor children. Temporary duty assignments, mobilization, and deployments to areas that do not allow the military member's dependent(s) to accompany them require the servicemember to have contingency plans providing for the care and well-being of their dependent(s) to include temporary custody arrangements if necessary. In some instances, custody battles have ensued when the military parent leaves for duty and the other parent decides to file for temporary or permanent custody of the child in the absence of the servicemember. Some servicemembers involved in such child custody cases have expressed concern that family courts in some states are using their military service against them in determining custodial arrangements. The issue addressed in this report is whether a federal child custody law is needed to protect servicemembers' rights in custodial disputes. Since 2008, the Congress, led by Representative Michael Turner, has proposed federal military child custody legislation that would establish a national standard for litigating child custody cases in which the custodian is in military service. Although legislative efforts in the House have passed on several occasions (as part of the House version of the National Defense Authorization Act from FY2008 through FY2013) and once as a stand-alone bill by voice vote in 2008 (H.R. 6048), all versions of the proposed legislation have failed to pass in the Senate. At the heart of the legislative debate is the potential conflict between the protection of the rights of servicemembers, which is arguably a federal responsibility, and jurisdiction over child custody issues, which traditionally falls within the purview of the States. Proponents of federal child custody legislation argue the lack of uniform state laws in the treatment of deployed and deploying military parents complicate child custody matters and that the potential exists for state courts to use a servicemember's deployment, or potential deployment, against them when making child custody determinations. Those proposing a national standard for determining military child custody cases argue such legislation would eliminate this possibility by prohibiting state courts from using deployment or the possibility of deployment against a servicemember when making child custody determinations. Opponents, however, argue that such legislation encroaches on the historical precedent of a state's right to adjudicate family law matters, would ultimately place the legal rights of the servicemember above those of the best interest of the child, and is not necessary, given that the Servicemembers Civil Relief Act already protects a servicemember's rights in child custody proceedings. Nevertheless, both sides of the debate agree that no court should show a bias for a non-deploying parent or a prejudice against a military parent solely because of military service. However, both sides disagree on the extent to which deployment or the threat of deployment plays in determining the best interest of the child which is the ultimate criterion for determining child custody cases. Congressional interest in federal legislation for military child custody cases stems from Congress's authority to raise and support the standing armed forces of the U.S. and Congress's authority to make rules for the Government and regulation of the land and naval Forces as well as to provide for organizing, arming, and disciplining, the militia, and for governing such part of them as may be employed in the Service of the United States.
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The Antiquities Act of 1906 authorizes the President to proclaim national monuments on federal lands that contain "historic landmarks, historic and prehistoric structures, and other objects of historic or scientific interest." The President is to reserve "the smallest area compatible with the proper care and management of the objects to be protected." Congress subsequently limited the President's authority by requiring congressional authorization for extensions or establishment of monuments in Wyoming, and by making withdrawals in Alaska exceeding 5,000 acres subject to congressional approval. The Antiquities Act was a response to concerns over theft from and destruction of archaeological sites and was designed to provide an expeditious means to protect federal lands and resources. President Theodore Roosevelt used the authority in 1906 to establish Devils Tower in Wyoming as the first national monument. Seventeen of the 20 Presidents since 1906 created 158 monuments, including the Grand Canyon, Grand Teton, Zion, Olympic, Statue of Liberty, and Chesapeake and Ohio Canal. President Franklin D. Roosevelt used his authority the most often (36 times), and President Obama proclaimed the most monument acreage (about 554 million, primarily in two expanded marine monuments). For a comparison of President Obama's and President Franklin D. Roosevelt's use of the monument authority, see Appendix A . For information on the use of the authority by all Presidents since 1906, see Appendix B . Presidential establishment of national monuments under the Antiquities Act of 1906 has protected sites with historic and scientific values, but it has also been contentious. Various issues regarding presidentially created monuments have generated controversy, lawsuits, statutory changes, and legislative proposals to limit the President's authority. Concerns have centered on the extent of the President's authority to establish and modify monuments, the size of the areas, the types of protected resources and the level of threats to the areas, the inclusion of nonfederal lands within monument boundaries, and the selection of the managing agency. Another issue has been restrictions that may result on land uses, both extractive (e.g., mining) and recreational (e.g., off-road vehicle use). Still another focus is the manner in which the monuments were created. This includes the lack of a requirement for state or congressional approval prior to presidential monument proclamations, and a perceived lack of consistency between the Antiquities Act and the policies established in other laws pertaining to land withdrawals, environmental reviews, and public participation. Most monument advocates favor the Antiquities Act in its present form. They believe that the act serves an important purpose in preserving resources for future generations. They maintain that Presidents of both parties have used the authority for over a century to protect valuable federal lands and resources expeditiously, and they defend the President's ability to take prompt action to protect resources that may be vulnerable to looting, vandalism, commercial development, and other permanent changes. They contend that significant segments of the public support monument designations for the protections they afford and the recreational, preservation, and economic benefits that such designations sometimes bring. They further assert that previous Congresses that focused on this issue were correct in not repealing the Antiquities Act, and that courts have supported presidential actions. Litigation and legislation related to the law have been pursued throughout its history. To give one historical example, displeasure with President Franklin D. Roosevelt's proclaiming of the Jackson Hole National Monument in Wyoming in 1943 (which became Grand Teton National Park) prompted litigation on the extent of presidential authority under the Antiquities Act, and led to a 1950 law prohibiting future establishment of national monuments in Wyoming unless Congress made the designation. As another example, President Carter's establishment of monuments in Alaska in 1978 also was challenged in the courts and led to a statutory requirement for congressional approval of land withdrawals in Alaska larger than 5,000 acres. President Clinton's proclamation of the Grand Staircase-Escalante National Monument in 1996 triggered several lawsuits, a law authorizing land exchanges, a law altering the borders of the monument, and proposals to amend or revoke presidential authority under the Antiquities Act. Initial opposition to some monument designations has turned to support over time. Some controversial monuments later were redesignated as national parks by Congress and today are generally considered popular parks with substantial economic benefit to the surrounding communities. For instance, the Grand Canyon National Monument, proclaimed in 1908 and the subject of a legal challenge, is now a world-famous national park. The more recent application of national monument authority by President Obama and President Trump has continued to foster debate among some Members of Congress, state and local officials, user groups, and others. President Obama issued 34 monument proclamations, including designation of 29 new monuments and enlargement of 5 existing monuments. President Trump has issued three monument proclamations as of November 28, 2018, including one to designate a monument and two to reduce monument sizes and alter their terms and conditions. The actions of both Presidents led to lawsuits challenging the authority of the President and appeared to spur legislative proposals to limit the President's authority to create monuments, establish a process for input into monument decisions, and legislatively-establish national monuments, among other measures. The Antiquities Act does not expressly authorize the President to modify or abolish national monuments established by earlier presidential proclamation. This has contributed to uncertainty and debate over the extent of the President's authority in these areas, and scholars and others have reached different conclusions. No President has abolished a national monument. In contrast, throughout the history of the Antiquities Act, Presidents have modified national monuments established by earlier presidential proclamation. Such modifications included enlargement and/or diminishment of monument boundaries, by different amounts and percentages of the original monument acreage. As examples, four Presidents enlarged the Muir Woods National Monument following its establishment in 1908, and three Presidents diminished Mount Olympus National Monument following its establishment in 1909. Monuments have been modified in ways other than in size. Presidents have changed the terms and conditions of monument proclamations, although relatively infrequently. As an example, in 1936, President Franklin D. Roosevelt modified the Katmai National Monument to make the reservations in the earlier proclamations subject to valid existing "claims," since maintained. More recently, President Trump modified provisions of two Utah monuments—the Bears Ears National Monument and the Grand Staircase-Escalante National Monument. In general, monument proclamations have become more detailed and specific over time, making the question of potential changes to terms and conditions possibly more relevant. For instance, President Obama's 2016 proclamation establishing the Northeast Canyons and Seamounts Marine National Monument contained several paragraphs of management provisions and a number of prohibited and regulated activities. Congress has authority to create, modify, and abolish national monuments on federal lands, and has done so on numerous occasions under its constitutional authority to enact legislation regarding federal lands. This authority is not defined or limited by the provisions of the Antiquities Act. For instance, Congress could enact legislation to establish a national monument with more land uses than are typical for national monuments created by the President, such as allowing new commercial development, or with additional protections than are customary in presidential monuments. Congress has modified monuments, including those created by the President, for instance, by changing their boundaries. Congress has abolished some monuments outright and converted others into different protective designations, such as national parks. Approximately half of the current national parks were first designated as national monuments. In establishing a national monument, the President is required by the Antiquities Act to reserve "the smallest area compatible with the proper care and management of the objects to be protected." Monuments vary widely in size. While roughly half of the presidential monument proclamations involved fewer than 5,000 acres, they have ranged from less than 1 acre to about 283 million acres. More of the larger monuments have been created over the past half century, in Alaska and in marine areas, among other locations. However, there are examples of relatively large monument proclamations throughout the history of the Antiquities Act, including Katmai, established in 1918 with 1.1 million acres; Glacier Bay, created in 1925 with 1.4 million acres; many of the Alaska monuments proclaimed in 1978, the largest being Wrangell-St. Elias, with nearly 11 million acres; and Grand Staircase-Escalante, established in 1996 with 1.7 million acres. President George W. Bush established large marine monuments, namely the Papahanaumokuakea Marine National Monument (which includes the Northwestern Hawaiian Islands), with approximately 89.5 million acres; the Marianas Trench Marine National Monument, with 60.9 million acres; the Pacific Remote Islands Marine National Monument, with 55.6 million acres; and the Rose Atoll Marine National Monument, with 8.6 million acres. At the time, the George W. Bush Administration claimed that the latter three areas formed the largest protected ocean area in the world. More recently, President Obama expanded the Pacific Remote Islands Marine National Monument in 2014 by 261.3 million acres and the Papahanaumokuakea Marine National Monument in 2016 by 283.4 million acres. Critics assert that large monuments violate the Antiquities Act, in that the President's authority regarding size was intended to be narrow and limited. They charge that Congress intended the act to protect specific items of interest, especially archaeological sites and the small areas surrounding them. They support this view with the legislative history of the act, in which proposals to limit a withdrawal to 320 or 640 acres were mentioned although not enacted. They contend that some of the monument designations were greater than needed to protect particular objects of value, and that the law was not intended to protect large swaths of land or ocean. Defenders observe that by not specifically capping the size of monument designations, the Antiquities Act gives the President discretion to determine the acreage necessary to ensure protection of the resources in question, which can be a particular archaeological site or larger features or resources. The Grand Canyon, for example, originally was a national monument measuring 0.8 million acres; President Theodore Roosevelt determined that this size was necessary to protect the "object" in question—the canyon. Defenders also note that after considering the issue in the early 1900s, Congress rejected proposals to restrict the President's authority to set the size of the withdrawal. Further, they assert that preserving objects of interest may require withdrawal of sizeable tracts of surrounding land to preserve the integrity of the objects and the interactions and relationships among them. Under the Antiquities Act, the President can establish monuments on federal land containing "historic landmarks, historic and prehistoric structures, and other objects of historic or scientific interest." Some proclamations have identified particular objects needing protection, while others have referred more generally to scenic, scientific, or educational features of interest. Presidents sometimes have cited threats to resources (e.g., natural and cultural) to support establishing monuments, although imminent threat is not expressly required by the Antiquities Act. In his remarks designating the Grand Staircase-Escalante National Monument, for instance, President Clinton expressed concern about work underway for a large coal mining operation that, he asserted, could damage resources in the area. Sometimes the noted threats appear less immediate, as for the lands included in the Grand Canyon-Parashant Monument (proclaimed January 11, 2000) which "could be increasingly threatened by potential mineral development," according to the Clinton Administration. In other cases, threats were reported by the press or private organizations. For instance, the National Trust for Historic Preservation had identified the (subsequently proclaimed) President Lincoln and Soldiers' Home National Monument as one of the country's most endangered historic properties. Presidential designation of monuments in the absence of immediate threats to resources troubles those who believe that the law is intended to protect objects that are in immediate peril of permanent harm. They contend that Presidents have established monuments to support environmental causes, limit development, and score political gains, among other reasons. Those who contest those charges note that the Antiquities Act lacks a requirement that objects be immediately threatened or endangered. Others cite the pervasive dangers of development and growth, looting, and vandalism as sufficient grounds for contemporary presidential action. Some critics charge that, because the original purpose of the act was to protect specific objects, particularly objects of antiquity such as cliff dwellings, pueblos, and other archeological ruins (hence the name "Antiquities Act"), Presidents have used the act for excessively broad purposes. Among the broad purposes they cite are general conservation, recreation, scenic protection, or protection of living organisms. These purposes, they contend, are more appropriate for a national park or other designation established by Congress. Supporters of current presidential authority counter that the act does not limit the President to protecting ancient relics, and maintain that "other objects of historic or scientific interest" broadly grants considerable discretion to the President. The Antiquities Act initially states that it applies to lands owned or controlled by the federal government. However, it also states that, where the objects to be preserved are on privately owned lands, the property "may be relinquished to the Federal Government." Private and other nonfederal landowners have donated land under this provision, and presidents have subsequently designated national monuments that included the donated lands. Typically the monument designation occurs relatively quickly following the land donation. Land donation has occurred for both early and more recent presidential proclamations. As an early example, Secretary of the Interior James R. Garfield accepted the private donation of a redwood forest in California on December 31, 1907, and on January 9, 1908, President Theodore Roosevelt proclaimed the area the Muir Woods National Monument. More recently, former Secretary of the Interior Ken Salazar accepted donations leading to the establishment of some monuments by President Obama, including the César E. Chávez National Monument in California. It remains untested whether relinquishment of nonfederal lands must be voluntary (via donation, purchase, or exchange) or whether the President can convert private property to federal property through condemnation when establishing a national monument. To date, no presidential declaration of a monument has converted private property to federal property. In addition, in some cases, private or other nonfederal lands are contained within the outer boundaries of a proclaimed monument, although the ownership does not change by the monument designation. Such inclusions are sometimes a source of controversy. The Clinton Administration indicated that the monument designation does not apply to nonfederal lands; the then-Solicitor of the Department of the Interior (DOI) asserted this view in 1999 testimony before Congress. His testimony stated that the Antiquities Act applies only to federal lands and that monument designations cannot bring state or private lands into federal ownership. Some monument proclamations have stated that nonfederal lands will become part of the monument if the federal government acquires title to the lands. Some, however, note that while private or state-owned lands are technically not part of the monument, development of such land located within monuments is difficult because certain types of development might be incompatible with the purposes for which the monument was created or constrained by management of the surrounding federal lands. Monument supporters note that if state or private landowners within a monument fear or experience difficulties, they can pursue land exchanges with the federal government. Some monument proclamations have authorized land exchanges to further the protective purposes of the monument. Although most monuments are managed by the National Park Service (NPS), both Congress and the President have created monuments managed by other agencies. For example, in 1996 President Clinton created the Grand Staircase-Escalante National Monument and assigned the Bureau of Land Management (BLM) its management. It was the first such area administered by BLM. Also, President George W. Bush selected the Fish and Wildlife Service (FWS), the National Oceanic and Atmospheric Administration in the Department of Commerce, and other agencies to manage marine monuments. As another example, on September 21, 2012, President Obama established the Chimney Rock National Monument with the Forest Service as the managing agency. In most cases, monuments created in recent decades have been assigned to be managed by the agency responsible for the area before the monument designation, although that was not always the case. For example, although the area proclaimed as the Minidoka Internment National Monument was managed by the Bureau of Reclamation before designation, the proclamation designating the monument changed management to the NPS. The President's authority to choose a management agency other than NPS has been questioned. Before 1933, monuments were managed by different agencies, but in that year President Franklin D. Roosevelt consolidated management of national monuments in the NPS. Following the 1933 consolidation, it was not until 1978 that a presidentially created monument was managed by an agency other than the NPS. In 1978, two of the Alaska monuments created by President Carter were directed to be managed by the Forest Service, part of the U.S. Department of Agriculture, and two were managed by FWS. Assigning management to the Forest Service was controversial, and the two monuments were ultimately given statutory direction for Forest Service management. Others also assert that the authority of the President under the Antiquities Act carries with it discretion to choose the managing agency. Some critics contend that management by an agency other than the NPS is an illegal transfer of the current functions of the NPS. Others counter that establishing a new monument under another agency would not constitute a reorganization because management of current NPS units, and the general authority of the NPS to manage monuments, would be unaffected. Even if placing management authority under a department other than the DOI might constitute a reorganization, the President nevertheless might be able to move a function of the NPS to other DOI agencies under congressionally approved authority allowing transfers of functions within DOI. The overriding management goal for all monuments is protection of the objects described in the proclamations. In general, existing uses of the land that are not precluded by the proclamations and do not conflict with the purposes of the monument may continue. Monument designation can limit or prohibit land uses, such as development or recreational uses. Limitations or prohibitions may be included in the proclamations themselves, accompanying Administration statements, management plans developed by the agencies to govern monument lands, agency policies, or other sources. Some use issues may not arise for particular monuments given their distinctive characteristics, for instance, their small size or water-based nature. A primary objection to national monuments is that the declaration changes the property from being federal land available for multiple uses to being a national monument with possible restricted uses. At least over the past 50 years, monument proclamations typically have had explicit protections for valid existing rights for land uses, but the extent to which designations may affect existing rights is not always clear. A common concern is that monument designation potentially could result in new constraints on development of existing mineral and energy leases, claims, and permits. Some fear that mineral exploration and extraction activities may have to adhere to a higher standard of environmental review, and may have a higher cost of mitigation, to ensure compatibility with the monument designation. Most monument proclamations since 1996 have barred new mineral leases, mining claims, prospecting or exploration activities, and oil, gas, and geothermal leases, subject to valid existing rights. This has been accomplished by language to withdraw the lands within the monuments from entry, location, selection, sale, leasing, or other disposition under public land laws, mining laws, and mineral and geothermal leasing laws. Another concern for some is whether commercial timber cutting will be restricted as a result of designation. For instance, President Clinton's proclamation of the Giant Sequoia National Monument (in 2000) expressly precluded future timber production, although certain then-current logging contracts could be completed. In many other cases, the proclamations have implied, through a general prohibition against removing any "feature" of the monuments, that timber cutting is precluded. Some assert that restrictions are needed to protect the environmental, scenic, and recreational attributes of forests preserved under the Antiquities Act. Logging supporters assert that forests can be used sustainably and that concerns raised by environmentalists as grounds for limiting commercial timber operations do not reflect modern forestry practices. Motorized and mechanized vehicles off-road are prohibited (except for emergency or authorized purposes) under the proclamations for many post-1996 monuments. Otherwise, the agency's management plan for a monument typically addresses whether to allow vehicular travel on designated routes or in designated areas or to close routes or areas to vehicular use in those monuments where such use is not expressly prohibited. In some areas that have become monuments, off-road vehicles have been allowed, at least in some places. Other concerns that some have raised included the possible effects of monument designation on hunting, fishing, and grazing. Some proclamations have restricted such activities to protect monument resources, and monument management plans may impose additional restrictions. For instance, proclamations for some marine monuments established by President George W. Bush restricted or prohibited commercial and recreational fishing. President Obama's expansion and establishment of marine national monuments appears to have enhanced focus on the potential effect of monument designations on fishing. In addition, monument designation provisions on grazing have been controversial in some cases, with some asserting that grazing has been unnecessarily curtailed and others claiming that grazing has not been sufficiently limited to prevent ecological damage. States and counties frequently have viewed restrictions on federal lands in their jurisdictions as threats to economic development. They maintain that local communities are hurt by the loss of jobs and tax revenues that results from prohibiting or restricting future mineral exploration, timber development, or other activities. Some contend that limitations on energy exploration could leave the United States more dependent on foreign oil. Advocates of creating monuments claim that economic benefits resulting from designation, including increased tourism, recreation, and attracting new businesses and residents, may exceed the benefits of traditional economic development. Others allege that the public interest value of continued environmental and resource protection outweighs any temporary economic benefit that could result from development. Some monument advocates support more restrictions on development. The Federal Land Policy and Management Act of 1976 (FLPMA) authorized the Secretary of the Interior to make certain land withdrawals under specified procedures. In enacting FLPMA, Congress also repealed much of the express and implied withdrawal authority previously granted to the President by several earlier laws. Critics of the Antiquities Act maintain that the act is inconsistent with FLPMA's intent of restoring control of public land withdrawals to Congress. They assert that Congress is the appropriate body to make and implement land withdrawal policy and that Congress intended to review and retain veto control over all executive withdrawals exceeding 5,000 acres. On the other hand, in enacting FLPMA, the 94 th Congress did not explicitly repeal or amend the Antiquities Act, despite extensive consideration of executive withdrawal authorities. Supporters of the Antiquities Act assert that Congress intended to retain presidential withdrawal authority under the Antiquities Act. Similarly, critics note that monuments have been proclaimed without the environmental studies required of agencies for "major federal actions" under the National Environmental Policy Act (NEPA), or the review of a public purpose and opportunity for public participation that FLPMA provides. However, neither NEPA nor FLPMA applies to the actions of a President (as opposed to an action of an agency), and the Antiquities Act is silent as to the procedures a President must follow to proclaim a new monument. Some want to add procedures for environmental review and public participation to the monument designation process so that significant withdrawals (with resulting effects on existing uses) would not be made without scientific evaluation, economic information, and public input. Others counter that such changes would impair the ability of the President to act quickly to protect objects and lands, thereby avoiding possible damage to the resources. They assert that participation requirements are not needed in law because Presidents typically consult with government officials and the public before establishing monuments. Some believe that NEPA requirements are unnecessary for monument designation because once monuments are created, detailed management plans are developed in accordance with NEPA. President Obama designated 29 new national monuments in 17 states, the District of Columbia, and the Atlantic Ocean, off the coast of New England. They ranged in size from 0.12 acres to 1.6 million acres. President Obama also enlarged five monuments in California and Oregon, off the California Coast, and in marine areas. Enlargements ranged from 1,665 acres to 283.4 million acres. Brief information on each monument is included in Appendix C . The Obama Administration usually cited support for the establishment of the monuments—for instance, from government officials, businesses and local communities, or other stakeholders. Most of the areas that President Obama designated as monuments were first proposed for some sort of protective designation in legislation. In addition, some Members and segments of the public had advocated for additional monument designations in their states. However, some federal and other governmental officials, communities, and stakeholders expressed opposition to monuments established by President Obama. Concerns centered on the process used to create monuments, particularly whether there was sufficient consultation with, and support from, Congress, local and state governments, residents of the affected areas, and the general public. Other concerns related to restrictions on land uses in new monuments, the frequency with which the President used his monument authority, and the size of some of the larger monuments, among other issues. President Trump proclaimed one new monument in Kentucky—Camp Nelson—with 380 acres. The President also reduced and modified two monuments in Utah. The Grand Staircase-Escalante National Monument, established in 1996 by President Clinton, was reduced by about one million acres (about 47%), and the Bears Ears National Monument, established in 2016 by President Obama, was reduced by about 1.15 million acres (85%). These actions followed a 2017 review of certain national monuments by the Secretary of the Interior, at the direction of the President. The Secretary's final report recommended that Camp Nelson (and two other areas) be evaluated for national monument designation. The final report also recommended boundary changes and other modifications to the two Utah monuments, as well as changes to several other monuments. Brief information on each monument proclamation by President Trump is contained in Appendix C . Given the recurring controversies over presidential establishment and modification of national monuments, recent Congresses have evaluated whether to abolish, limit, or retain unchanged the President's authority to proclaim monuments under the Antiquities Act. Among the monument measures considered during recent Congresses were bills to impose restrictions on presidential authority, including to: limit the size or duration of withdrawals; prohibit or restrict withdrawals in particular states or other locations (e.g., the exclusive economic zone); narrow the types of resources that could be protected; ban the inclusion of nonfederal land within monument boundaries; encourage public participation in the monument designation process; revoke the President's authority to designate monuments or require congressional and/or state approval of some or all monument designations; and promote presidential creation of monuments in accordance with certain federal land management laws and environmental laws. Other measures had a variety of additional purposes. They included changing land uses within monuments, imposing conditions on agency implementation of restrictions on monument use, addressing use of water within monument boundaries, and altering monument boundaries. As previously noted, some Members and segments of the public have opposed legislation in recent Congresses that would restrict the President's authority to establish national monuments. (See the section above on " Monument Issues and Controversies .") Some of these supporters have introduced legislation to bar the President from reducing or abolishing national monuments. Other bills would increase funding for presidentially proclaimed monuments in general or dedicate funds to particular purposes, such as the development of management plans and recreational infrastructure. Appendix A. Use of Monument Authority in the Antiquities Act: Comparison of Two Presidents Appendix B. Historical Use of Monument Authority in the Antiquities Act Appendix C. Summary of President Obama's Monument Proclamations This appendix provides a chronological list of President Obama's 34 monument proclamations under the Antiquities Act. For additional information on a particular monument, see the pertinent proclamation identified in the footnotes. Fort Monroe National Monument in Virginia was designated on November 1, 2011. In establishing the 325-acre monument, the President stated that "Fort Monroe on Old Point Comfort in Virginia has a storied history in the defense of our Nation and the struggle for freedom." Fort Ord National Monument in California was designated on April 20, 2012. The purpose of the 14,651-acre Fort Ord National Monument is to maintain its historical and cultural significance, as well as attract tourists and recreationists and enhance the area's unique natural resources, according to the President. Chimney Rock National Monument in Colorado was designated on September 21, 2012. The President cited the "spiritual, historic, and scientific resources of great value and significance" in proclaiming the 4,726-acre monument. César E. Chávez National Monument in California was designated on October 8, 2012. The 10.5-acre monument "marks the extraordinary achievements and contributions to the history of the United States made by César Chávez and the farm worker movement that he led with great vision and fortitude," according to the President. First State National Monument in Delaware was designated on March 25, 2013. The 1,108 acres of the monument contain objects and areas of historic interest related to the settlement of Delaware and the role of Delaware as the first state to ratify the Constitution, according to the President. Charles Young Buffalo Soldiers National Monument in Ohio was designated on March 25, 2013. The 60-acre monument was established to commemorate the life and accomplishments of Colonel Charles Young, the highest-ranking African American commanding officer in the U.S. Army from 1894 until his death in 1922, the commander of a troop of Buffalo Soldiers, and the first African American superintendent of a national park, as described in the proclamation. Río Grande del Norte National Monument in New Mexico was designated on March 25, 2013. In proclaiming the monument, the President stated that protecting the 242,555-acre monument "will preserve its cultural, prehistoric, and historic legacy and maintain its diverse array of national and scientific resources, ensuring that the historic and scientific values of this area remain for the benefit of all Americans." San Juan Islands National Monument in Washington was designated on March 25, 2013. This 970-acre monument contains an archipelago of over 450 islands, rocks, and pinnacles in Washington's Puget Sound. According to the President, the area contains an "unmatched landscape," numerous wildlife species in diverse habitats, archaeological sites, and historic lighthouses and is a "refuge of scientific and historic treasures and a classroom for generations of Americans." Harriet Tubman–Underground Railroad National Monument in Maryland was designated on March 25, 2013. This 11,750-acre monument commemorates the life of Harriet Tubman, a leader of the Underground Railroad, and protects the landscape and historic features of the area in which she lived, worked, and later led enslaved African Americans to freedom, according to the proclamation. California Coastal National Monument was enlarged on March 11, 2014. President Obama added 1,665 onshore acres to this offshore monument, and named the expanded area the "Point Arena-Stornetta Unit." According to the proclamation, the area is of "significant scientific importance," and contains archeological and cultural sites and artifacts, a landscape shaped by "powerful geologic forces," and "spectacular wildlife," among other resources and values. Organ Mountains-Desert Peaks National Monument in New Mexico was designated on May 21, 2014. Among other attributes, the 496,330-acre monument includes mountain ranges and lowlands with archaeological resources; paleontological research areas; geologic features; historically significant areas; and diverse animals, vegetative communities, and ecosystems, according to the President. Pacific Remote Islands Marine National Monument was expanded on September 25, 2014, by approximately 261.3 million acres. The proclamation indicates that the expansion area includes opportunities for scientific study and research. It also identifies diverse species and habitats, such as deep-sea coral species, habitat and range for protected turtles, foraging habitat for seabird species, and an abundance of manta rays. San Gabriel Mountains National Monument in California was designated on October 10, 2014. In establishing the 346,177-acre monument, the President noted cultural, historic, and geologic features; recreational and scientific opportunities; and ecological diversity, among other distinctive elements. Browns Canyon National Monument in Colorado was designated on February 19, 2015. The 21,586-acre monument is described as an "iconic" landscape with diverse plants and wildlife and scientifically significant geological, ecological, riparian, cultural, and historic resources. It is also important for studying paleoecology, mineralogy, archaeology, and climate change, according to the President. Pullman National Monument in Illinois was designated on February 19, 2015. In proclaiming the 0.24 - acre monument, the President cited the national significance and contemporary relevance of the Pullman Historic District , including its architecture, urban planning, transportation, labor relations, and social history .Honouliuli National Monument in Hawaii was designated on February 24, 2015. The 123 - acre Honouliuli Internment Camp was use d during World War II as a prisoner - of - war camp and an internment camp , with most of the internees of Jap a nese descent. The President called the area "a powerful reminder of the need to protect civil liberties in times of conflict, and the effects of martial law on civil society." Basin and Range National Monument in Nevada was designated on July 10, 2015. In preserving the cultural, prehistoric, and historic legacy of the 704,000-acre Great Basin area, the President noted the area's topography, geology, ecologically intact landscape, species diversity, archaeological resources, and a recent work of land art, among other features. Berryessa Snow Mountain National Monument in California was designated on July 10, 2015. The significance of the 330,780-acre site stems from its historic and prehistoric importance as well as its diversity of geologic, natural, cultural, plant and animal, scientific, and other resources, according to the proclamation. Waco Mammoth National Monument in Texas was designated on July 10, 2015. With 7.11 acres, the excavation site contains the remains of Columbian mammoths and other animals of the Pleistocene Epoch . The President cited the value of the area for further ex ploration and research . Mojave Trails National Monument in California was designated on February 12, 2016. Its 1.6 million acres are used for geological, ecological, and entomological research and contain paleontological resources, habitat for rare plant species and the threatened desert tortoise, and archeological records. The monument is also important for both transportation and military history, according to the proclamation. Sand to Snow National Monument in California was designated on February 12, 2016. The President called the 154,000 acre area an "ecological and cultural treasure" and noted its geologic and other geographic diversity, archaeological attributes, historic remains of communities, range of ecosystems and species, and scientific value. Castle Mountains National Monument in California was designated on February 12, 2016. The "outstanding natural, cultural, and historical values" of the 20,920 acres were highlighted in the proclamation, including its geology; relatively intact habitat and ecosystems; priority for scientific research; prehistoric rock art and archeological sites; and historic mining, ranching, and railroad uses. Belmont-Paul Women's Equality National Monument was designated in Washington, DC, on April 12, 2016. The President noted the role of the house at this 0.34-acre monument for its role in women's history, including as the home of the National Woman's Party and the staging area for legislation and other actions on behalf of women's political, social, and economic equality. Stonewall National Monument was designated on June 24, 2016, in New York. The significance of the 0.12-acre park (Christopher Park) stems from its role in the lesbian, gay, bisexual, and transgender (LGBT) civil rights movement. It forms part of a "historic landscape" that includes the Stonewall Inn, scene of the "uprising" that galvanized a movement for LGBT equality, according to the President. Katahdin Woods and Waters National Monument in Maine was designated on August 24, 2016. In establishing the 87,563-acre monument, the President noted its archaeological records of Native people, logging and other historic industrial infrastructure, significant biodiversity, ecosystems of scientific interest, and defining geologic and natural features. Papahanaumokuakea Marine National Monument was expanded on August 26, 2016, by 283.4 million acres. The President highlighted the geological and biological resources of the expansion area that are sacred to Native Hawaiians and that constitute "part of a highly pristine deep sea and open ocean ecosystem with unique biodiversity." Northeast Canyons and Seamounts Marine National Monument was designated on September 15, 2016. The 3.1-million-acre monument is composed of two units containing mountains and canyons, and has been an area of scientific exploration in recent decades. Features include habitat for protected and endangered species (such as sea turtles and whales), species of coral exclusive to the area, and other rare fish and invertebrates, according to the President. Bears Ears National Monument was designated on December 28, 2016, in Utah. In designating the 1.35 million-acre monument, the President highlighted the area's "extraordinary archaeological and cultural record that is important to us all," sacredness of the land to many Native American tribes, historic and prehistoric legacy, geology, paleontological resources, and diverse vegetation and wildlife species. Gold Butte National Monument in Nevada was designated on December 28, 2016. This 296,937-acre monument contains an "extraordinary variety of diverse and irreplaceable scientific, historic, and prehistoric resources," including plant and animal habitat, geological formations, rare fossils, sites from Native American history, and remnants of western ranching and mining, according to President Obama. Cascade Siskiyou National Monument was enlarged on January 12, 2017. The enlargement consisted of 47,624 acres, with 42,349 in Oregon and 5,275 in California. Diverse plant and animal species, ecological connectivity, hydrologic resources, historic trails, and opportunities for scientific study are among the features of the area set out in the proclamation. Birmingham Civil Rights National Monument in Alabama was designated on January 12, 2017. The purpose of the 0.88-acre monument is to protect the historic A. G. Gaston Motel, the headquarters of a civil rights campaign led by Dr. Martin Luther King, Jr., among others, which helped lead to the enactment of the Civil Rights Act of 1964. Freedom Riders National Monument in Alabama was designated on January 12, 2017. The 5.96-acre monument contains two related sites associated with the civil rights movement. They are a former Greyhound bus station and nearby area where, in 1961, an interracial group of Freedom Riders was attacked during a journey to test desegregation. Reconstruction Era National Monument in South Carolina was designated on January 12, 2017. The 15.56-acre monument contains four sites in Beaufort County, the birthplace of Reconstruction, where formerly enslaved people developed a thriving community during and after the Civil War. California Coastal National Monument was expanded on January 12, 2017. Six areas along the California coast were included in the expansion, which totaled 6,230 acres. These on- and off-shore areas include historic sites, ancient archaeological sites, unique geology, habitat for plants and animals, and marine wildlife, according to President Obama. Appendix D. Summary of President Trump's Monument Proclamations This appendix provides a chronological list of President Trump's three monument proclamations under the Antiquities Act. For additional information on a particular monument, see the pertinent proclamation identified in the footnotes. Bears Ears National Monument in Utah was reduced and modified on December 4, 2017. The monument was reduced (from 1.35 million acres) to 201,876 acres in two separate units— Shash Jáa and Indian Creek . T he President d escribed objects removed from the 2016 monument as sufficiently protected under other authorities, and/or not unique, not of significant scientific or historic interest, or not threatened so as to require protection in the monument. Modifications relate to the role and membership of the commission created to provide tribal expertise to monument management, use of motorized and non-mechanized vehicles, livestock grazing, and ecological restoration and active vegetation management. Grand Staircase-Escalante National Monument in Utah was reduced and modified on December 4, 2017. The reduction to 1,003,863 acres (from about 1.9 million acres) identified three units of the monument—Escalante Canyons, Grand Staircase, and Kaiparowits. The proclamation removed objects that are adequately protected under other laws, not of unique or distinctive scientific or historic significance, and/or not under threat of destruction, according to the President. Modifications to the 1996 monument pertain to preparing management plans, establishing advisory committees, using motorized and non-mechanized vehicles, grazing livestock, and undertaking ecological restoration and active vegetation management. Camp Nelson National Monument in Kentucky was designated on October 26, 2018. The significance of the 380-acre monument relates to its role as a Union Army recruitment center of African American soldiers, then known as U.S. Colored Troops, during the Civil War. In proclaiming the monument, the President called the area "one of the best-preserved landscapes and archeological sites associated with United States Colored Troops recruitment and the refugee experiences of African American slaves seeking freedom during the Civil War."
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The Antiquities Act of 1906 (54 U.S.C. §§320301-320303) authorizes the President to proclaim national monuments on federal lands that contain historic landmarks, historic and prehistoric structures, or other objects of historic or scientific interest. The President is to reserve "the smallest area compatible with the proper care and management of the objects to be protected." The act was designed to protect federal lands and resources quickly. Presidents have proclaimed a total of 158 monuments, and also have enlarged, diminished, and changed the terms of monuments previously proclaimed by Presidents. Congress has modified many of these proclamations and has abolished some monuments. Congress also has created monuments under its own authority. Presidential establishment of monuments sometimes has been contentious—for example, President Franklin D. Roosevelt's creation of the Jackson Hole National Monument in Wyoming (1943) and President Clinton's establishment of 19 monuments and expansion of 3 others (1996-2001). Debate over the President's authority to establish and modify national monuments has continued in light of more recent presidential action, namely President Obama's designation of 29 new monuments and enlargement of 5 others, and President Trump's designation of 1 monument and reduction and modification of the terms of 2 others. Various issues regarding presidentially designated monuments have generated controversy, lawsuits, statutory changes, and legislative proposals to limit the President's authority. Some concerns have centered on the extent of the President's authority to establish and modify monuments, the size of the areas, the types of protected resources and the level of threats to these resources, the inclusion of nonfederal lands within monument boundaries, the selection of the managing agency, restrictions on land uses that may result, and the manner in which the monuments were created. Most monument advocates favor the Antiquities Act in its present form. They believe that the act serves an important purpose in preserving resources for future generations and that the President needs continued authority to act promptly to protect valuable resources on federal lands from potential threats. They assert that the public has supported and courts have upheld designations by the President and that many past presidential designations that initially were controversial have come to be supported. Given the recurring controversies over presidential monument proclamations, Congress has evaluated whether to abolish, limit, or retain unchanged the President's authority under the Antiquities Act. During recent Congresses, measures were considered to impose restrictions on presidential authority, including to limit the designation of monuments in particular locations and promote presidential creation of monuments in accordance with certain federal land management, public participation, and environmental laws. Other measures sought to change land uses within monuments or alter monument boundaries. Among other bills, some proposals would have barred the President from reducing or abolishing national monuments or increased funds for presidentially proclaimed monuments.
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Historically, Central California's San Joaquin River supported large Chinook salmon populations. Since the Bureau of Reclamation's Friant Dam on the San Joaquin River became fully operational in the 1940s, much of the river's water has been diverted for agricultural uses. As a result, approximately 60 miles of the river is dry in most years, making it impossible to support Chinook salmon populations in the upper reaches of the river. In 1988, a coalition of conservation and fishing groups advocating for river restoration to support Chinook salmon recovery sued the Bureau of Reclamation (hereafter referred to as Reclamation), which owns and operates Friant Dam ( Natural Resources Defense Council v. Rodgers ). Most long-term water service contractors who receive the diverted water were added to the case shortly thereafter as defendant intervenors. A U.S. District Court judge has since ruled that operation of Friant Dam violates state law because of its destruction of downstream fisheries. Faced with mounting legal fees, considerable uncertainty, and the possibility of dramatic cuts to water diversions, parties agreed to negotiate a settlement instead of proceeding to trial on a remedy regarding the court's ruling. In September 2006, a Settlement Agreement was reached concerning operation of Friant Dam—one of the largest federal dams operated as part of Reclamation's Central Valley Project (CVP) in California. The Settlement calls for new releases of water from Friant Dam to restore fisheries in the San Joaquin River and for efforts to mitigate water supply losses due to the new releases. Full implementation of the Settlement would require congressional authorization and appropriations. Title X of H.R. 146 , which passed the Senate March 19, 2009, contains a San Joaquin River Restoration Settlement implementation provision; the legislation had previously been considered and passed the Senate as Title X of S. 22 . Under the Settlement and implementing legislation, increased water flows for restoring fisheries would reduce diversions of water for off-stream purposes, such as irrigation, hydropower, and municipal and industrial uses. The quantity of water used for restoration flows and the quantity by which water deliveries would be reduced are related, but the relationship would not necessarily be one-for-one. For instance, in some of the wettest years, flood water releases could provide a significant amount of the restoration flows, thereby lowering the reduction in deliveries to agricultural and municipal users. Under the Settlement, no water would be released for restoration purposes in the driest of years; thus, no reductions in deliveries to Friant contractors would be made due to the Settlement in those years. Additionally, in some years, the restoration flows released in late winter and early spring may free up space for additional runoff in Millerton Lake, potentially minimizing reductions in deliveries later in the year—assuming Millerton Lake storage is replenished. Consequently, how deliveries to Friant water contractors might be reduced in any given year would depend on many factors. Regardless of the specifics of how much water might be released for fisheries restoration vis-à-vis water diverted for off-stream purposes, there will be impacts to existing surface and groundwater supplies in and around the Friant Division Service Area and adjustments in local economies. Although some opposition to the Settlement and its implementing legislation remains, the largest and most directly affected stakeholders (i.e., the majority of Friant water contractor organizations, and environmental, fisheries, and community groups) support proceeding with the Settlement Agreement, in lieu of going to trial. For some groups, going to trial risks considerable uncertainty and expense; others may be more willing to take such risks. Congressional authorization and appropriations are required for full implementation of the Settlement. If Congress does not act on the legislation, some fear that the court will order a remedy, which may differ from the Settlement, and which may have more severe consequences for area water users and third parties. A key legislative issue is how to finance Settlement implementation, specifically how to resolve congressional Pay-As-You-Go (PAYGO) issues. Other challenges are how to achieve the Settlement's dual goals of fisheries restoration and water management, and how to address concerns of stakeholders not party to the Settlement, without disrupting the negotiated agreement. This report provides a brief overview of the Settlement, its legal history, and the legislative context in which implementing legislation is being considered. For more information on fisheries restoration, water management, funding, economic, and third party issues, see CRS Report RL34237, San Joaquin River Restoration Settlement . The Settlement in the lawsuit Natural Resources Defense Council v. Rodgers, involves operation of Friant Dam on the San Joaquin River—one of the largest federal dams of the Bureau of Reclamation's Central Valley Project (CVP) in California. As shown in Figure 1 , Friant Dam and the Friant Division of the CVP are situated in the southern portion of the San Joaquin Valley (SJV); however, the San Joaquin River flows north to the San Joaquin and Sacramento Rivers Delta confluence with San Francisco Bay (Bay-Delta). Hydrologically, the Friant Division Service Area extends into the Tulare basin. Agriculture in these areas is highly dependent on irrigation; much of the irrigation water is surface water supplied by the Friant Division. Many growers also use groundwater, conjunctively managing their surface and groundwater supplies. This conjunctive management improves seasonal and multi-year water reliability for growers. The SJV, an eight-county region extending 250 miles from Stockton in the north to Bakersfield in the south ( Figure 1 ), is both rapidly growing and economically depressed. (For more information on challenges facing the SJV, see CRS Report RL33184, California's San Joaquin Valley: A Region in Transition , by [author name scrubbed] et al. (pdf)) Yet, the 27,280 square mile SJV is home to five of the nation's ten most agriculturally productive counties, as measured by value of total annual sales. The Friant Division Service Area includes four of these counties: Fresno, Tulare, Kern, and Merced. The SJV faces significant environmental and natural resource challenges, including the court-ordered restoration of the San Joaquin River discussed in this report. The CVP is a multi-unit, multi-purpose reclamation project administered by the Bureau of Reclamation (Reclamation) under federal law, including the Reclamation Act of 1902 and amendatory acts (known as Reclamation Law), the federal Endangered Species Act (ESA), various other federal environmental and administrative laws, and various state laws. The Friant Dam was built on the San Joaquin River by Reclamation in the early 1940s. It stores the San Joaquin River's flow in Millerton Lake, the reservoir behind the dam, from which water for irrigation and other purposes is diverted into two canals. Reclamation delivers the impounded water to 28 irrigation and water districts in the Friant Division pursuant to various types of water service contracts, many of which originated in the 1940s. The Friant Division serves irrigation and water districts in the Fresno, Kern, Madera, Merced, and Tulare counties ( Figure 2 ). Unlike most Reclamation projects, the Friant Division (dam and distribution facilities) is operated in a way that diverts nearly all the San Joaquin River's flow away from the River. By the late 1940s, Reclamation's operation of Friant Dam had caused long stretches of the river to dry up. Portions of the San Joaquin River upstream of its confluence with the Merced River remain mostly dry today, except during flood events. Reclamation's operation of Friant Dam largely destroyed numerous species of native fish from the Upper San Joaquin River, including spring- and fall-run Chinook salmon. The diverted water helped develop and continues to support a diverse agricultural economy from north of Fresno to Bakersfield—the Friant Division Service Area (see Figure 2 ). While water diverted from rivers helped establish California's vibrant and valuable agricultural economy, some California fisheries have declined—particularly commercial and recreational salmon fisheries—due to water diversions and other factors. Historically, Central Valley spring-run Chinook were found throughout the Central Valley—from the northern Sacramento River drainage area to the southern portions of the San Joaquin drainage. The Middle and Upper San Joaquin River historically supported two or more independent populations of spring-run Chinook salmon. Most spawning by spring-run Chinook salmon in the San Joaquin River occurred upstream of the current location of Friant Dam. Historical spawning runs may have exceeded 200,000 fish annually, ascending the river as far as Mammoth Pool (about 1,000 meters elevation), which lies about 50 miles above Friant Dam. Although the spring-run Chinook population had declined from historic levels before construction and full operation of the Friant unit of the Central Valley Project, it appears from California Department of Fish and Game records that a viable spring-run population existed well into the 1940s with returns ranging from 2,000 to 56,000 fish. For several years after Friant Dam was in place, spring Chinook successfully spawned in habitat below the dam. However, by the late 1940s, operation of Friant Dam caused long stretches of the San Joaquin River to dry up, and the offspring of adults hauled by truck around the dry stretch were no longer able to out-migrate. Today Central Valley spring-run Chinook salmon are listed as threatened under the ESA; however, Central Valley spring-run Chinook salmon have been entirely extirpated from the San Joaquin River drainage, and currently inhabit only the Sacramento River drainage. Native fall and late-fall-run Chinook salmon continue to spawn in small numbers in the San Joaquin River tributaries such as the Mokelumne, Stanislaus, Tuolumne, and Merced Rivers. These fish spawn at lower elevations in these tributaries and have been less affected by dam construction than were spring-run Chinook salmon. In addition, there is significant artificial production of fall-run Chinook salmon by California Department of Fish and Game hatcheries on the Tuolumne, Mokelumne, and Merced Rivers. Fall-run Chinook salmon are not listed under the ESA, but are identified as a species of concern. Litigation involving waters of the San Joaquin River spans several decades. Litigation resulting in the most recent Settlement, however, can be traced to a 1988 lawsuit. This lawsuit and the negotiated Settlement Agreement are discussed below. During the late 1980s the Friant Division water users sought renewal of their long-term water service contracts with Reclamation. Beginning in 1988, a coalition of environmental groups and anglers led by the Natural Resources Defense Council (NRDC) challenged the contract renewals in federal court on a number of environmental grounds. In addition to claims that the process under which Reclamation had begun contract renewals violated the National Environmental Policy Act (NEPA) (42 U.S.C. §§ 4321 et seq.) and that the lack of water in the river violated the ESA (16 U.S.C. §§ 1531-1544), the plaintiffs argued that Reclamation had violated Section 8 of the Reclamation Act of 1902 (43 U.S.C. § 383). That section provides that Reclamation will act in conformity with state laws "relating to the control, appropriation, use or distribution of water used in irrigation." The state law that is at issue here is California Fish and Game Code § 5937. Section 5937 provides as follows: "The owner of any dam shall allow ... sufficient water to pass over, around or through the dam, to keep in good condition any fish that may be planted or exist below the dam." The claims have been litigated in the U.S. District Court for the Eastern District of California. The district court has reviewed the application of § 5937 to the problem at hand on several occasions since 1988 and has issued several decisions. In 2004, the District Court issued another decision regarding the application of § 5937 to the San Joaquin River, finding that Reclamation had violated the state law. It stated: "There can be no genuine dispute that many miles of the San Joaquin River are now entirely dry, except during extremely wet periods, and that the historical fish populations have been destroyed." The court did not declare what amount of water was necessary to satisfy the law or declare any other type of relief; rather, it set a 2006 trial date to determine a proper remedy. Faced with the prospect of a court-imposed remedy, and mounting legal fees in preparation for trial, the parties (NRDC et al., Reclamation et al., and Friant long-term water service contractors) began a series of settlement negotiations in late 2005, and came to a tentative agreement in June 2006. The terms of the Settlement were then vetted with selected stakeholders, finalized, and presented to Congress in September 2006—the final Stipulation of Settlement was filed with the U.S. District Court, Eastern District of California, September 13, 2006. The Settlement Agreement was accepted by the District Court on October 23, 2006. The stated goals of the Settlement are twofold: (1) to restore and maintain fish populations in "good condition"—the § 5937 standard—in the main stem of the San Joaquin River below Friant Dam to the confluence of the Merced River; and (2) to reduce or avoid adverse water supply impacts to the Friant long-term water service contractors that may result from both interim flows and restorative flows provided in the Settlement. To accomplish these goals, the Settlement calls for numerous actions, some of which need congressional authorization and appropriations. Further, appropriations authorization is needed to finance settlement implementation as envisioned under the Settlement. The Settlement states that if legislation is not enacted by December 31, 2006, the Settlement may become void at the election of a party, at which point litigation might resume. While implementation legislation was considered in the 110 th Congress ( H.R. 4074 , H.R. 24 and S. 27 ), it was not enacted. Title X of H.R. 146 (the 111 th Congress) contains a revised version of this legislation. Revisions address direct spending and restoration flow provisions (§§ 10004 and 10009). To date, no party has officially elected to void the Settlement. In September 2006, the settling parties presented the Settlement, including its legislative proposal, to various Members of Congress. The parties hoped implementing legislation would be enacted prior to adjournment of the 109 th Congress. However, numerous entities who were not party to the Settlement (i.e., third parties ), objected to the legislative proposal included in the Settlement, as well as the swift time line imposed by the Settlement Agreement. Shortly thereafter, many third parties met with the Settlement parties and certain Members of the California delegation. An agreement was reached to address certain third party interests; in exchange, these third parties agreed to support new legislation. Although many parties who had opposed the draft legislation in September 2006 supported the new legislation, other parties emerged that were not part of the new agreement, resulting in further opposition to Settlement legislation. San Joaquin River restoration Settlement legislation was first introduced in early December 2006 ( H.R. 6377 and S. 4084 ); however, no action was taken on the bills before adjournment of the 109 th Congress. The Settlement bills were reintroduced in the 110 th Congress as H.R. 24 and S. 27 . Hearings were held in both houses of Congress; however, the legislation was not enacted. One of the primary hurdles facing the legislation has been its budgetary impact and financing mechanisms. Implementation of the Settlement calls for construction of numerous projects and other activities that could cost between $250 million and $1.1 billion. Federal funding for these projects and activities is sought by the parties and is contemplated under the Settlement. Direct spending funding mechanisms included in the legislation would typically require a budgetary offset under congressional PAYGO rules—according to some, a difficult task in today's budget climate. While short-term (10 year) direct spending in H.R. 146 has been reduced substantially compared with earlier versions of the legislation, the budget effects of the legislation in its entirety are still at issue for some. An overall complication for Congress in considering San Joaquin Settlement legislation is that although the Settlement aims to end a 19-year lawsuit and comports with a court ruling, the Settlement would affect others outside the Friant Division Service Area. Changes embodied in H.R. 146 aim to resolve concern about the introduction of restoration flows. Another complication is the prospect that funding for the San Joaquin River Settlement may divert funds from salmon restoration projects in other river basins. Lastly, other recent events potentially limiting water exports from the Sacramento and San Joaquin Rivers Delta confluence could significantly affect implementation of the recirculation portion of the water management goal and has caused increased concern among some stakeholders. If Congress does not act on the legislation, some fear that the court will order a remedy, which may differ from the Settlement and which may have more severe consequences for some area water users and third parties. The Settlement Agreement and subsequent implementing legislation are the culmination of nearly two decades of discussion, argument, and study on whether and how to restore fisheries below Friant Dam, a federally owned and operated facility on the San Joaquin River. The most recent actions relate to a court decision that Reclamation is operating the dam in violation of California state fish and game code. The implications of this decision are far reaching for California water management and for both the directly affected water users and the indirectly affected communities, landowners, and water users. Several broad policy issues are raised by the Settlement. These issues partially derive from constraints imposed by the pressure to react to a settlement responding to a judicial ruling, as opposed to managing or legislating on an issue prior to, or absent, such a settlement. Another overarching issue is how San Joaquin River management ties into other CVP management decisions, as well as state and local water systems. Both the CVP and State Water Project (SWP)—a largely parallel state water supply system south of the Bay-Delta—are operating under regulations that limit the amount (and timing) of water that can be exported south out of the Bay-Delta. Recent court decisions regarding the health of threatened Delta Smelt have constrained water exports and may constrain future exports. The degree to which some of the water management goals identified in the Settlement might rely on moving water in and out of the Bay-Delta could affect the ultimate ability to recapture, recirculate, and/or reuse San Joaquin River restoration flows. At minimum, it appears the restoration effort will necessitate multi-year water planning and investments, including having the funding on hand and infrastructure in place to buy and put to use surplus water (e.g., for groundwater recharge), and to buy water in dry years for those without sufficient access to groundwater, those with primarily Class II supplies, or in the driest of years. Therefore, the future of water resource management in the Central Valley is not just conjunctive water management, but multi-year conjunctive management with the financial resources to make it happen, in addition to integration of federal, state, local, and private infrastructure projects. Whether Congress addresses this issue—in California and elsewhere—given current water resource authorization and appropriations practices and a restrictive budgetary climate remains to be seen. While the issues discussed here have confronted prior Administrations and Congresses, a Settlement Agreement was not reached until the U.S. District Court acted, ultimately resulting in the difficult choices facing Congress today (e.g., budgetary, water delivery, and ecosystem health trade-offs). This is a common dilemma for resource agencies implementing projects and programs which are based on societal and political trade-offs made decades ago (e.g., agricultural industry over commercial and sport fishing industries, or timber harvest over species habitat). It is hard to say what is fair or just when such significant trade-offs were made decades ago, causing harm to some, but providing benefit to others who then made financial and livelihood decisions based on those policies. In the eyes of many, the San Joaquin river restoration is an effort to respond to fisheries economic and ecological damage begun 60 years ago; for others the potential of reduced water supplies for off-stream use is a breach of promises made 60 years ago. For the court, it is a matter of Friant Dam operations comporting with state law.
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Historically, the San Joaquin River in Central California has supported large Chinook salmon populations. Since the Bureau of Reclamation's Friant Dam on the San Joaquin River became fully operational in the 1940s, much of the river's water has been diverted for off-stream agricultural uses. As a result, approximately 60 miles of the river bed is dry in most years. Thus, the river no longer supports Chinook salmon populations in its upper reaches. In 1988, a coalition of conservation and fishing groups sued Reclamation (Natural Resources Defense Council v. Rodgers). A U.S. District Court judge ruled in 2004 that operation of Friant Dam violates state law because of its destruction of downstream fisheries. Faced with mounting legal fees, uncertainty, and the possibility of dramatic cuts to water diversions, parties negotiated a settlement instead of proceeding to trial. The Settlement reached calls for new releases of water from Friant Dam to restore fisheries, potential river channel modifications to accommodate increased flows, and efforts to mitigate reductions in off-stream deliveries lost to restoration flows. Congressional authorization and appropriations are required for full Settlement implementation. Legislation based on the Settlement (H.R. 4074, H.R. 24 and S. 27) was considered in the 110th Congress; a new version of the legislation has been introduced in the 111th Congress—Title X of S. 22, an omnibus public lands bill, which became Title X of H.R. 146 and passed the Senate on March 19, 2009. A key legislative issue is how to finance the Settlement, specifically how to resolve direct spending and related congressional pay-as-you-go (PAYGO) issues. Other challenges have been how to achieve the Settlement's dual goals of fisheries restoration and water management, and how to address concerns of stakeholders not party to the Settlement, without disrupting the negotiated agreement. The region may benefit from increased recreational expenditures and investment in river restoration activities under the Settlement. For example, some communities and interests believe restoration will bring other benefits to the river and river communities, such as improved surface water quality in lower San Joaquin River reaches and enhanced recreation benefits. On the other hand, some studies suggest the Settlement would have a negative economic impact on the agriculture industry, at least in the short term. In addition, downstream interests not party to the Settlement have been concerned about increased flooding, groundwater infiltration, and competition with existing federal financial commitments. Nearby communities fear harm to groundwater quantity and quality. Some of these concerns have been addressed in the newest version of the legislation, but some may remain.
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Daily fantasy sports (DFS), a form of online gaming in which players assemble imaginary teams that amass points based on how well individual players perform in real-life sporting events, operates in a gray area of the law. The DFS industry has not been regulated by the federal government, but the attorneys general of several states have claimed that DFS either violates state laws or is subject to state regulation. Congressional action directly affecting the DFS industry dates back to a 2006 law, the Unlawful Internet Gambling Enforcement Act (UIGEA; P.L. 109-347 ), which outlaws illegal gambling using the Internet and bars banks, credit card firms, and other financial service providers from processing payments to companies offering "unlawful Internet gambling." UIGEA defines "unlawful Internet gambling" as placing or receiving a bet or wager via the Internet where such bet or wager is unlawful under either federal or state law. UIGEA provides an exemption to this prohibition for online participation in fantasy sports if the games have certain attributes including set prize pools, skill-based contests, and outcomes that do not depend solely on the performance of a single real-world team or player. However, DFS contests did not exist at the time of UIGEA's enactment in 2006, and there is debate about whether DFS, as presently offered to consumers, falls within the law's fantasy sports "exemption." It is also possible that courts could determine that DFS is subject to a 1992 law, the Professional and Amateur Sports Protection Act (PASPA; P.L. 102-559 ), which bans sports betting in most states, and to various other federal and state gambling laws. This uncertainty has drawn the attention of Congress, with some Members proposing to reexamine the legal status of the industry. Fantasy sports began as a type of informal gambling among friends, in which participants composed imaginary teams of active professional baseball players and won or lost depending on their players' statistical performance over the course of a full baseball season. Fantasy baseball developed into more formal "rotisserie leagues" in the 1980s, with elaborate rules and scoring systems. Daily fantasy sports essentially extends the fantasy concept to other sports, compresses season-long games into daily and weekly formats, and allows them to be played online among participants with no personal connection. DFS online gaming offers players a variety of sport options (e.g., baseball, basketball, football, and hockey), performance metrics, and types of contests ranging from one-on-one competitions to games with large numbers of participants. The idea is for a player to assemble an imaginary team that amasses points based on how well each individual on a team performs in real-life games, as measured by statistics such as the number of passing yards gained in football, the number of hits in baseball, or the percentage of three-point field goal attempts that are successful in basketball. To add to the challenge, every DFS player is given a salary cap, requiring that the sum of the real-life salaries of the players on each team fall below a specified level. Depending on the game the participant chooses to enter, the rewards for winning could range from a few dollars to a large amount in a guaranteed prize pool (GPP). DFS companies assert that these rewards are earned as the result of a fantasy sports player's skill rather than being the result of luck or chance. The companies' websites describe their offerings as "contests" and "games" and avoid such words as "gambling" and "bet." As discussed further below, the determination of whether players' rewards are earned as a result of skill or of chance may be significant in establishing the legal status of DFS. According to a study published in Sports Business Journal , "DFS affords a huge advantage to skilled players. In the first half of the 2015 MLB season, 91% of DFS player profits were won by just 1.3% of players." A separate survey of DFS participants conducted by Eilers Research in summer 2015 found that 70% of contestants lost money. These studies seem to suggest that the best players dominate everybody else because a certain amount of skill goes into putting together a winning daily fantasy lineup. One of the attractions of DFS is that it can be played on a variety of communication devices at a time and place of the participant's choosing. A typical fantasy sports player is younger, better educated, and wealthier than the usual visitor to a casino. A typical player is a male around 30 years of age who is extremely interested in sports and has played in fantasy leagues for several years. Many DFS participants formerly played online poker, which in the United States is now legal in only three states. According to the Fantasy Sports Trade Association (FSTA), the industry's national trade group, DFS players spent an average of $257 on entry fees and league-related materials in 2015. The two main DFS companies, FanDuel, founded in 2009, and DraftKings, launched in 2012, accounted for about 95% of the market's revenue in 2014, according to various estimates. Both companies are privately held. Roughly two dozen other companies also offer daily fantasy sports. The industry has a fairly simple revenue model. Players pay entry fees, which range from 25 cents to several thousand dollars, to compete in a single contest, whether against a small group of friends or against a huge pool of players seeking to win a prize pool in the millions of dollars. Operators in the industry typically keep a "rake" (the house's commission) of 5% to 15% of the total betting pool to cover operating costs and profit. DFS companies claim to distribute the rest as winnings. According to Eilers Research, which studies the gaming industry, the DFS industry's net revenue (entry fees minus prizes) in the United States totaled $86 million in 2014. The research firm said in late 2014 that "none of the major DFS providers are generating a profit, and it's unlikely that anyone will be cash flow positive in the next two years." Although DFS companies have not released detailed financial statements, it is generally believed that their aggressive advertising and marketing efforts are taking a large share of their net revenue. As shown in Figure 1 , FanDuel and DraftKings claim to have attracted 1.4 million paid active users in 2014, a huge uptick from fewer than 20,000 paid users as recently as 2011. FSTA, however, claims that the number of DFS players is small compared to the nearly 60 million people it estimates to have played season-long fantasy sports in 2015. The major DFS operators are backed financially by investors with other sports-related interests. Investors in FanDuel include Turner Sports (a subsidiary of Turner Broadcasting System), and cable television distributors Time Warner Cable and Comcast, while investors and marketing partnerships in DraftKings include the Kraft Group (which owns the New England Patriots football team), the Fox Sports cable television network, and Major League Baseball. In some cases, these investors may be less interested in the profitability of DFS than in its potential to enlarge the customer base for sports events and broadcasts. Sports leagues and associations have strongly opposed legalized sports betting, but some have supported the growth of fantasy sports partly because of the increased viewership that results from DFS contests. Cable television companies that carry sports programming, in some cases on high-cost tiers of service or on a pay-per-view basis, may see a similar benefit. According to DFS operator FanDuel, fans consume 40% more sports content once they start playing daily fantasy sports. Other companies have entered the market. Yahoo!, a recent entrant into the DFS market, offers daily and weekly fantasy sports games played for cash prizes on the Yahoo Sports daily fantasy website. CBS, the parent of the CBS television network, launched its own DFS product in August 2015. The ESPN cable sports network has arranged for DraftKings to promote its programs during its programming, and vice versa, instead of launching its own DFS platform. Television network executives may be especially interested in the prospect that DFS may keep players tuned in to a game with a lopsided score because they are more interested in individuals' performance than the final outcome. Such ventures have the potential to change the structure of the DFS market considerably. DFS is tiny relative to the gambling industry, whose casinos, Indian gaming operations, racinos, and state lotteries generated nearly $70 billion in net revenue in 2014. Despite the DFS industry's modest size, its rapid growth has raised questions about its potential effect on the more established gambling industry. Casinos and casino hotels employed about 400,000 people nationwide in 2014, and they are a major source of government revenue. Lotteries and taxes on commercial casinos and other types of gambling generated $27.3 billion for state governments in 2014, according to the Rockefeller Institute of Government of the State University of New York. In Nevada, gaming taxes made up about 24% of the state's general fund revenue in FY2014, and Nevada counties collected additional fees and levies from casinos. Pennsylvania collects a tax of 55 cents on every dollar bet on slot machines in the state. DFS companies historically have not been regulated as gambling in most states; however, the question of whether they should be is currently being litigated in a number of jurisdictions, as discussed in the " Legal Status and Regulatory Environment " section of this report. The traditional gambling industry itself is split on how to respond to DFS. Some land-based casino operators fear losing customers to DFS operators, as DFS players can now participate in contests from any spot outside a casino using their computers and mobile devices, and worry that DFS, especially if left unregulated, could become as disruptive to gambling as other Internet-based companies, such as Airbnb and Uber, have been to the hotel and taxi industries, respectively. Other gambling companies, however, see DFS as a possible way to tap into and introduce a younger generation generally unenthusiastic about bricks-and-mortar gambling to traditional gaming options such as slot machines and horse races. They see DFS as a possible new source of revenue, and a promising way to cross-market to individuals who might not otherwise enter a casino. This split is repeated within individual segments of the industry. For example, in Indiana, some racinos, which are gambling venues located at racetracks, want to offer DFS sports contests at licensed racetrack casinos in hopes of stimulating interest in horse racing, even as other racino operators worry that DFS could negatively affect racino revenue. Some state-run lotteries are considering whether to offer online DFS games, while others are more concerned about losing customers to DFS. The American Gaming Association (AGA), which represents commercial and tribal casino operators, has taken the position that it seeks "legal clarity and adequate consumer protections" for DFS activities. The Indian tribes that operate casinos generally have not weighed in on DFS, but some are concerned that it could affect gaming facilities that generated $28.5 billion in gross revenue in 2015. In Arizona, the failure of a 2014 bill designed to legalize DFS was reportedly due in part to tribal objections. Gambling is primarily a matter of state law, reinforced by federal law in situations where the presence of an interstate or foreign element might otherwise frustrate enforcement of state law. Few states have enacted laws that expressly address fantasy sports. However, state gambling laws often define "gambling" in such a way that they could potentially apply to fantasy sports, depending on the rules and format of the particular contest at issue. The legal status of fantasy sports under most state laws often turns on whether success in the activity depends primarily on the skill of individual contestants (which would likely make it legal) or mostly chance (which would probably make it unlawful gambling). In addition, some state laws that would appear to permit "traditional" fantasy sports may not be as favorable toward DFS. More than 80 civil lawsuits have been filed across the country against FanDuel and DraftKings; these cases allege improper or illegal conduct by the companies and advance three different theories of liability: (1) the use of "inside information" to gain an unfair advantage; (2) violations of state gambling laws; and (3) fraud relating to misleading promotional schemes. In early February 2016, the U.S. Judicial Panel on Multidistrict Litigation consolidated these actions in a Massachusetts federal district court, noting that "these actions involve common questions of fact" and that "centralization … will serve the convenience of the parties and witnesses and promote the just and efficient conduct of this litigation." Until these and other lawsuits involving DFS operators are settled, prosecutions become final, or states and the federal government definitively respond legislatively or administratively, questions will remain as to exactly what state and federal laws apply to these companies, their customers, and their service providers. DFS may implicate at least four federal laws that are directly related to gambling: (1) the Unlawful Internet Gambling Enforcement Act; (2) the Professional and Amateur Sports Protection Act; (3) the Wire Act; and (4) the Illegal Gambling Business Act. In addition, financial institutions that offer services to DFS operators could face legal liability under federal money laundering statutes if they do not implement adequate internal controls (policies and procedures) to manage and monitor risks. The Unlawful Internet Gambling Enforcement Act (UIGEA) was enacted in 2006 as a response, in part, to the perceived problem of foreign Internet gambling operations that made their services available to U.S. customers. The law attempts to address this issue by regulating the flow of financial payments to companies that are involved in offering unlawful Internet gambling. Specifically, UIGEA prohibits anyone "engaged in the business of betting or wagering" from knowingly accepting checks, credit card charges, electronic transfers, and similar payments in connection with unlawful Internet gambling. UIGEA expressly excludes from the definition of the term "business of betting or wagering" the services of financial institutions as well as communications and Internet service providers that may be used in connection with the unlawful bet; however, such entities may nonetheless incur liability under UIGEA if they are directly engaged in the operation of an Internet gambling site. A violation of UIGEA is subject to a criminal fine of up to $250,000 (or $500,000 if the defendant is an organization), imprisonment of up to five years, or both. In addition, upon conviction the court may enter a permanent injunction enjoining a defendant from making bets or wagers "or sending, receiving, or inviting information assisting in the placing of bets or wagers." Any person or entity that violates UIGEA and its implementing regulations may also be subject to civil and regulatory enforcement actions. UIGEA requires certain financial payment providers "to identify and block or otherwise prevent or prohibit restricted transactions" that are used for unlawful Internet gambling. UIGEA does not, however, alter existing federal or state laws. Indeed, UIGEA contains a rule of construction provision that expressly pronounces its lack of preemption or other effect on other federal and state laws relating to gambling: "No provision of this subchapter shall be construed as altering, limiting, or extending any Federal or State law or Tribal-State compact prohibiting, permitting, or regulating gambling within the United States." In addition, UIGEA's definition of "unlawful Internet gambling" does not specify what gambling activity is illegal. As a federal appeals court emphasized in 2009, "[i]t bears repeating that the Act itself does not make any gambling activity illegal." Rather, the statute relies on underlying federal or state gambling laws to make that determination—that is, UIGEA applies to an Internet bet or wager that is illegal in the place where it is placed, received, or transmitted: The term "unlawful Internet gambling" means to place, receive, or otherwise knowingly transmit a bet or wager by any means which involves the use, at least in part, of the Internet where such bet or wager is unlawful under any applicable Federal or State law in the State or Tribal lands in which the bet or wager is initiated, received, or otherwise made. UIGEA further defines the term "bet or wager" to mean "the staking or risking by any person of something of value upon the outcome of a contest of others, a sporting event, or a game subject to chance, upon an agreement or understanding that the person or another person will receive something of value in the event of a certain outcome." However, under UIGEA an illegal "bet" or "wager" specifically does not include "participation in any fantasy or simulation sports game … in which … no fantasy or simulation sports team is based on the current membership of an actual team that is a member of an amateur or professional sports organization" and that satisfies the following criteria: 1. All prizes and awards offered to winning participants are established and made known to the participants in advance of the game or contest, and their value is not determined by the number of participants or the amount of any fees paid by those participants. 2. All winning outcomes reflect the relative knowledge and skill of the participants and are determined predominately by accumulated statistical results of the performance of individuals (athletes, in the case of sports events) in multiple real-world sporting or other events. 3. No winning outcome is based (a) on the score, point spread, or any performance or performances of any single real-world team or a combination of such teams; or (b) solely on any single performance of an individual athlete in any single real-word sporting or other event. One argument underlying the fantasy sports exemption is that a player's command of statistics, knowledge of the game, and observation of factors affecting an individual athlete's performance are all matters of skill, not luck. This fantasy sports exemption was enacted before the creation of DFS. In addition, the statutory exemption does not specify the extent to which chance may play a role in determining the winning outcome of the contest. The UIGEA fantasy sports exemption also sets no limit on entry costs, prizes, or the duration of contests. These three considerations form, in part, the basis for the legal uncertainty under which DFS providers may be able to assert their eligibility for the UIGEA exemption. The federal Professional and Amateur Sports Protection Act (PASPA), enacted in 1992, generally prohibits state governments from sponsoring, operating, advertising, promoting, licensing, or authorizing gambling on competitive games in which amateur or professional athletes participate, "or on one or more performances of such athletes in such games." It also prohibits any person from sponsoring, operating, advertising, or promoting such gambling "pursuant to the law or compact of a governmental entity." (PASPA contained a "grandfather" clause to allow sports gambling operations in Nevada, Oregon, Delaware, and Montana, each of which permitted certain types of sports betting at the time of PASPA's passage.) It is uncertain whether DFS or other types of fantasy sports leagues violate PASPA, particularly in light of the fantasy sports exemption that Congress included in UIGEA 14 years later. In addition, an argument has been made that PASPA may even preempt state laws that expressly legalize fantasy sports. The Massachusetts Gaming Commission released a "white paper" on daily fantasy sports in January 2016 that explored in detail the possible "constraint to state action" toward DFS that PASPA may pose: The fact that PASPA prohibits a government entity "to sponsor, operate, advertise, promote, license or authorize by law or compact " suggests that conflict would only arise when a state passes legislation or joins a compact that involves one of the six PASPA verbs.… There is presently a dearth of case law discussing the limits of what would constitute affirmative state action sufficient to trigger a PASPA violation … Any approach to state action outside of the six PASPA verbs should be a cautious one … While some states have promulgated legislation to specifically exempt DFS from their definitions of gambling/bet/wager, such action could be challenged as "authorizing" or "promoting" a sports betting scheme particularly where a state would be required to take affirmative action to achieve the goal. Arguably, a state could defend its actions as merely clarifying the absence or ambiguity of existing law rather than an outright "authorization" that would run afoul of PASPA. Regulation that does not involve authorization by law is a significantly more conservative approach that appears far less likely to directly conflict with PASPA and has already been initiated by our attorney general. Further "regulate" is not one of the PASPA verbs and thus is arguably permitted on the face of the statute, particularly where the regulations themselves do not establish a licensing or other heavy state oversight scheme. Another method of avoiding the PASPA limitations may be to promulgate legislation that addresses the larger subject of internet-based electronic gambling. While DFS would likely fall under the umbrella of such legislation, if the legislation does not specifically target DFS, it runs less chance of any outright PASPA challenge. To date, no federal or state court has considered whether DFS operators, or state laws that regulate DFS, are in conflict with PASPA. However, PASPA provides that any legal challenge regarding this issue may be brought only by the U.S. Attorney General, the major professional sports leagues, or the National Collegiate Athletic Association (NCAA). It is unclear whether any of these entities may be inclined to file a PASPA action. Several U.S. professional sports leagues have entered into partnerships with DFS operators, and thus might not desire to have a court determination of the impact of PASPA on DFS that is unfavorable to their economic interests. On the other hand, the NCAA has long been an opponent of sports wagering involving its student athletes, and has reportedly refused to allow DFS advertisements during college basketball tournaments; unless it changes its position, it could be a potential opponent of state actions legalizing DFS. The U.S. Attorney General could also seek an injunction, but she may be reluctant to do so, argues one legal practitioner, who cites "the deference that the federal government has historically provided to states related to the enforcement of gambling laws." The federal Wire Act of 1961 (also referred to as the Interstate Wire Act or the Wire Wager Act) prohibits the use of interstate wire communication facilities by those in the gambling business to transmit bets or gambling-related information. Violators of the Wire Act are subject to imprisonment for not more than two years and/or a fine of the greater of not more than twice the gain or loss associated with the offense or $250,000 (not more than $500,000 for organizations). Note that the Wire Act is directed at anyone "engaged in the business of betting or wagering," and some courts have suggested it may not be used to prosecute simple bettors. Note also that the Wire Act applies without regard to whether the gambling is permitted under state law. The federal courts have interpreted the term "wire communications" to include Internet communications. Prior to 2011, the U.S. Department of Justice's Criminal Division consistently maintained that the Wire Act applies not only to sports wagering, but also to other forms of interstate gambling, including non-sports Internet gambling. Such an expansive view of the Wire Act by the Justice Department apparently dissuaded state governments from expressly authorizing and implementing Internet gambling within their jurisdictions. However, in late 2011, the Justice Department's Office of Legal Counsel reversed its interpretation of the Wire Act, opining that "interstate transmissions of wire communications that do not relate to a 'sporting event or contest,' 18 U.S.C. §1084(a), fall outside the reach of the Wire Act." This decision expresses the Justice Department's intent to confine its use of the Wire Act to prosecutions of those involved in gambling businesses that use interstate wire communication facilities to transmit sports bets or sports gambling-related information. It is unclear, however, whether operation of DFS or other types of fantasy or simulation sports games (as defined by the UIGEA exemption) constitutes "the placing of bets or wagers on any sporting event or contest" within the meaning of the Wire Act. DFS operators may face criminal liability under the Illegal Gambling Business Act of 1970 (IGBA) if they are in violation of state gambling laws and meet other elements of the criminal offense. IGBA punishes anyone who conducts, finances, manages, supervises, directs, or owns all or part of an illegal gambling business. IGBA defines an "illegal gambling business" to mean a gambling business that 1. is a violation of the law of a state or political subdivision in which it is conducted; 2. involves five or more persons who conduct, finance, manage, supervise, direct, or own all or part of such business; and 3. has been or remains in substantially continuous operation for a period in excess of 30 days or has a gross revenue of $2,000 in any single day. Violations of IGBA are punishable by imprisonment for not more than five years and/or fines of the greater of (1) not more than twice the gain or loss associated with the offense or (2) $250,000 ($500,000 for an organization). Note that IGBA is broader than the Wire Act in one respect, as it applies to gambling activities that do not depend on the use of a "wire communication." However, IGBA is narrower than the Wire Act in that the type of illegal gambling business must first exceed the statutory thresholds described above in order for IGBA to apply. Reportedly, a federal grand jury in Florida has been investigating DFS companies for possible IGBA violations. The Bank Secrecy Act (BSA) of 1970 and its major component, the Currency and Foreign Transactions Reporting Act, require U.S. financial institutions to help the federal government detect and prevent money laundering by filing reports and maintaining records of certain transactions involving cash, negotiable instruments, or foreign currency. Under the BSA, financial institutions must file with the Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) suspicious activity reports (SARs) relating to any transaction involving $5,000 or more that they have reason to suspect are derived from illegal activity (including illegal sports betting). Banks must also establish and maintain anti-money laundering programs designed to ensure that bank officers and employees will have sufficient knowledge of the banks' customers and of the business of those customers to identify the circumstances under which filing SARs is appropriate. Suspicion aside, banks must file currency transaction reports with FinCEN relating to transactions involving $10,000 or more in cash. Banks, their officers, employees, and customers may also face criminal liability under the money laundering statutes for illegal gambling-related financial transactions. Section 1957 of Title 18, U.S. Code , makes it a federal crime to deposit or withdraw $10,000 or more in proceeds derived from illegal gambling activities. Section 1956 makes it a federal crime to engage in a financial transaction involving such proceeds conducted with an eye to promoting further offenses—for example, by withdrawing illegal gambling-generated funds in order to pay the salaries of the gambling operator's employees. Federally insured state- and federally chartered depository institutions that engage in illegal or unsafe banking practices also run the risk of being assessed civil money penalties and even losing deposit insurance coverage, which would result in the termination of their status as insured depository institutions. Finally, banks, credit card companies, and other payment system participants could be at risk of violating UIGEA if they process transactions for DFS companies that are operating in states where DFS has been deemed unlawful. In apparent concern about its legal liability under UIGEA due to the growing number of state attorneys general who have determined DFS to be illegal gambling (see detailed description of these actions in the following section), a payment processing company, Vantiv Entertainment Solutions, informed its DFS clients that it would "suspend all processing for payment transactions" related to DFS in the United States effective February 29, 2016. Because this company "handles a significant number of transactions" for FanDuel and DraftKings in the form of players' deposits and withdrawals, one report called its decision to stop working with them "perhaps the biggest blow yet" to the DFS industry. A week after Vantiv's action, the world's largest credit card lender, Citigroup, announced that it would "block transactions at DraftKings and FanDuel by New York residents pending a final decision by the courts." These combined actions arguably "threaten the financial lifeblood of the [DFS] industry" because "Citigroup provides money through its cards, while the other financial institution, Vantiv, processes the bets." Any entity that provides gaming for real money must comply with state gambling laws to be offered in a state. Each state has its own independent definition of gambling, which may include everything from state-conducted lotteries, bricks-and-mortar casinos, horse racing, and tribal casinos to intrastate Internet gambling. The issue of whether DFS is considered a game of luck or skill is central to the debate over the legal status of DFS under the states' gambling laws. The number of states taking a legislative interest in DFS is growing rapidly. In 2015, DFS was an active topic for lawmakers in least a dozen states, up from just two in 2014. Some states are considering requiring DFS operators to obtain licenses and comply with certain consumer protection safeguards (such as employee background checks and ensuring that players are not underage or employed by a DFS company); others are interested in regulating the industry as they regulate gambling; still others are seeking to clarify its status under their existing gambling laws. For example, Maryland in 2012 enacted a law explicitly legalizing fantasy sports contests by exempting "fantasy competition" from state law prohibitions against betting, wagering, and gambling. In 2015, Kansas also enacted a law declaring fantasy sports a game of skill—thus removing fantasy sports from state laws that ban illegal lotteries. In October 2015, Nevada became the first state to require gambling licenses for DFS operators, via a notice issued by the Nevada Gaming Control Board. Some DFS operators do not offer fantasy sports competitions in states where their legal status is unclear. For example, FanDuel and DraftKings do not offer DFS games in Arizona, Hawaii, Iowa, Louisiana, Mississippi, Montana, Nevada, and Washington. Arizona law limits fantasy sports contests by defining prohibited gambling as an "act of risking or giving something of value for the opportunity to obtain a benefit from a game or contest of chance or skill or a future contingent event." An Iowa criminal statute prohibits the playing of a "game for any sum of money or other property of any value," which was interpreted by a 1931 Iowa Supreme Court decision as not depending on "whether the game is one of skill or chance." Louisiana passed a law in 1997 that established the crime of "gambling by computer," which prohibits the operation of "any game or contest whereby a person risks the loss of anything of value in order to realize a profit when accessing the Internet." Montana law expressly prohibits any form of commercial gambling, which would include fantasy sports in which entrance fees are paid and prizes are awarded. The Washington State Constitution prohibits all forms of gambling unless the activity is specifically allowed by state law, and Washington law also expressly prohibits Internet gambling. The Washington State Gambling Commission has stated that fantasy sports wagering falls under both the statutory definition of gambling as well as the state statute prohibiting Internet gambling (to the extent the particular fantasy sports wagering takes place online). Finally, as described in greater detail in the next section, FanDuel and DraftKings have suspended their operations in Hawaii, Mississippi, and Nevada in the aftermath of opinions issued by those states' attorneys general that called into question the legality of DFS. Illinois is considering a bill that has garnered support from DFS operators, who see it as an industry-friendly measure that could be used as a model for regulation in other states. Included in Illinois's Fantasy Contests Act are provisions that would define fantasy sports without equating it to gambling, ban players under age 18, and require annual audits to make certain that state rules are being followed. In late January 2016, the California Assembly overwhelmingly approved a bill, the Internet Fantasy Sports Games Consumer Protection Act, which would establish a regulatory and licensing regime for DFS operators. If enacted, the bill would require any person or entity to obtain a license from the California Department of Justice prior to offering any Internet fantasy sports within the state. The licensed operator would be required to pay an annual regulatory fee and also provide player-winnings information to California tax authorities. Five states account for roughly 40% of all DFS usage (see Figure 2 ) and about 40% of industry revenues. This suggests that if these states pass legislation that negatively affects DFS businesses, the growth of the industry could be adversely affected. Parallel to the DFS activity in state legislatures, several state attorneys general have weighed in on the legal status of daily fantasy sports under their existing laws. To date, the majority have determined DFS to constitute illegal gambling, although a few have approved of the contests. For example, Nevada's attorney general in October 2015 found that "daily fantasy sports constitute sports pools and gambling games.… As a result, pay-to-play daily fantasy sports cannot be offered in Nevada without licensure." In November 2015, the New York attorney general ruled that DFS is illegal gambling and ordered the two largest DFS websites to immediately stop accepting wagers in the state. In his cease-and-desist letter to FanDuel, he distinguished season-long fantasy sports from DFS: We believe there is a critical distinction between DFS and traditional fantasy sports, which, since their rise to popularity in the 1980s, have been enjoyed and legally played by millions of New York residents. Typically, participants in traditional fantasy sports conduct a competitive draft, compete over the course of a long season, and repeatedly adjust their teams. They play for bragging rights or side wagers, and the Internet sites that host traditional fantasy sports receive most of their revenue from administrative fees and advertising, rather than profiting principally from gambling. For those reasons among others, the legality of traditional fantasy sports has never been seriously questioned in New York. Unlike traditional fantasy sports, the sites hosting DFS are in active and full control of the wagering: FanDuel and similar sites set the prizes, control relevant variables (such as athlete "salaries"), and profit directly from the wagering. FanDuel has clear knowledge and ongoing active supervision of the DFS wagering it offers. Moreover, unlike traditional fantasy sports, DFS is designed for instant gratification, stressing easy game play and no long-term strategy. For these and other reasons, DFS functions in significantly different ways from sites that host traditional fantasy sports. On December 11, 2015, a New York State court judge granted the New York attorney general's request for preliminary injunctions against DraftKings and FanDuel (to stop them from doing business in New York and accepting bets entry fees, wagers, or bets from New York consumers). Later that same day, the DFS companies obtained a temporary stay of the preliminary injunctions from a New York appellate court. In early January 2016, the New York Supreme Court Appellate Division's First Department granted the DFS companies' requests for permanent stays of the injunctions pending their appeal of the judge's order. According to one news report, the appeal has been scheduled for May 2016. Although Maryland enacted a law in 2012 that permits fantasy sports, the Maryland attorney general in January 2016 issued an advisory opinion questioning whether DFS is authorized by that law and recommended that the Maryland state legislature consider the issue. Attorneys general in other states have also determined that DFS constitutes illegal gambling under their state laws, including in Illinois, Texas, Vermont, Hawaii, and Mississippi. Reaching an opposite conclusion, the Massachusetts attorney general announced in October 2015 that she believes DFS is not prohibited by either federal or Massachusetts state law. She later issued the proposal mentioned above, laying out extensive regulations under which she would like to see DFS companies operate, including a ban on players under 21 and restrictions on where such sites can advertise. In early February 2016, Rhode Island's attorney general found that DFS leagues do not violate state laws pertaining to "games of chance" and lotteries; nevertheless, he recommended that the Rhode Island legislature act expeditiously to enact a statute that regulates the operation of DFS "to ensure criminal elements do not infiltrate the game, youth participation is barred, [and] addiction issues [are] addressed." The popularity of DFS and its unregulated status have generated a number of concerns related to protection of consumers who enter daily fantasy sports contests. It is not clear what legal protections DFS customers have over their account balances upon the default or insolvency of a DFS company. DFS companies currently are not subject to comprehensive regulatory regimes at the federal level or in most states. Instead, many DFS companies are FSTA members, through which they voluntarily agree to comply with industry standards. One FSTA standard calls for companies to segregate customer deposits from their general operating funds. FanDuel and DraftKings have stated publicly that they adhere to the policy of ring-fencing customer deposits in segregated customer accounts. However, it is unclear whether the consumer protections outlined in these public statements and voluntary industry standards are legally binding and enforceable. Each DFS company requires individuals to agree to a "terms of service agreement" before they can enter contests. These terms of service agreements contractually establish the general legal relationship between the DFS company and its customers. At least some terms of service agreements, which vary from company to company, arguably are ambiguous as to a customer's legal recourse when the company fails, for example, by entering bankruptcy. These agreements might, for instance, inadequately or imprecisely define what constitutes "customer funds" or "customer deposits"; fail to require that customer deposits be held at financial institutions that are insured by federal or state governments; fail to require that customer accounts be held and administered by independent third parties; expressly state that the agreement does not create a fiduciary or similar legal relationship between the customer and the DFS company; allow the DFS company to unilaterally amend the terms of agreement at any time and for any reason; allow the DFS company to deny prizes or "points" for amorphous reasons, such as if a customer has engaged in an activity that the company considers to be "adverse to [its] operation"; fail to establish what rights a customer might have to recover funds if the customer's account is canceled by the DFS operator for a violation of the terms of service agreement; and include liability waiver provisions. Additionally, players may have difficulty verifying that companies are complying with industry standards and stated policies to the extent that DFS companies are not subject to comprehensive regulatory regimes. Furthermore, even if customer funds are fully protected, there may be a significant delay in customers' ability to recover their funds if a DFS company enters a bankruptcy or some other legal proceeding. States typically set a minimum age for persons engaging in casino gambling and racetrack betting, but age limits are more difficult to enforce for games offered online. Massachusetts has proposed prohibiting anyone under age 21 from participating in daily fantasy sports games. Some DFS operators request potential players to supply copies of identification documents if there is reason to suspect a minor is creating an account, and DraftKings requires new players to state their dates of birth. In fall 2015, it was reported that employees of FanDuel and DraftKings had won large prizes playing at other DFS sites, possibly by using nonpublic information as to how many people selected specific National Football League players for their teams. Two Members of Congress called upon the Federal Trade Commission (FTC) to investigate whether these incidents involving possible misuse of private information constitute an "unfair or deceptive practice" under the Federal Trade Commission Act. In response to these allegations, FanDuel and DraftKings prohibited their employees from playing DFS games on any DFS website. The Massachusetts attorney general has also proposed regulations that would forbid any DFS employee or contractor from playing on any DFS contest platform, "[n]or may such person play through another person as a proxy." Because players may participate in DFS from homes, offices, dormitory rooms, or any number of other locations at any time of day or night, some individuals may find their desire to play difficult to control. The National Council on Problem Gambling (NCPG) adopted a resolution on October 8, 2015, stating it believes participants in fantasy sports are at high risk to, and do, develop gambling problems. Among other things, it urges companies offering fantasy sports contests to develop gambling-related consumer protections using NCPG guidelines as a foundation, and to avoid running advertisements that "misrepresent the frequency or extent of winning or target people with game-play problems or minors ..." The Massachusetts attorney general's proposed DFS regulations would require DFS operators to comply with the state's "truthful advertising" regulations and to not use in any advertisements the depictions of minors, students, or school or college settings. Furthermore, the proposed regulations mandate that "advertisements in published media (e.g., print, television, Internet and smartphone applications) will include information concerning assistance available to problem gamblers or will direct consumers to a reputable source for such information." If state governments regulate DFS, operators will need to be able to ensure players are where they say they are. The same is true if DFS is found to be gambling, as UIGEA specifically prohibits "gambling businesses from knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the Internet and that is unlawful under any federal or state law." Some gambling businesses, such as poker websites, currently use geolocation technology to assure that players are physically located in jurisdictions in which the games are legal. The same technology could probably be applied to DFS. DraftKings recently announced an agreement with GeoComply, a company that tracks user location by analyzing Internet protocol (IP) addresses and Global Positioning System data, triangulating wi-fi and cell tower connections, and employing software to detect a customer's use of concealing technologies such as virtual private networks. FanDuel has declined to say what geolocation technology and procedures it uses. No bills have been introduced in the 114 th Congress that would either legalize or regulate DFS nationwide. However, some Members have called for formal inquiries into the daily fantasy sports industry. In October 2015, Representative Hakeem Jeffries asked the House Judiciary Committee to examine whether "permitting a multibillion-dollar industry to police itself serves the best interests of the American people." Senator Robert Menendez and Representative Frank Pallone have called on the Federal Trade Commission (FTC) to implement safeguards and ensure a fair playing field in daily fantasy sports. And Senator Richard Blumenthal has called for a federal investigation into deceptive or fraudulent practices at DFS leagues by the FTC and the Department of Justice. In addition, questions about the roles of skill and luck in fantasy sports prompted Representative Frank Pallone in September 2015 to request the House Energy and Commerce Committee to hold a hearing to consider whether fantasy sports is currently allowed by UIGEA. According to press reports, Representative Dina Titus, too, has asked the House Energy and Commerce Committee to hold a hearing on the legalities of daily fantasy sports. Policy options that could shape the future of the DFS industry generally center on whether regulation should come from Congress, individual states, or the DFS industry itself. Congress could pass legislation specifically governing DFS games, such as laws to oversee state and tribal agencies that regulate DFS contests. Congress could also amend the existing federal gambling laws to expressly prohibit or authorize DFS gaming. Arguably, if Congress imposes regulations on DFS providers, it would likely affect the industry's costs, as new laws may include new costs such as significant consumer protections and licensing fees . Currently, a state-by-state approach is being used to regulate the industry. For example, Nevada now requires a DFS operator to obtain a license. Some states, such as Massachusetts, may regulate the DFS industry within their borders, and others, like Texas, may declare it unlawful gambling. A few states, specifically Kansas, may allow DFS companies to continue as an unregulated industry. Some states, for instance New York, might attempt to halt DFS operators until regulations are put in place. Litigation over some of these state actions is currently ongoing, and additional lawsuits are possible in the future. The DFS industry has responded to greater national and state scrutiny with its own self-regulatory system. In October 2015, FSTA, which claims more than 300 member companies, including DraftKings, FanDuel, Yahoo Fantasy Sports, ESPN, and CBS Sports Digital, announced a Fantasy Sports Control Agency (FSCA). FSCA, led by Seth Harris, former acting U.S. Secretary of Labor, aims to develop cross-company standards, internal controls, auditing policies, and enforcement mechanisms to govern the industry. Both DraftKings and FanDuel have endorsed FSCA's formation.
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Daily fantasy sports (DFS) companies, which operate online gaming platforms that allow players to assemble imaginary sports teams and compete in daily or weekly contests, function in a gray area of the law. The federal government does not license or regulate them. State governments have the main responsibility for regulating gaming activities that offer the prospect of monetary rewards, but a series of federal laws, most recently the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA; P.L. 109-347), may limit states' ability to oversee DFS. The 2006 law, however, was enacted at a time when only season-long fantasy sports existed. Whether Congress intended it to exempt DFS from state regulation is unclear. Congress, multiple states, and law enforcement agencies have questioned the legality of the fledgling DFS industry, with a central focus on whether DFS contests are indeed games of skill (which would most likely make DFS legal) or chance (which would probably make DFS unlawful gambling). The legal status of DFS under state law directly affects whether DFS operators may be federally prosecuted under the Illegal Gambling Business Act (P.L. 91-452) and whether banks and payment processors could be held liable for violating UIGEA if they process monetary transactions related to daily fantasy sports. It is also possible that courts could determine that the Professional and Amateur Sports Protection Act (PASPA; P.L. 102-559) prohibits most state legislatures from authorizing or regulating DFS. In 2015, more than a dozen states considered whether or not to allow DFS operators to offer their gaming activities to individuals located within their borders. Nevada has decided to require DFS operators to obtain a license from its state gaming commission. Other states are considering a similar approach, which could include wagering taxes akin to the ones casinos pay. If state lawmakers decide to treat DFS as gambling, and if the courts determine that status is consistent with federal law, DFS would be subject to regulations, licensing, consumer protection safeguards, and other mandates where states choose to impose and enforce them. In the absence of state regulation, there is no means of assuring customers' access to funds on deposit with DFS operators and of enforcing prohibitions on participation by underage gamers. Despite the controversy that surrounds it, the DFS sector is relatively small. FanDuel and DraftKings, the two largest operators, and the roughly two dozen smaller DFS companies are estimated to have booked around $86 million in net revenue (receipts minus prizes) from DFS in 2014, a small fraction of the regulated gambling industry's net revenue. Nonetheless, a variety of sports teams and organizations and media companies have invested in the DFS industry, suggesting a potential for rapid expansion if the industry's legal status is clarified. There are strong differences of opinion within the traditional gambling industry on DFS. Some land-based casino operators fear losing customers to DFS games, while other casino owners see it as a potential new revenue source allowing them to attract younger players. Some Indian tribes that operate casinos have expressed concern about the prospect that DFS could reduce their revenues, but many tribes have not weighed in. In some states, racinos (gambling venues located at racetracks) may lobby to offer DFS sports to help increase interest in horse racing; in other states, racino operators worry that DFS will divert potential bettors from their facilities. A few state lotteries are considering whether to offer online DFS games.
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In February 2016, the United States signed the Trans-Pacific Partnership (TPP) with 11 countries: Canada, Mexico, Chile, Peru, Japan, Australia, New Zealand, Singapore, Malaysia, Vietnam, and Brunei. The TPP, now subject to approval and implementation by Congress, is termed by its participants as a comprehensive and high-standard agreement, designed to eliminate and reduce trade barriers and establish and enhance trade rules and disciplines among the parties. If implemented, it would be the largest plurilateral FTA by value of trade, encompassing roughly 40% of world GDP, and could serve further to integrate the United States in the dynamic Asia-Pacific region. As a "living agreement," it has the potential to negotiate new rules and expand its membership. It could also mark a shift to the negotiation of "mega-regional" trade liberalization agreements in lieu of bilateral FTAs and broader multilateral trade liberalization in the World Trade Organization (WTO). In considering TPP and other trade agreements, discussions often focus on potential economic effects, and especially on potential gains or losses in employment. In addition, some observers have tied U.S. trade deficits to existing U.S. free trade agreements (FTAs) by arguing that the agreements have worsened the trade deficit and, thereby, have negatively affected U.S. employment and wages. According to many economists, trade in general provides economy-wide net positive benefits for consumers as a whole and for producers, especially for firms in export-oriented industries. They also note, conversely, that economic adjustment costs stemming from lower trade barriers may be highly concentrated, affecting some workers, firms, and communities disproportionately. The relationship between trade and jobs, however, is complicated and subject to a number of different and, at times, opposing forces. In addition, impediments in local labor markets may raise adjustments costs for some workers, firms, and communities in ways that may not be fully reflected in traditional trade models. This report examines recent studies on the potential economic impact of the TPP. It also provides a limited discussion of the role of trade agreements in the economy and examines selected studies on the impact of TPP. For a broader treatment of some of these issues see CRS Report R44546, The Economic Effects of Trade: Overview and Policy Challenges , by James K. Jackson. In general, economists and others use various economic models and approaches to estimate the magnitude of changes in U.S. economic activity and employment that could arise from a trade agreement. Both proponents and opponents of trade agreements often cite the results of these studies to support their respective positions. These models, however, differ in the estimates they produce, reflecting different assumptions and differences in the structure of the models themselves. While all the various models and approaches have strengths and weaknesses, although not always in equal proportions, they vary in the degree to which they reflect economic reality, and they are highly sensitive to the assumptions they use. The TPP, considered by participants to be a high-standard and comprehensive agreement, is designed to eliminate and reduce trade barriers and establish and enhance trade rules and disciplines of the trading system among the parties to the agreement. The agreement covers goods, services, investment, and a number of other issues including trade facilitation, digital trade, intellectual property rights, and standards, or technical barriers to trade. Due to the limitations of data and other theoretical and practical issues involved with services, investment, and non-tariff barriers, most estimates of the economic and employment effects of trade and trade agreements focus narrowly on the goods sector, where data on trade and tariff rates are available, to estimate how demand for these goods may change as a result of changes in tariffs. Accordingly, such estimates do not represent the total impact of the agreement on the economy. Most economists argue that liberalized trade creates both economic costs and benefits, as indicated in Table 1 , but that the long-run net effect on the economy as a whole is positive. They contend that the economy as a whole operates more efficiently as a result of competition through international trade and that consumers throughout the economy benefit by having available to them a wider variety of goods and services at varying levels of quality and price than would be possible in an economy closed to international trade. They also contend that trade may have a long-term positive dynamic effect on an economy that enhances both production and employment. In addition, trade agreements of the type currently being negotiated by the United States comprise a broad range of issues that could have far-ranging economic effects on trade and commercial relations over the long run between the negotiating parties, particularly for developing and emerging economies. Most economists acknowledge that international trade and trade agreements can entail some negative effects through greater access to markets and increased competition, with the effects falling more heavily on some workers and firms. Generally, the costs and benefits associated with trade agreements do not accrue to the economy at the same speed; costs to the economy are felt in the initial stages of the agreement, while benefits to the economy accrue over time. The expected costs to the economy in the form of job losses and downward pressure on wages in some sectors and some segments of the labor force are experienced in the initial stages of the agreement, while the anticipated benefits to the economy in terms of enhanced consumer welfare and improvements in resource utilization accrue over time. In addition, while research is ongoing, most economists have concluded that trade liberalization, or international trade more broadly, has not been a major factor affecting the distribution of income, whether in the United States, or in other economies, developed or developing. Some economists also estimate that international trade and trade liberalization have a different impact on workers in various occupations in the economy, termed by some as the occupational exposure to international trade. This means that trade liberalization can have a disproportionate impact on workers and firms not only in different sectors of the economy, but even within the same industry. Such types of microeconomic analysis at the firm level generally are not within the scope of trade models. The lack of data in areas other than direct trade in goods and services means that data on traded goods and some services can drive policy debates. Economists and others face numerous challenges in their efforts to estimate precisely the economic and employment effects that are associated with agreements that reduce or eliminate barriers to trade and investment flows, including non-tariff barriers to trade in services and other sectors. Trade in services, in particular, is characterized by a broad array of formal and informal barriers that complicate efforts to translate the barriers into tariff-equivalent values. Also, little analysis has been done to date on the potential economic effects of removing or reducing technical barriers to trade. Reduced barriers to trade in services potentially could have a large and positive impact on the U.S. economy, since informal barriers to trade in services are numerous, the United States is highly competitive in a number of services sectors, and U.S. direct investment abroad often spurs exports. The economic environment within which trade occurs is also being constantly shaped by domestic and international activities in ways that may be difficult to model and may not be fully reflected in the time series data that are the fundamental building blocks of trade models. For instance, the sharp decline in energy and raw material prices in 2015-2016 and the slowdown in global trade since 2011 are altering the global economy in ways that arguably exceed any potential trade agreement. It is unlikely that the complete effects of these changes have been fully reflected in global economic and trade data. Trade models also do not explicitly incorporate exchange rates, in part due to the difficulty involved in estimating future movements in exchange rates. Such models, therefore, rely on existing trade patterns that may limit their ability to estimate the impact of new trade patterns that could arise from a multi-country agreement. Trade models also generally treat exports and imports as strictly domestic or foreign goods. However, the rapid growth of global value chains (GVCs) and intra-industry trade (importing and exporting goods in the same industry) have significantly increased the amount of trade in intermediate goods in ways that challenge traditional concepts of domestic versus foreign firms and blur the distinction between exports and imports. For instance, foreign value added accounts for about 28% of the content on average of global exports. As a result of the growth in GVCs, traditional methods of counting trade may obscure the actual sources of goods and services and the allocation of resources that are used in producing those goods and services. Trade in intermediate goods also means that imports may be essential for exports and that countries that impose trade measures restricting imports may negatively affect their own exports. This complex process of cross-border production and trade in intermediate goods also utilizes a broad range of services in ways that have expanded and redefined the role that services play in international trade. Increased trade in intermediate goods has also meant that the number of jobs in the economy tied directly and indirectly to international trade has increased in ways that are not captured fully by trade models. Efforts to estimate the economic impact of the proposed TPP are further complicated by the existence of overlapping trade agreements among the TPP countries: the United States already has FTAs with six TPP partners: Australia, Canada, Chile, Mexico, Peru, and Singapore. In addition, Singapore, Malaysia, Vietnam, and Brunei are members of the ASEAN (Association of Southeast Asian Nations) FTA. Such agreements have both trade creating and trade diverting dimensions that can interact in tandem or in opposite ways that may complicate the trade environment. While it may not be possible for any trade model to incorporate all the economic effects that potentially could arise from overlapping trade agreements, such agreements may be reshaping trade patterns that ostensibly could be enhanced further by the TPP. In addition to the direct economic effects expected to result from cuts in tariffs, the TPP may offer additional long-term indirect benefits to bilateral and regional trade through changes in domestic non-tariff trade barriers that form the structure under which trade is conducted. In broad terms, the TPP incorporates rules and disciplines for open, transparent, non-discriminatory treatment for participants. These rules are expected to reduce market-distorting activities that not only reduce the overall level of trade, but create market inefficiencies. Some TPP participants have indicated that they intend to use the rules and disciplines in the TPP to support a reform agenda within their own economies. To the extent that countries undertake such reforms, the TPP potentially could provide long-term economic benefits to the countries themselves and to other TPP participants. Preferential multi-country trade agreements, such as the TPP, generally are expected to alter trade relations among the participants, stimulate economic growth, and improve overall economic welfare. By eliminating and reducing tariffs, trade agreements alter the external market conditions under which nations trade, while removing internal trade barriers alters the domestic structure under which trade is organized and conducted. Removing formal barriers to trade, primarily in the form of tariffs and quotas, directly lowers the prices of traded goods and thereby increases competition. In turn, lower prices are expected to alter trade patterns by increasing the amount of trade that occurs (trade creation) and by shifting trade away from countries that are not party to the agreement to those that are in the agreement (trade diversion). As a result, trade agreements may alter the composition of trade among a nation's various trading partners and alter the mix of goods and services that are traded. At times, countries are motivated to participate in trade agreements to forestall this type of trade diversion. The magnitude of trade creation and trade diversion effects that may arise from the TPP are expected to depend on a number of factors, including the difference between pre-and post-agreement tariff rates, the speed with which tariff cuts are implemented, and other external economic factors that may affect global trade as a whole. In addition, the impact of tariff cuts under the TPP may be muted to some extent by the multiplicity of trade agreements that already exist among the participants and the already-low average tariff rates that are characteristic of trade among a number of the participants, although countries may have currently high tariffs on specific products. For some countries, trade agreements may serve as a driving force for economic change in ways that cannot be quantified. Comprehensive free trade agreements as they currently are negotiated by the United States and others include a range of policy issues that have potentially significant cross-border implications, including trade in goods and services, investment, regulatory and other non-tariff barriers, government procurement, e-commerce, agricultural barriers, intellectual property rights, state-owned enterprises, worker rights, and the environment. As such, these trade agreements potentially can serve as catalysts for economic growth and development in ways that can affect a nation's economy beyond what would be predicted from traditional trade models. This can be particularly important for developing countries that are trying to raise their own standards and see trade agreements as important tools for integrating themselves into regional and global economies and for implementing domestic economic reforms. In addition, trade agreements may attempt to standardize such governance issues as dispute resolution procedures that work to enforce and ensure that trade commitments are implemented. Estimating the impact of trade and trade agreements on employment and wages in the economy is particularly challenging, because trade is only one among a number of factors that affect the overall level of employment and wages in an economy in both the short run and long run. In addition, most trade models lack the detailed industry and employment data that are necessary to make forecasts beyond broad categories of employment to identify specific jobs that may be affected positively or negatively. It is also difficult in most circumstances to disentangle the myriad number and types of forces within the economy that can affect employment and wages at the micro, or firm, level. Additionally, a broad range of internal and external activities can affect national economies to a greater degree than most trade agreements in ways that cannot be factored in ahead of time. These activities can complicate efforts to derive cause and affect relationships. Most economists argue that macroeconomic forces within the economy are the dominant factors that shape trade and foreign investment relationships. Nevertheless, changes at the microeconomic level associated with new technologies can affect particular industries or sectors of the economy in ways that are unrelated to international trade. In addition, changes in currency exchange rates, technology, interest rates, and the business cycle, among other things, can affect the overall state of the economy in ways that can outweigh the effects of trade agreements, given the already highly open nature of the U.S. economy. For the United States, exports account for about 13% of U.S. GDP and support over 11 million jobs, or about 8% of a total of 141 million workers in the U.S. economy. Imports also support a broad spectrum of jobs, including wholesale and retail trade, transportation, and various other services, among others. As a result of the small share of trade-related jobs in the U.S. economy relative to other sectors, most economists argue that international trade is only one among a number of forces that determine total U.S. employment, real wages, or the distribution of income. Over the long run, the national birth rate, improvements in productivity, and flows of immigration/emigration, among other things, affect the overall supply of labor in the economy. Although trade agreements arguably have no impact on the fundamental supply of labor in the economy, the level and extent of globalization of the economy has broadened the definition of the labor market. As a result, the labor market itself has become more globalized, especially with the opening of major markets to international trade and the growing use of new technologies. The shares of national income that go to labor as wages also depend on the overall demand for labor in the economy relative to the supply and the overall level of utilization of the other factors of production in the economy, all of which can change over the course of the business cycle and during periods of pronounced structural transformation. As an economy expands, greater demands are placed on labor and other factors of production. At some stages of the business cycle, labor may reap a larger share of the rewards of production, while at other stages, a greater share of the rewards may accrue to the owners of production. In addition, structural changes in the economy can reshuffle capital and labor in the economy in ways that may alter the share of income that goes to labor and capital. Such structural changes also can reflect changes in technology that place a greater emphasis on certain types of skills. In addition, as technology is spread internationally, emerging economies can similarly experience improvements in productivity that may place additional competitive pressures on U.S. workers in some industries and at some skill levels. While such structural changes can be unsettling to some workers and sectors of the economy, other conditions such as economic stagnation are potentially more unsettling since all workers and sectors in the economy would be affected negatively. In a dynamic economy such as the United States, firms and jobs are constantly being created and replaced as some economic activities expand, while others contract, reflecting both microeconomic and macroeconomic developments. These processes would be expected to occur during the implementation period of a trade agreement, but they would occur even in the absence of international trade. This constant change, however, complicates efforts to isolate the impact of a trade agreement on the structure of the economy from other dynamic forces that are constantly reshaping the economy. Moreover, various industries and sectors evolve over time at different speeds, reflecting differences in technological advancement, productivity, and efficiency. International trade may add to these forces to provide added impetus to both growing and declining industries. Those sectors of the economy that are the most successful in developing or incorporating new technological advancements generate greater economic rewards and are capable of attracting greater amounts of capital and labor. In contrast, those sectors or individual firms that lag behind are less capable of attracting capital and labor and confront ever-increasing competitive challenges. Indeed, depending on the overall state of the economy, some sectors may need to relinquish some capital and labor in order for others sectors to grow to avoid economic stagnation. Also, advances in communications, technology, and transportation have facilitated a global transformation of economic production into sophisticated supply chains that span national borders and defy traditional concepts of trade that potentially can involve a greater share of the labor force in trade-related activities. How firms respond to these challenges likely will determine their long-term viability in the market place. Another factor that complicates attempts to equate a specific trade agreement, or even trade in general, with job gains or losses in the economy is the constant turnover in jobs, referred to as "churn," taking place in the U.S. economy. At the plant level, job openings may come from new business openings or expansions at existing facilities, including those that are used to support increased exports. Job losses may come from voluntary departures, involuntary discharges, or business closures for any reason, including bankruptcy, personal choice, an inability to compete in the domestic market, import competition, or production shifts. In 2015, there was an average of 141.1 million jobs in the U.S. economy, of which 11.7 million jobs, or about 8%, were supported directly and indirectly by exports. At the same time, there were 7.6 million gross jobs gained in the economy and 6.7 million gross jobs lost, accounting for 5.4% and 4.8%, respectively, of the total number of jobs in the economy. This combined share of 14.3% (the combined shares of gross jobs gained and lost) reflects annual churning in the labor market, or an amount that is greater than both the number of jobs in the economy that are supported by exports and the projected impact on labor that potentially could arise from the TPP. International trade may not have a determinative role in shaping the U.S. economy as a whole, but economic theory recognizes that trade can affect the economy through a number of channels, including through increased competition. Economic theory also recognizes that some workers, firms, and communities in the economy may experience a disproportionate share of the short-term adjustment costs associated with shifts in resources stemming from greater international competition. There may also be instances in which foreign firms engage in unfair competition or trade-distorting practices. Most trade models do not contain enough consumer information to estimate these potential costs and benefits or enough industry and employment data to determine which specific jobs or which specific firms might be affected negatively or positively by a particular trade agreement. Although the attendant adjustment costs for businesses and workers are difficult to measure, some estimates indicate that they potentially are significant over the short-run. For some communities, closed plants can result in depressed commercial and residential property values and lost tax revenues, with effects on schools, public infrastructure, and community viability. Some estimates indicate that the short-run costs to workers who attempt to switch occupations or switch industries in search of new employment opportunities as a result of trade-related dislocations may be "substantial." In a study of the impact of trade liberalization on occupations, a number of economists used detailed microeconomic data to conclude that trade liberalization has a small effect on wages and jobs at the industry level, but that it provided an additional impetus within the economy for workers to shift their employment among sectors of the economy, particularly from the manufacturing sector to the services sector. The study also concluded that workers who switched jobs as a result of trade liberalization generally experienced a reduction in their wages, particularly in occupations where workers performed routine tasks. These negative income effects were especially pronounced in occupations exposed to imports from lower-income countries. In contrast, occupations that were associated with exports, generally higher skilled jobs, experienced a positive relationship between rising incomes and the growth in export shares. Trade models used to analyze FTAs are part of a class of economic models referred to as computable general equilibrium models (CGE) that incorporate data on trade and a range of domestic economic variables, including an industry input-output (I-O) table, employment, and labor data, on as many as 100 countries. The most commonly used CGE economic model and database is the Global Trade Atlas Project (GTAP), located at Purdue University, that is used to estimate changes in trade (exports and imports) from changes in tariff rates and tariff rate quotas. CGE trade models are widely used and have proven to be helpful in estimating the effects of trade liberalization in such sectors as agriculture and manufacturing where the barriers to trade are more easily identifiable and quantifiable. The United States International Trade Commission (USITC), economists Peter A. Petri and Michael G. Plummer, and the World Bank all use the GTAP model for their simulations. In contrast, economists Jeronim Capaldo and Alex Izurieta use a different model to develop their estimates of the impact of TPP. Due to the unique nature of the model and the approach used by Capaldo and Izurieta, this model and its estimates are given a relatively lengthy treatment in this report. CGE models are long-run microeconomic models that have been used widely and tested thoroughly. The models provide estimates of the distribution of potential gains and losses expressed as proportional effects (percentage increases or decreases in trade) for various sectors, relative to certain baseline economic projections. Modelers argue that the microeconomic approach is justified because trade policies operate through microeconomic channels by tracing changes in trade policy to national productivity levels, wages, and incomes. Although the limitations of the models are well-known (see earlier sections), the models arguably represent a rigorous, data-centric approach to estimating the economic effects of trade agreements. Trade models also use data that represent well-established trade relationships between countries, which means they are limited in their ability to estimate the impact of a new trade agreement on goods or services that previously had not been traded due to barriers or on trade between countries that previously had a limited trade relationship. Given the size and complexity of the CGE models, they must necessarily operate with a number of assumptions. One such assumption is that the economies in question are operating at full employment. While some experts question the assumption of full employment, it does not seem unreasonable considering the long-term time frame generally required for most trade agreements to be fully implemented. During this time, the economy would be expected to return to its long-term growth path at or near full employment. Over the estimating period, a persistently low level of unemployment is unlikely to have a significant impact on the results of the models, given the multitude of other assumptions involved in generating the estimates. In addition, during the implementation period, it seems questionable to assume that the rate of unemployment would persist at levels that would be high enough to have a significant impact on the estimates. In most cases, either the economy would be expected to return to full employment solely through market forces, or the government would be expected to intervene by adopting Keynesian-style stimulative macroeconomic policies (changes in tax rates or government spending) to move the economy toward full employment. As a result of the large number of countries that often are included in trade models and the vast amounts of trade data used, the models necessarily must sacrifice some level of precision in their estimating abilities. The models are intended to provide insight into the mechanisms by which changes in tariffs or other parameters may affect changes in trade flows among a set of countries. As a consequence, trade models aggregate vast amounts of data into a manageable size, for instance by reducing more than 17,000 individual commodities into about 50 categories and over 150 countries into 29 different country and geographic regions. As a result, tariffs in the models represent weighted averages of tariffs for the commodities that are aggregated into these basic groups. This procedure tends to mask the importance of those products within the aggregate that have high tariffs rates, which often are the target of new trade agreements. Trade models generally do not incorporate assumptions about the speed with which tariff changes affect the relevant economies, leaving it to the modelers to make assumptions about how quickly changes in tariff rates will be passed along in goods prices and about the timing of any adjustments. These models also make no assumptions about the basic input-output structure of the economy and do not attempt to adjust this structure to account for economic or technical changes that lead an industry to substitute one factor for another. This assumption is important, because standard economic theory indicates that changes in goods prices, whether from changes in tariff rates or from some other source, give rise to changes in the demand for labor and capital and, therefore, that price changes ultimately will alter the basic input-output structure of the economy. Since most large trade models originally were developed with the intent of analyzing the economic effects of such broad multi-country trade agreements as the Uruguay Round, this lack of precision was not considered to be an important drawback. However, this lack of precision may be an issue when the models are used to estimate the effects of bilateral and plurilateral free trade agreements where the overall amount of trade, and therefore the impact of the agreement, generally would be expected to be less than that of a WTO-style multilateral agreement. Trade models such as the CGE differ from large macroeconomic models that are used to forecast changes in the rate of growth of gross domestic product (GDP), wages, taxes, or jobs. As a result, trade models do not yield precise estimates of the number of jobs that will be affected by any particular trade agreement. In response, some groups have used various methods and proxy estimators to assess the potential impact of trade agreements on jobs, which have produced a wide range of estimates. As examples of these approaches, some groups have used such indicators as trade deficits, or estimates of the number of jobs in the economy that are supported by exports, to develop estimates of the impact of trade and trade agreements on jobs in the economy. These models may face important limitations of data and theoretical and practical issues that make it difficult to derive precise estimates of the impact of a particular trade agreement on the economy. This section provides an overview of various studies, their assumptions and a description of the models used to estimate the economic impact of the proposed TPP on U.S. trade, employment, and GDP relative to a baseline projection. The studies were selected because they are widely cited and are affecting the public policy debate about TPP. The United States International Trade Commission (ITC) is tasked by Congress to provide economic assessments of U.S. trade agreements: it released a comprehensive assessment of the economic impact of the TPP agreement in May 2016. The ITC used the GTAP model (see above) to estimate changes in trade (exports and imports) from changes in tariff rates and tariff rate quotas. The ITC also adjusted the GTAP model to provide a more detailed estimate of the impact of the TPP on foreign investment and trade in services. In addition, the ITC: Used a qualitative approach to estimate the economic impact commitments on government procurement, competition, state-owned enterprises, and intellectual property. Made some assumptions about the evolution of the U.S. and world economies without the TPP in five-year steps to 2047, including a straight-line projection of annual U.S. growth rate of 2%. Attempted to make the traditional GTAP model more dynamic by incorporating projections of capital accumulation, labor availability, and growth rates for population and gross domestic product (GDP) developed by the International Monetary Fund (IMF), the Organization for Economic Cooperation and Development (OECD), and the International Labor Organization (ILO). The model simulations also include potential trade policy changes that would be expected to occur in the absence of TPP. Modified the standard GTAP model to include the 12 TPP countries and to include various regions and 56 industry sectors. Adjusted the model to account for dynamic labor supply effects by assuming that labor supply would expand or contract as real wages rise or fall and that skilled and unskilled labor would receive the largest share of the gains in GDP. The GTAP model does not capture the employment and age effects in the short run, but reflects such changes in its long-run forecasts The simulations assume that nations are at full employment and will take full advantage of reduced tariffs and increases in tariff-rate quotas. The results of the GTAP model are expressed as proportional effects (percentage increases or decreases or changes in dollar amounts) for a number of variables, relative to a projection of the economy, which serves as the baseline condition for the modelling exercise. According to this analysis, by 2032, U.S. annual real income would be $57.3 billion (0.23 percent) higher than the baseline projections, real GDP would be $42.7 billion (0.15 percent) higher, annual employment would be 0.07 percent higher (128,000 full-time equivalents), and the capital stock would increase by 0.18% with TPP, as indicated in Table 2 . The ITC also estimated the share of the dynamic U.S. economy-wide effects of TPP by 2032 related to three groups of provisions: traded goods, services, and investment on five economic areas—real income, GDP, exports, imports, and employment—indicated in Figure 1 . This analysis indicates that the largest share of the overall gains from TPP arise from provisions related to traded goods (reductions in tariffs, tariff quotas, and non-tariff measures). In addition, annual U.S. exports and U.S. imports with TPP partners are projected to be $57.2 billion (5.6%) and $47.5 billion (3.5%) higher, respectively, relative to baseline projections, as indicated in Table 3 . Of this amount, annual exports and imports with new FTA partners under TPP are projected to increase by $34.6 billion (18.7%) and $23.4 billion (10.4%), respectively by 2032. This data indicate that the majority of growth in U.S. exports is with new TPP partners. Overall, annual U.S. exports to the world are projected to increase by $27.2 billion and imports are projected to increase by $48.9 billion by 2032 under TPP, reflecting projected increases in U.S. real incomes, changes in real international prices, and some diverting of trade away from non-TPP countries toward TPP countries. Similar to previous studies of FTAs, the ITC analysis of the TPP estimated the effects of liberalizing tariffs and nontariff measures (NTMs) on goods. The largest U.S. tariff reductions for TPP countries that currently do not have a trade agreement with the United States are for certain footwear, sugars and sugar-containing products, titanium downstream products, and wearing apparel. The largest reduction in tariffs on U.S. exports by TPP countries that currently do not have a trade agreement with the United States include exports of beef, footwear, and corn grain. The ITC study also examined the effects of TPP on specific industries. According to this analysis, gains in output and employment would be driven by changes in the agriculture and food sector, while output and employment in the manufacturing, natural resources and energy sectors would fall slightly as resources would be shifted from these sectors to other sectors in the economy, as indicated in Table 4 . Shifts in employment and changes in the use of resources reflect the changes in tariff rates that would provide incentives for resources to shift from other sectors of the economy to those sectors in which foreign tariff rates were reduced. Global U.S. exports of services were estimated to be $4.8 billion higher by 2032, while services exports to TPP countries was projected to be 10.8 % ($16.6 billion) higher, and exports of services to non-TPP countries were projected to be 1.9% ($11.8 billion) lower. The ITC study also examined the effects of the agreement on removing certain non-tariff measures on trade in services and cross-border investment among member economies. In order to estimate changes in services trade as a result of the TPP, ITC adjusted the standard GTAP model to reflect the impact of liberalizing cross border trade in services by estimating the tariff equivalent value of existing barriers to trade in services. This estimating process used data published in academic articles and an indirect approach to derive tariff equivalents of barriers to trade in services. The TPP would remove restrictions on trade in services on a negative list basis, meaning that all services that are not explicitly excepted would be covered by the agreement's provisions. In addition, it includes broad disciplines on ensuring the ability to transmit data across borders and prohibiting data-localization measures (except for services). These estimates indicate that output for the U.S. services sector would be $42.3 billion higher (0.1% increase) under TPP relative to the 2032 baseline, as indicated in Table 5 . Services exports were projected to increase by 0.6% and services imports by 1.2% by 2032. Employment in all services sectors except transportation was projected to be higher by 2032 under TPP. The ITC adjusted its modelling process to account for potential changes in direct investment that could stem from the TPP. The ITC used a four-step process to make its estimate. In the first step, the ITC calculated how much the TPP would change investment restrictions by using the OECD's (Organization for Economic Cooperation and Development) foreign direct investment Regulatory Restrictiveness Index [RRI], which covers 42 sectors and subsectors in 31 countries. Next, the ITC calculated how changes in the RRI would affect foreign affiliate sales for host countries and foreign affiliate home countries. In the third step, the ITC used a modified GTAP model to calculate how changes in foreign affiliate sales would affect productivity in each sector in each TPP country. Finally, the ITC estimated how the changes in productivity would affect macroeconomic variables in the United States. Since the United States is considered to be largely open to foreign direct investment, the ITC concluded that TPP is not expected to alter investment inflows in a significant way. The United States does not have FTAs with five of the TPP countries (Brunei, Japan, Malaysia, New Zealand, and Vietnam); the ITC estimates that the TPP could increase U.S. direct investment into these countries. An analysis conducted by Peter A. Petri and Michael G. Plummer and published by the Peterson Institute for International Economics also used the GTAP model, assumed full employment, and made some adjustments to the standard GTAP model to estimate the economic impact of the TPP. These adjustments generated a more positive impact on trade in services and a greater response by foreign investment than the ITC study. This estimate concluded that the agreement would increase U.S. income and directly generate jobs in the U.S. economy. The study also estimated that the TPP could increase U.S. annual GDP by $131 billion, or 0.5% of GDP, and could increase annual exports by $357 billion, or 9.1% of U.S. exports, by 2030 when the TPP would be expected to be fully in force, as indicated in Table 6 . In the short run, the model scenario estimated that the potential for unemployment in the U.S. economy would be equivalent to about 0.1% of U.S. annual GDP. This increase in GDP is comprised of four components: (1) increased flows in foreign direct investment; (2) reduced non-tariff barriers (NTBs) to trade in goods; (3) reduced in non-tariff barriers to trade in services; and (4) cuts in tariff rates, as indicated in Figure 2 . Similar in some respects to the ITC study, which attributed the largest gains from TPP to provisions in the agreement that affect traded goods, the authors estimate that the largest economic gains from TPP will arise from reductions in non-tariff barriers (NTBs) for goods and services. While incorporating estimates of NTBs allows for a more complete analysis, it also introduces an increased degree of uncertainty, since the value of NTBs is not observed directly, but must be estimated. Also, the authors estimate that annual global GDP will increase by $492 billion by 2030, and Japan, Malaysia, and Vietnam will experience large increases in GDP, in large part because they are the countries with the highest existing trade barriers in certain sectors. Countries potentially experience the largest economic gains from trade agreements by lowering trade barriers and increasing domestic competition. Among non-TPP countries, Europe is projected to experience an increase in GDP of about $50 billion by 2030, due to increased exports to TPP countries that experience gains in real incomes and by increases in exports of services due to liberalization of services trade and foreign investment by TPP members. China, India, and Thailand, which are direct competitors to TPP countries, are projected to lose income. South Korea is projected to lose some of the economic gains it has experienced under the South Korea-United States FTA, as indicated in Figure 3 . The authors also estimate that the TPP likely will raise U.S. wages, and alter the composition of jobs in the economy, but not alter the overall level of U.S. employment, similar to the estimates by the ITC. Both capital and labor are expected to benefit from the agreement, although labor's share is projected to increase somewhat more as a proportionate share of the total amount of benefits. Given these benefits, the authors argue that each year the agreement is delayed will result in a $94 billion permanent loss to the U.S. economy. The authors further estimate that the agreement could add about 19,000 jobs annually to the overall number of jobs gained and lost annually in the economy, or jobs that are eliminated in one sector, but added in another, or job churn. The authors also project that using a different and more expansive, but potentially unrealistic, approach would be to estimate all jobs that are directly and indirectly displaced by imports, which potentially could total 53,000 U.S. jobs, adding an estimated 0.1% to annual labor market turnover. The estimates by Petri, et. al. are based on projections of annual growth in GDP and national income for the participants in the TPP agreement from 2015 to 2030, relative to the baseline projections, with a large share of the benefits accruing after 2020. The model incorporates provisions agreed upon in the final version of the agreement, but also necessarily incorporates some subjective assessments of the nature and economic impact of the 30 chapters that comprise the agreement. The analysis also projects increased inward and outward investment flows, reflecting reduced barriers to foreign investment and a more attractive investment climate. This analysis projects that U.S. exports of certain types of goods will increase, including, primary goods (agriculture and mining), advanced manufacturing, and services, while imports are expected to increase in labor-intensive manufacturing products and in some types of services. According to the authors, the projection of investment flows in the model attempts to reflect the dynamic nature of economic activity in the TPP economies by assuming that the agreement potentially could induce additional firms into exporting. Such an assumption likely would make the estimated impact of the agreement larger than would projections using models that did not incorporate this assumption. This assumption also would require a number of subjective decisions, since trade models generally do not contain the types of microeconomic behavioral data on firms that would be necessary to forecast accurately which firms might decide to engage in exporting directly as a consequence of a particular trade agreement. The model also relies on estimates of the annual value of national income for the participants that stems from the trade agreement and a projection of the annual rates of GDP growth for the countries involved. The authors projected U.S. GDP in 2025 of $20 trillion and by dividing the GDP projection by the projected number of workers in the U.S. labor force in 2025 of 168 million, they derive an equivalent value of $121,000 ($20 trillion / 168 million) for the average income for each U.S. worker in 2025. The authors also estimate the FTA will generate annual gains in income for the U.S. economy that will rise to $59 billion annually, rising slowly to reach $79 billion annually by 2025. The authors argue that the estimated annual income effect can be equated to an annual increase in employment, which some observers have interpreted to mean that the data imply a net positive annual gain in employment over the baseline projection of 487,000 jobs ($59 billion / $121,000) by 2025, more than twice the number of annual job gains projected by the ITC. The authors argue, however, that the estimated employment effects will consist primarily of shifts in employment among sectors of the economy as a result of the full employment assumption. The authors caution that the trade-employment relationship is complicated and not well understood. For one thing, the relationship is very sensitive to underlying macroeconomic circumstances. The macroeconomic analysis of employment effects, in turn, requires very different models from those used to understand the microeconomics of international competition. The authors also state that they purposely did not attempt to estimate the number of jobs that might arise from the agreement. They argue that "[t]he reason we don't project employment is that, like most trade economists, we don't believe that trade agreements change the labor force in the long run. The consequential factors are demography, immigration, retirement benefits, etc. Rather, trade agreements affect how people are employed, and ideally substitute more productive jobs for less productive ones and thus raise real income." Another estimate of the potential economic impact of the TPP was published by the World Bank, based in part on the study by Petri and Plummer, who served as co-authors. The estimate also used the GTAP model, with some adjustment, and the full employment assumption. These adjustments assume that trade in goods and services will increase as a result of regulatory convergence among TPP and non-TPP members. The model simulation projects that by 2030 relative to baseline projections, the TPP would increase member country GDP on average by 1.1%, ranging from over 8% for Vietnam to 0.5% for the United States, or about the same as the projections by Petri and Plummer for the Peterson Institute, as indicated in Figure 4 . This upward shift in GDP stems from model simulations that the agreement would stimulate a shift in resources towards more productive firms and sectors and expand export markets, as indicated by conventional trade theory. The impact on members of the North American Free Trade Agreement (NAFTA: United States, Canada, and Mexico) would be about 0.6% of GDP, due to the low share of trade in GDP, primarily in the United States, and the already-low average tariff rates. Spillover effects on non-TPP countries are expected to be small, but positive as a result of greater regulatory harmonization. For non-TPP members, the trade diversion effects are projected to be limited, as a result of the large share of trade that currently occurs among TPP countries. Consequently, aggregate losses to non-TPP countries are estimated to amount to 0.1% of GDP by 2030. Only South Korea, Thailand, and some other Asian economies are expected to experience losses exceeding 0.3% of GDP. The study also projects that the agreement will lift trade among the TPP members by 11% by 2030. According to the authors, the benefits of the agreement will materialize slowly, but accelerate towards the end of the projection period. These benefits would be derived mostly from reductions in non-tariff measures and measures that benefit services. The authors estimate that 15% of the projected increase in GDP would be due to lower tariff rates, while non-tariff measures would account for 53% of the increase in exports of goods and 51% of the increase in exports of services. This estimate also "allows for the emergence of trade in products not previously traded between pairs of countries." The authors adopt three assumptions that are important to deriving their results: 1. Cumulative rules of origin —are expected to encourage regional production networks. The authors estimate that the rules of origin will lead to the replacement of 40% of imported inputs with higher-cost inputs from TPP members to qualify for low TPP tariffs. 2. Existing services barriers —estimated indirectly from bilateral trade flows, based in part on results from the U.S.-South Korea FTA. 3. Non-discriminatory trade liberalization —more transparent regulatory approaches are expected to facilitate increased trade with non-TPP members. The authors expect that over the long run the TPP will accelerate shifts among the various sectors of the economy. For advanced economies, these shifts likely will favor traded services, advanced manufacturing, and for some resource-rich economies, primary products and investments. Developing countries are projected to experience growth in manufacturing, especially in unskilled labor-intensive industries, and in some production of primary products. These shifts translate into a higher value placed on skilled workers in the advanced economies and an increase in wages of unskilled workers in developing economies. For the United States, the authors project that changes in real (adjusted for inflation) wages are expected to be small as wages for unskilled and skilled wages increase by 0.4% and 0.6%, respectively, by 2030, or that wages for skilled workers are expected to rise by more than wages for unskilled workers. This approach attempts to incorporate the effects of the agreement's rules of origin and potential economic benefits that arise from greater regulatory convergence among the TPP members. The authors conclude that a common rules approach will increase intra-regional trade in affected industries. In the model, trade with non-TPP members depends on existing standards in non-member counties and on hypothetical mutual recognition agreements on the rules of origin. Such agreements would provide limited preferential treatment to some trade with non-TPP members, but such countries currently are not party to the agreement. As a result of changes in regulatory standards alone, trade with non-TPP members are projected to vary by the level of economic development. Trade with non-TPP developed economies is expected to increase, while trade with non-TPP developing economies is expected to decrease, because firms in developing countries are expected to be hurt more by more stringent regulatory standards in some markets and are less able to gain from the types of economies of scale that are available to firms in developed economies. Trade between TPP and non-TPP countries is also expected to be affected by rules of origin with countries that have adopted mutual recognition with permissive rules of origin and are likely to fare better than countries with more restrictive rules. The authors conclude by arguing that Against the background of slowing trade growth, rising non-tariff impediments to trade, and insufficient progress in global negotiations, the TPP represents an important milestone. The TPP stands out among FTAs for its size, diversity, and rulemaking. Its ultimate implications, however, remain unclear. Much will depend on whether the TPP is quickly adopted and effectively implemented, and whether it triggers productive reforms in developing and developed countries. Broader systemic effects, in turn, will require expanding such reforms to global trade, whether through TPP enlargement, competitive effects on other trade agreements, or new global rules. Tufts University's Global Development and Environment Institute sponsored another study of the economic impact of the TPP, using the United Nations Global Policy Model (GPM). This study differs markedly from the previous studies, because the GPM model is not a GTAP-type CGE model and the structure of the model and the assumptions that are used differ substantially from those used in the three previous examples. As a result of these differences, the authors reach the non-standard conclusion that all TPP members will experience job losses, which are projected to total 771,000 jobs, with the largest losses occurring in the United States, as indicated in Table 7 . The study also estimates that the TPP will negatively affect growth and employment in non-TPP countries, with Europe losing 879,000 jobs and non-TPP developing countries projected to lose about 4.5 million jobs by 2025. The authors argue that these effects increase the risk of "global instability and a race to the bottom, in which labor incomes will be under increasing pressure." The authors also argue that their model is based on "more realistic assumptions about economic adjustment and income distribution," than the standard CGE model. They term their model a "demand-driven, global econometric" macroeconomic model, compared with the microeconomic feature of the GTAP model. Previously, the authors used this model to develop estimates of the Trans-Atlantic Trade and Investment Partnership (T-TIP), a study that has come under critical review by trade economists. The authors reject the standard CGE model on a number of grounds. In particular, they argue that the standard model (1) incorporates "dubious" assumptions about full employment; (2) does not distinguish between wage-earners and profit-earners in ways that obscure potential changes in the distribution of income; (3) assumes that real wages increase at the same rate as the growth in productivity; (4) assumes constant balances in the government account and in the current account; and (5) assumes that there will be an increase in foreign direct investment. Due to these assumptions and the nature of the GPM model, the analysis that follows is necessarily more detailed and expansive than that for the previous studies, which are more conventional in their approach. The UN GPM model is not a trade model under conventional definitions in large part because the model uses very little trade data. Similar to other models, the UN model provides estimates of the impact of the TPP on a limited number of individual countries (the United States, Japan, Mexico, Australia, Canada, and New Zealand, in the case of this analysis), while it aggregates all other countries into regional blocs. In contrast to the GTAP model, however, the GRM model includes only four broad international trade sectors: energy products; primary commodities; manufacturing; and services. The authors argue that this aggregation is not significant, because their study focuses on "macroeconomic impacts." In deriving their results, the authors borrow estimates from other studies, generated primarily from CGE models, of the potential trade effects of the TPP, since the GPM model itself does not contain enough trade data to generate such estimates. As previously explained, CGE models typically estimate changes in goods trade only unless they are modified to estimate changes in services trade, investment, or consumer welfare. The authors offer the unconventional conclusion that the TPP will result in job losses not only in each TPP country, but negative dislocations in non-TPP countries as well. Without a detailed explanation of the results by the authors, it is difficult to assess how the model derived the results, or how various assumptions may have affected the results. The authors proceed by Following the "widely held belief" that TPP would affect international competition by "pushing countries to increase trade performance." This is accomplished by producers in each country lowering their prices and cutting their costs in order to preserve their market shares. The authors "assume" that this process would lower nominal unit labor costs through the combined actions of business managers and "policymakers" who negotiate lower wages; Contending that this process would affect the distribution of income between labor and business profits in favor of profits for businesses, thereby lowering labor's share of income, because the TPP would affect the incentives for countries to "tilt income distribution in favor of profits," which the authors analyze by "estimating the impact of changes in unit labor costs on international market shares;" Assuming that economic sectors of the economy that are affected negatively by the TPP agreement would create a demand shortfall in the economy, because, as a sector contracts, "other sectors may suffer as well," leading to "large job losses and drive the economy into recession;" Arguing that the TPP would push firms and other borrowers to seek higher returns in order to avoid losing investors. The authors assume that a higher profit rate necessarily requires a lower labor share of income; Asserting that inflows of foreign income "depend on a country's fiscal policy," which would require countries to adjust to attract foreign capital; and Concluding by asserting that, "since all TPP countries would want to preserve their market shares, we assume that they will engage in a race to the bottom, pushing labor shares downward across the whole TPP bloc." This series of steps requires assumptions and assertions that, in a number of cases, contradict standard economic concepts, often without explanation or the requisite theoretical or analytical basis. As previously indicated, standard trade theory indicates that trade agreements such as the TPP generally are expected to generate a number of economic effects, both positive and negative, although the net sum is expected to be positive for all participating countries. This study, however, focuses exclusively on the negative effects, or on the adjustments costs, even though trade models are not capable of precisely estimating these adjustment costs. As noted above, the costs and benefits associated with trade agreements do not accrue to the economy at the same speed: costs to the economy in the form of job losses generally are experienced in the initial stages of the agreement, while the benefits to the economy generally accrue over time. The authors also criticize the typical CGE model assumption of full employment. Given the long-term time horizon of most trade agreements to be fully implemented, assumptions of full employment generally are not thought to be unreasonable, since economic activity is expected to adjust to shocks by returning to its long-run growth pattern of full employment. The adjustment of the economy to shocks is thought to be either automatic through market adjustments, or through deliberate adjustments in macroeconomic policies (either through fiscal policies including adjustments in tax rates or in government spending, or in monetary policies). Also, at an unemployment rate of 4.7%, the United States is effectively nearing its theoretical full-employment limit. Concurrently, measures of capacity utilization, or the amount of slack productive capacity in the economy, indicate that levels in early 2016 are below long-run rates of utilization. With excess productive capacity and with tightening labor markets, benefits going to labor may well rise relative to returns to businesses as firms compete for workers by offering higher wages. The net positive economic effects from trade agreements are expected to arise from lower tariff rates that, in turn, increase the amount of trade among all TPP participants. Lower import costs increase choices for consumers, improve their real purchasing power, and improve long-run productivity in ways that affect the overall efficiency of the economy. In the TPP, businesses are anticipated to improve their performance through the mutual lowering of market-distorting tariffs and non-tariff barriers during the implementation period rather than through a "race to the bottom," as assumed by the authors. The TPP also is expected to yield other long-term productivity gains through mutual reductions in informal market barriers that can stifle competition within national economies, create market inefficiencies, and distort international trade. As previously indicated, the negative effects of trade agreements, generally thought to be economic inefficiencies in production, job losses, and downward pressure on wages in import-competing industries, are referred to as "adjustment costs," because economies are expected to shift, or adjust, capital and labor within the economy from declining sectors to growing sectors of the economy in response to market forces. The authors, however, make no assumptions about shifting resources within the economy in response to market signals to more productive activities and base their analyses exclusively on the negative adjustment costs. International trade, both bilaterally and multilaterally, can also be affected by a broad range of economic factors, including economic recessions or financial crises and such new entrants into the global economy as the former Eastern European countries, India, and China, that can affect the global supply of labor and, therefore, the wages of workers in certain import-sensitive industries. According to the IMF, for instance, the effective global labor market quadrupled over the past two decades through the opening of China, India, and the former Eastern bloc countries. The United States and other developed economies access this global labor market through (1) imports of final goods and services, including intermediate goods; (2) offshoring of production; and (3) immigration. According to the IMF, the internationalization of labor contributed to rising labor compensation in the advanced economies by increasing productivity and output, while emerging market economies benefited from rising wages. Increased exports from labor-intensive developing economies would be expected to push down wages, adjusted for productivity, for unskilled workers in developed economies, thereby reducing labor's share of income. Nevertheless, workers in developed economies could still be better off if the positive effects of increased trade and productivity on the economy are positive, as expected. The IMF also concluded that globalization is only one of several factors that have acted to reduce the share of income accruing to labor in advanced economies and that technological change likely has played a larger role in affecting the distribution of income in the economy, especially for workers in lower-skilled sectors. Estimates of losses of jobs and GDP generated by the GPM model are weighted exclusively in favor of the projected adjustment costs of the TPP, since the model is not capable of capturing the full range of economic effects that are expected with the TPP. In addition, the demand-driven GPM macro model does not incorporate important supply side effects that arise from trade agreements and, therefore, assumes large losses in employment, output, and wages in all TPP partners. As a result, the GPM estimates adjustment costs in a way that precludes any positive gains for either consumers or producers in contravention of traditional economic thought and decades of experience. In part, the author's estimates of losses in jobs and in GDP arise from the limited amount of trade data and the absence of tariff or industry data in the GPM model. While the authors argue that such limited trade data are not necessary in the context of their macroeconomic model, trade agreements affect the economy as a whole through the accumulated effects at the microeconomic level. As a result, without detailed micro data on tariffs, trade, and industry-specific employment and output, it is not clear how the GPM macro model captures either the trade creation or the trade diversion effects, or the benefits to consumers' choices or real incomes that arise from increased access to a greater variety of goods and services and to lower-priced imports. The GPM model also does not capture the gains in productivity and efficiency that arise in the economy from the adjustment of capital and labor from import-sensitive sectors to other sectors of the economy. The GPM model seems to preclude any shift in capital and labor among sectors within the economy from declining sectors to more productive sectors. Also, the authors focus on wages as a key government policy variable. Among economies that possess differing levels of technological development and productivity, however, trade likely is driven more by the value of wages relative to the level of productivity than a simple comparison of nominal wages across countries. Although the United States is a relatively high wage country, it also is a high productivity country, which makes it possible to export high capital-intensive, high technology-intensive products. Even U.S. agriculture is considered to be a high technology export activity relative to other countries given the vast amount of land available for agriculture in the United States and a high degree of mechanization. The authors assume, without providing any evidence from their model in their report, that the TPP will generate only negative adjustment costs. They also assume that businesses and policymakers will undertake to negotiate lower wages for all workers in the economy. This assumption seems to suggest that the government will replace private labor markets by injecting itself into the process of negotiating private labor contracts and setting wage rates throughout the economy. This assumption also seems to arise from the notion that international trade comprises such a commanding role in the economy that the adjustment costs of trade agreements will force wages down throughout the economy and worsen the distribution of income between workers and owners. This assumption seems to be imposed on the model, since the GPM model itself lacks any detailed industry, production, or labor occupational data. As previously indicated, lower tariffs increase opportunities for export-oriented industries. Also, the limited role of trade in the U.S. economy relative to other forces and the relative openness of the economy seem to be at variance with the commanding role that trade plays in the authors' estimates. The economic gains for the U.S. economy from the TPP likely will be small relative to the overall size of the economy given the extensive number of trade agreements that currently exist among the TPP participants and the already-low average tariff rates that exist in the United States. Nevertheless, economic theory indicates that cutting tariffs and reducing or eliminating non-tariff barriers among the TPP countries likely will generate positive output, employment, and wage gains for the economy as a whole, according to generally-accepted concepts about the way product and labor markets respond to economic stimuli. In addition, within each industry firms differ in their competitive ability: while some import-sensitive firms likely are fully capable of absorbing small cuts in prices that would be required to remain competitive, firms operating at the margin of the industry likely would have to make additional adjustments to remain competitive. How firms respond to such challenges would determine their long-term viability. The authors also assume that national governments and businesses will adopt extreme measures to preserve their market shares in major export markets. This assumption seems to contradict the general proposition that firms, not countries, are the actors that engage in international trade. At times, the policy objectives of national governments can be at odds with those of businesses. For instance, while national governments and central banks are aware that engaging in certain types of monetary policies may move exchange rates in ways that are unfavorable to export-oriented businesses, they rarely surrender the broader macroeconomic objectives of monetary policy to suit the more narrow interests of individual businesses. Similarly, assuming that national governments would adopt policy objectives to preserve the export shares of firms or the income shares of labor seems questionable. There seems to be no compelling reason why governments would prefer using shares as a policy objective over other indicators such as full employment or a stable price level. Firms not only can maintain, but may even increase, the amount and volume of their exports to individual countries or globally and still experience a declining market share if the total value of exports is rising at a faster rate than are exports from a particular country. Likewise, real wages can increase even if labor's share of national income falls as long as the total amount of national income is rising at a faster pace. In addition, the concept of market shares is becoming increasingly less relevant due to the growth of global value chains, or complex cross-border production systems, that may blur the distinction between exports and imports and challenge traditional concepts of domestic versus foreign firms. Increasingly, value chains are characterized by trade in intermediate goods, or goods that are used as inputs to the final production of goods and services. Trade in intermediate goods means that imports are essential inputs in the production of exports. As a result, countries that impose trade measures that restrict imports may negatively affect their own exports. The authors also make a number of assumptions about capital flows and the policies they argue governments will take to preserve capital inflows. In particular, they contend that capital inflows depend on a country's fiscal policy, or the government's budget deficit, in order to attract foreign capital. This assumption, however, seems to contradict the more commonly accepted concept that capital inflows reflect the overall savings-investment balance within the economy as a whole, not simply the balance in the government account. Within this context, capital flows bridge the gap between the total supply and demand of capital in the economy, or the savings-investment balance, which includes the combination of the government's budget deficit or surplus, including the national government and state and local governments, and the surplus or deficit of funds in the accounts of households and firms. The combination of these three accounts determines the overall capital surplus or deficit in the economy as a whole, which, in turn, affects interest rates, exchange rates, and capital inflows or outflows. Capital flows can also be affected by events in the global economy. The U.S. dollar effectively serves as the international reserve currency and demand for the dollar and dollar-denominated assets is affected by a myriad of factors, including actions by investors during times of uncertainty to a flight to quality, or such dollar-denominated assets as Treasury securities and U.S. equities. Such foreign investments affect the internal savings-investment balance in the economy and, in turn, the international exchange value of the dollar and the balance of U.S. exports and imports. A number of other studies provide estimates of the impact of the TPP on employment in the United States. Often, they use estimates developed by the International Trade Administration (ITA) on the annual average number of jobs that are supported by exports in the U.S. economy. The ITA methodology is based on three economic relationships: (1) average relationships between the value of goods and services in the economy relative to the average number of jobs that are required to produce that output for each industry; (2) the value of inputs used in their production; and (3) the value of transportation and other marketing services that are required to bring goods and services to buyers. ITA did not develop a similar methodology to estimate the number of jobs related to imports, or any job gains or losses that may be due to imports. In its 2015 update, ITA estimated that U.S. exports of goods and services in 2014 supported 11.7 million jobs—7.1 million in the goods producing sector and 4.6 million jobs in the services sector. ITA also projected that on average one billion dollars of merchandise goods exports supported 5,210 jobs, and one billion dollars of services exports supported 7,033 jobs, or an average of 5,796 jobs supported by goods and services exports combined. Expressed differently, $191,938 in merchandise goods exports, $142,186 in services exports, or an average of $172,532 in goods and services exports, supported one job in each respective sector. Both opponents and proponents of trade and trade agreements have used the relationship developed by ITA on jobs supported by exports in the economy to estimate the employment effects of FTAs. In some cases, various groups have used these data in reverse to argue that if a certain number of jobs were supported by a billion dollars of exports, then that same number could be used to argue that a certain number of jobs would be "lost" by a billion dollars of imports, represented by the trade deficit (the difference between exports of goods and services and imports of goods and services). They argue further that any net increase in imports with countries that are associated with a trade agreement would necessarily result in a loss of employment for the economy. This approach also has been used by some to argue that the U.S. trade deficit implies a net loss of jobs in the economy, because some contend that domestic production could be substituted for imports, which would boost both production and jobs in the U.S. economy. As indicated above, the methodology developed by ITA was unique to estimating a static number of jobs in the U.S. economy that were supported by exports and that ITA did not develop a similar methodology for linking imports or a trade deficit to jobs in the economy. The composition of U.S. imports is fundamentally different from that of U.S. exports. While some imports and exports may represent substitutable items, other imports represent inputs to further processing, or are items that either are not available or are not fully available in the economy. In addition, import-competing industries likely do not have the same mix of capital and labor in their production processes as do export-oriented industries so that demands on capital and labor markets can vary substantially across industrial sectors. ITA has issued various statements indicating that using the data on jobs supported by exports to estimate any relationship between imports and jobs, as has been done by some, is a misuse of the data. As ITA has stated, the employment estimate is a static relationship, or it reflects a relationship at a point in time; it is not a multiplier and should not be used to estimate changes in jobs associated with changes in exports or imports in a multiplier fashion. This has been done by both opponents and proponents of trade liberalization to estimate the number of U.S. jobs that have been lost or created as a result of trade agreements. In addition, the ITA estimates relate to the average number of jobs that are supported by exports across a broad section of the economy, which is not the same as estimating the number of jobs that would be added or lost as a result of a trade agreement. Congress may consider legislation to implement the proposed TPP in the near future. Part of the debate surrounding the agreement likely will focus on the potential impact of the agreement on the U.S. economy, particularly the effect on employment. Although the U.S. rate of unemployment has fallen by more than half since the high rates reached in 2009, many observers remain concerned over the role of international trade and the TPP on the relatively slow growth in wages and the distribution of income. Under such conditions, it is not uncommon for communities or workers to raise concerns over the potential impact of a new trade agreement. An analysis of the available estimates of the potential effects of TPP on U.S. employment, trade, and economic welfare raises a number of questions concerning the usefulness of those estimates. Economic modeling naturally incorporates various assumptions and entails differing methodologies that can have a profound effect on the estimates that are generated, even when the estimates are derived from the same economic model. Standard models are well known and incorporate standard assumptions and approaches that generally are well explained. Many experts agree that the mark of a good economic model is one that uses assumptions and methodologies that seem reasonable and are not geared toward generating any particular result. Even estimates by these studies can vary substantially. In contrast, some models may use non-standard approaches and assumptions that may be difficult to justify and seem to have been chosen in order to generate pre-determined results. Consequently, estimates of the impact of the TPP on the U.S. economy can vary from positive to negative, reflecting the importance of the assumptions that are used to derive the results. Given the current state of economic modeling and data availability, the models that are deemed to offer the most accurate representation of the effects of changes in trade policy likely can provide only rough estimates of the magnitude of the potential changes in employment in certain sectors, but cannot offer estimates of the precise size of the shifts in employment. As this report indicates, the most important assumption involved in generating estimates of the impact of TPP on employment appears to be the expected level of labor utilization in the U.S. economy over the phase-in period. Model simulations based on an assumption of full employment likely track closer to the current situation than would data following the 2008-2009 financial crisis when rates of labor unemployment were above historical levels. It seems reasonable to assume, however, that the U.S. economy will perform at or close to its long-term trend approaching full employment during the period following the adoption of TPP. Another major qualification for the estimates may be that they do not account for changes in exchange rates, which may have a wide-ranging effect on the prices of internationally traded goods and may overwhelm changes in prices of goods that arise from changes in tariff rates. Estimates of employment effects of new FTAs can be subjective and misleading because they represent a partial accounting of the total economic effects of new FTAs. U.S. FTAs typically include comprehensive provisions for goods, services, and investment. With few exceptions, estimates of possible employment effects of the TPP focus primarily on employment effects in the goods sectors and neglect the potential effects in the services and investment areas. The study by Petri, et al. attempts to bridge this gap by developing a methodology for making such an assessment. It is not possible to draw any conclusions about the extent to which these estimates reflect the actual costs and benefits of liberalizing trade in services and foreign investment flows without additional information. In addition, the estimates neglect a broad range of impacts for the economy as a whole that potentially can provide consumers with large economic benefits and that can yield broad productivity and efficiency gains for the economy and may enhance employment. As a result, estimates of the employment effects of the TPP may serve poorly as an indicator of the total impact of a new FTA on the economy as a whole. As policymakers consider TPP, they likely will continue to weigh the results of a range of estimates of the employment effects of the agreement to gauge the impact on the economy. In this process, policymakers likely would be aided by estimates that clearly state the assumptions that are used and that inform policymakers about the broad implications of such agreements for the economy as a whole. In addition, policymakers likely would benefit from more reliable data on the potential magnitude of the effects that such agreements might be expected to have on specific sectors, allowing them to craft programs to assist those most directly affected by the agreements. As a result, policymakers may benefit from a number of initiatives to improve information and data on the impact of international trade on the economy. These might include Increased information and data on services in the economy, including the shifting of in-house services from the manufacturing sector to the services sector and the formal and informal barriers to U.S. services posed by major trading partners; Better data on worker dislocations, including the reasons for business closings; and Better understanding of the development of global supply chains and the role they are playing in the U.S. economy.
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Congress plays a major role in formulating and implementing U.S. trade policy through its legislative and oversight responsibilities. Under the U.S. Constitution, Congress has the authority to regulate foreign commerce, while the President has the authority to conduct foreign relations. In 2015, Congress reauthorized Trade Promotion Authority (TPA) that (1) sets trade policy objectives for the President to negotiate in trade agreements; (2) requires the President to engage with and keep Congress informed of negotiations; and (3) provides for Congressional consideration of legislation to implement trade agreements on an expedited basis, based on certain criteria. The United States is considering the recently concluded Trans-Pacific Partnership (TPP) among the United States and 11 other countries. The 12 TPP countries signed the agreement in February 2016, but the agreement must be ratified by each country before it can enter into force. In the United States this requires implementing legislation by Congress. The agreement is viewed by the participants as a "comprehensive and high standard" mega-regional free trade agreement that may hold the promise of greater economic opportunities and closer economic and strategic ties among the negotiating parties. For Members of Congress and others, international trade and trade agreements may offer the prospect of improved national economic welfare. Such agreements, however, have mixed effects on U.S. domestic and foreign interests, both economic and political. In considering the TPP, Congress likely will examine various economic studies to assess the impact of the agreement on the economy. The results of these studies vary depending on the model and the assumptions that are used to generate the results. The U.S. International Trade Commission is tasked with providing the official U.S. government estimate of the economic effects of the agreement. This report provides an analysis of various studies and information on the types of economic models that are used to assess the impact of trade agreements and the importance of the assumptions that are used in generating these estimates. Estimating the employment effects from a trade agreement is imprecise because (1) estimates can vary widely as a result of the model and assumptions that are used; (2) limitations arise from the types of data available, particularly concerning non-tariff barriers; and (3) it is difficult to disentangle the effects of trade and trade agreements from other factors that affect the U.S. economy, among other things. This report analyses some studies of the economic impact of TPP that are playing an important role in affecting the public policy debate, including the following: U.S. International Trade Commission (USITC): estimated the TPP would increase annual U.S. GDP by 0.15%, and trade by 1.0% by 2032; U.S. annual employment would be higher by 128,000. Peter A. Petri and Michael G. Plummer (Peterson Institute for International Economics) estimated that the TPP would increase annual GDP by 0.5% and increase U.S. exports by 9.0% by 2030. World Bank: estimated the TPP would increase U.S. GDP by 0.5% by 2030. Tufts University, Global Development and Environment Institute study by Jeronim Capaldo and Alex Izurieta: estimated that all TPP participants would lose 770,000 jobs and non-TPP developing economies would lose 4.5 million jobs. Other studies that use such proxy indicators as trade balances and jobs associated with exports to assess the impact of the TPP.
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On February 12, 2010, President Barack Obama signed H.J.Res. 45 into law, as P.L. 111-139 . In addition to an increase in the statutory limit on the public debt to $14.294 trillion, the act contains two titles dealing with budgetary matters. Title I, referred to as the Statutory Pay-As-You-Go Act of 2010, establishes a new budget enforcement mechanism generally requiring that direct spending and revenue legislation enacted into law not increase the deficit. Title II, which contains only a single section, pertains to routine investigations by the Comptroller General aimed at eliminating duplicative and wasteful spending. This report provides a summary and legislative history of the P.L. 111-139 , focusing on the features of the Statutory Pay-As-You-Go Act of 2010. The congressional budget process was established by the enactment of the Congressional Budget and Impoundment Control Act of 1974 ( P.L. 93-344 ), which created the House and Senate Budget Committees and the Congressional Budget Office, and required the annual adoption by Congress of a concurrent resolution on the budget. After a decade's experience with the budget resolution process, Congress and the President enacted the Balanced Budget and Emergency Deficit Control Act (BBEDCA) of 1985 (Title II of P.L. 99-177 ), in large part to establish the goal of achieving a balanced budget in the near term and to bolster budget enforcement. The central feature of the 1985 act, in Part C, was a series of declining deficit targets, expected to lead to a balanced budget by FY1991. The deficit targets were enforced by sequestration, a process involving largely across-the-board spending cuts triggered automatically if a deficit target was not met. Congress and the President were not successful in meeting the deficit targets and, after five years, they established a "pay-as-you-go" (PAYGO) process and limits on discretionary spending under the Budget Enforcement Act of 1990 (Title XIII of P.L. 101-508 ). These changes took the form of amendments to Part C of BBEDCA of 1985. The two new mechanisms effectively superseded the deficit targets, but sequestration was retained as the means of enforcing them. The statutory PAYGO process applied to direct spending and revenue legislation, while the discretionary spending limits applied to annual appropriations acts. Direct spending, also referred to as mandatory spending, is provided for the most part in substantive laws under the jurisdiction of the House and Senate legislative committees. Direct spending principally funds entitlement programs, such as Social Security, Medicare, federal employee retirement, and unemployment compensation, but it also funds programs of a mandatory nature that are not entitlements. Discretionary spending, on the other hand, is provided in annual appropriations acts under the jurisdiction of the House and Senate Appropriations Committees. Discretionary spending for the most part funds the routine operations of federal departments and agencies. In some instances, such as for Medicaid, a direct spending program lacks its own funding mechanism and relies on funding provided in an annual appropriations act (but funding for such "appropriated entitlements" is not regarded as discretionary spending). The statutory PAYGO process and discretionary spending limits were extended by the Omnibus Budget Reconciliation Act of 1993 ( P.L. 103-66 ) and by the Budget Enforcement Act of 1997 (Title X of P.L. 105-33 ); in all, they operated from calendar years 1991 through late 2002. The discretionary spending limits expired on September 30, 2002, and the statutory PAYGO process effectively was terminated on December 2, 2002, with the enactment of P.L. 107-312 , which fixed the balances for the remaining years on the PAYGO scorecard (FY2003-FY2006) at zero. The remaining provisions of Part C of BBEDCA of 1985 expired on September 30, 2006; Part C was not repealed, however, so it has remained in the U.S. Code for several years as obsolete law. Beginning in 2003, proposals were made from time to time to restore the statutory PAYGO process, but disagreements centered on whether it should apply to both direct spending and revenue legislation (as originally framed and generally favored by Democrats) or only to direct spending legislation (as generally favored by Republicans). In the 108 th Congress, President George W. Bush submitted draft legislation to Congress, the Spending Control Act of 2004, that would have restored the PAYGO process for direct spending legislation but not for revenue legislation; in addition, the proposal would have restored the discretionary spending limits. The House Budget Committee reported a bill, H.R. 3973 ( H.Rept. 108-442 ; March 19, 2004), reflecting the President's proposal; a comparable measure, H.R. 4663 , was considered in the House on June 25, 2004, but failed to pass, by a vote of 146-268. In the 110 th Congress, interest was renewed in restoring a comprehensive PAYGO requirement. Section 508 (Sense of Congress Regarding Extension of the Statutory Pay-As-You-Go Rule) of the FY2008 budget resolution, S.Con.Res. 21 , stated: "It is the sense of Congress that in order to reduce the deficit Congress should extend PAYGO consistent with provisions of the Budget Enforcement Act of 1990." A similar provision was included, as Section 515, in the FY2009 budget resolution ( S.Con.Res. 70 ). In addition to the statutory PAYGO process, the House and Senate have relied upon their own, internal PAYGO rules. The Senate established its PAYGO rule in 1993 and revised it several times over the years. The House adopted a PAYGO rule in 2007 and revised it in 2009. The Senate revised its PAYGO rule in 2007 so that the rules of the two chambers would operate in a similar manner; both rules currently are in effect. The Senate, but not the House, also has established aggregate limits on discretionary spending, subject to a point of order, as part of the annual budget resolution. Proposals have been offered in each chamber, as well, to restore the statutory discretionary spending limits. On June 9, 2009, President Obama announced that he would submit a PAYGO proposal to Congress, the Statutory Pay-As-You-Go Act of 2009, that would restore a process applying to both direct spending and revenue legislation. The House responded to the President's proposal first, passing a bill the following month and incorporating it into several other measures toward the end of the session. In January 2010, the Senate added a statutory PAYGO proposal to a measure increasing the debt limit; the House concluded action on the measure in early February, and President Obama signed it into law shortly thereafter. House Majority Leader Steny Hoyer introduced President Obama's proposal on June 17 as H.R. 2920 , the Statutory Pay-As-You-Go Act of 2009. On June 25, the House Budget Committee held a hearing on the proposal, receiving testimony from OMB Director Peter Orszag, among others. On July 22, the House considered and passed H.R. 2920 , the Statutory Pay-As-You-Go Act of 2009. The bill differed in significant respects from the proposal submitted by President Obama. Prior to action on the bill, the House, by a vote of 243-182, considered and agreed to a special rule, H.Res. 665 , providing for the bill's consideration. A modified substitute amendment was incorporated into the bill automatically under a "self-executing" provision in the rule, and a substitute amendment offered by Representative Paul Ryan, the ranking minority member of the House Budget Committee, was defeated, by a vote of 196-234. Following the defeat of a motion to recommit with instructions offered by Representative Ryan, by a vote of 196-234, the House passed the bill, by a vote of 265-166. Section 421 of the budget resolution for FY2010 ( S.Con.Res. 13 ) set forth a procedure, applicable only in the House, effectively exempting from the House PAYGO rule and other budget enforcement procedures the costs of legislation in four policy areas: (1) payments to physicians under Medicare ("Doc Fix"), (2) middle class tax reform; (3) reform of the alternative minimum tax (AMT), and (4) reform of the estate and gift tax. In each case, a limitation on the amount of costs subject to exemption was specified in Section 421. In response to concerns regarding the need for strengthened fiscal discipline, the House leadership agreed to incorporate the House-passed text of H.R. 2920 into other measures dealing with the four policy areas identified in Section 421 of the FY2010 budget resolution or further economic stimulus initiatives. During the last two months of the 2009 session, the text of H.R. 2920 , as passed by the House, was incorporated into three different measures. In the first instance, the House considered a "Doc Fix" measure, H.R. 3961 (the Medicare Physician Payment Reform Act of 2009), on November 19, 2009, passing it by a vote of 243-183. Under the terms of the special rule governing consideration of the bill, H.Res. 903 , the text of the Statutory Pay-As-You-Go Act of 2009, as passed earlier by the House, was added to the engrossed version of H.R. 3961 , as Division B. In the second instance, the House considered a measure dealing with the estate tax, H.R. 4154 (the Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009), on December 3, 2009, passing it by a vote of 225-200. Under the terms of the special rule governing consideration of the bill, H.Res. 941 , the text of the Statutory Pay-As-You-Go Act of 2009, as passed earlier by the House, was added to the engrossed version of H.R. 4154 , as Division B. Finally, in the third instance, the House considered a package of measures under a strategy to bring the 2009 session to a close. On December 16, 2009, the House Rules Committee reported a special rule, H.Res. 976 , providing for the consideration of H.R. 3326 , the Defense Appropriations Act for FY2010, as well as several other measures, including H.J.Res. 64 , a further continuing resolution for FY2010; H.R. 4314 , a measure increasing the limit on the public debt; and H.R. 2847 , a measure that originated as the Commerce-Justice-Science Appropriations Act for FY2010 but that was being used as a "shell" for other legislation. The special rule provided for the consideration of a House amendment to the Senate amendment to the House-passed version of H.R. 2847 that would incorporate into the bill, as a substitute, the text of the "Jobs for Main Street Act, 2010." Further, Section 5 of the special rule required that in the engrossment of the House amendment, the text of the Statutory Pay-As-You-Go Act of 2009, as passed earlier by the House, be added thereto. The House agreed to H.Res. 976 on December 16, 2009, by a vote of 228-201. Later on December 16, by a vote of 217-212, the House agreed to the motion offered by Representative David Obey, chairman of the House Appropriations Committee, that the House agree to the amendment to the Senate amendment to H.R. 2847 . Pursuant to the special rule, the text of the statutory PAYGO act was incorporated into H.R. 2847 , as Division B. The House originated H.J.Res. 45 in April 2009 as a measure solely providing an increase in the limit on the public debt. In January 2010, the Senate considered and passed the measure, modifying the debt-limit increase, adding revised language establishing a statutory PAYGO process, and incorporating another budget-related provision. In early February, the House accepted the Senate's modifications and cleared the measure for the President. House Joint Resolution 45 originated on April 29, 2009, when the House and Senate reached final agreement on S.Con.Res. 13 , the FY2010 budget resolution. Under House Rule XXVIII (commonly referred to as the "Gephardt Rule"), whenever the two chambers reach final agreement on a budget resolution, the Clerk of the House automatically engrosses and transmits to the Senate a joint resolution changing the limit on the public debt to the level set forth in the budget resolution. The rule provides that the joint resolution is deemed to have passed the House by the same vote by which the House adopted the conference report on the budget resolution. As deemed passed by the House on April 29, H.J.Res. 45 provided for an increase in the debt limit to $13.029 trillion, an increase of $925 billion from the limit of $12.104 trillion set in Section 1604 (123 Stat. 366) of the American Reinvestment and Recovery Act of 2009 ( P.L. 111-5 ; February 17, 2009). The measure was transmitted to the Senate on April 30 and referred to the Senate Finance Committee. As the House and Senate worked to bring the 2009 session to a close, another increase in the limit on the public debt was enacted. Representative Charles Rangel, the chairman of the House Ways and Means Committee, introduced H.R. 4314 on December 15. The bill provided for an increase in the debt limit of $290 billion, from $12.104 trillion to $12.394 trillion. The House passed the bill without amendment on December 16, by a vote of 218-214, and the Senate passed it without amendment on December 24, by a vote of 60-39 (under a unanimous consent agreement entered into on December 22, the amendment had to secure at least 60 votes to be adopted). On December 28, 2009, President Obama signed H.R. 4314 into law, as P.L. 111-123 . On December 22, 2009, the Senate entered into a unanimous consent agreement providing for the consideration of H.J.Res. 45 early in the following session, on January 20, 2010. Several of the amendments made in order under the agreement pertained to budget enforcement issues, including an amendment to be offered by Senate Majority Leader Harry Reid on "pay go." All of the amendments were subject to a 60-vote threshold for passage. The Senate considered H.J.Res. 45 during six days over the period covering January 20 through January 28. On January 20, the measure was discharged from the Senate Finance Committee and taken up by the Senate by unanimous consent. Senate Amendment 3299, a substitute for the measure developed by Senate Majority Leader Harry Reid, became the underlying vehicle to which the other amendments were offered. The amendment changed the limit on the public debt proposed by the House, $13.029 trillion, to a level expected to suffice for the remainder of 2010, $14.294 trillion. The Senate agreed to three amendments to Senate Amendment 3299. The most extensive amendment, Senate Amendment 3305, was offered by Majority Leader Reid and set forth the Statutory Pay-As-You-Go Act of 2010. The Senate agreed to the amendment on January 28, by a vote of 60-40, and ultimately it was incorporated into H.J.Res. 45 as Title I. The second amendment, Senate Amendment 3300, was offered by Senator Max Baucus, the chairman of the Finance Committee, and was intended to protect Social Security. It proposed to do so by establishing a point of order in the House and Senate against the consideration of "any bill or resolution pursuant to any expedited procedure to consider the recommendations of a Task Force for Responsible Fiscal Action or other commission that contains recommendations with respect to" the Social Security program. The Senate agreed to the amendment, as modified, on January 26, by a vote of 97-0, and ultimately it was incorporated into H.J.Res. 45 at the end of Title I, as Section 13. The final amendment agreed to by the Senate was one of four divisions of Senate Amendment 3303, offered by Senator Tom Coburn. The amendment, which proposed to rescind $120 billion in duplicative and wasteful spending, was modified (by striking Sections 17 and 18) and divided into four divisions by unanimous consent. On January 26, the Senate agreed to Division I of the amendment, consisting of Section 1, by a vote of 94-0, and ultimately it was incorporated into H.J.Res. 45 as Title II. In addition to the amendments to Senate Amendment 3299 that were agreed to, the Senate considered several other amendments that failed to garner the minimum of 60 votes that was required by the earlier unanimous consent agreement: Senate Amendment 3301, offered by Senator John Thune, would have terminated authority under the Troubled Asset Relief Program (TARP); on January 21, it failed by a vote of 53-45 and was withdrawn; Senate Amendment 3302, offered by Senator Kent Conrad, chairman of the Senate Budget Committee, would have established a Bipartisan Task Force for Responsible Fiscal Action; on January 26, it failed by a vote of 53-46 and was withdrawn; Senate Amendment 3303, offered by Senator Tom Coburn, as indicated previously, was divided into four divisions and one was agreed to; on January 26, each of the remaining three divisions failed (Division II, by a vote of 46-48, Division III, by a vote of 33-61, and Division IV, by a vote of 37-57) and were withdrawn; Senate Amendment 3306, offered by Senator Max Baucus, would have established a Bipartisan Task Force for Responsible Fiscal Action; on January 26, the amendment was withdrawn; Senate Amendment 3308, offered by Senator Jeff Sessions, would have added a new section to the Congressional Budget Act of 1974 establishing discretionary spending limits for FY2010-FY2014; on January 28, it failed by a vote of 56-44 and was withdrawn; and Senate Amendment 3309, offered by Senator Sam Brownback, would have established a Commission on Congressional Budgetary Accountability and Review of Federal Agencies; on January 28 it failed by a vote of 51-49 and was withdrawn. During Senate consideration of the measure, motions to invoke cloture on Senate Amendment 3299, Senate Amendment 3305, and the measure itself, H.J.Res. 45 , were presented but later withdrawn. On January 28, the Senate agreed to Senate Amendment 3299, as amended, by a vote of 60-40, and then passed H.J.Res. 45 , as amended, by a vote of 60-39. The House completed congressional action on H.J.Res. 45 on February 4, 2010, when it agreed to the Senate amendment to the House-passed measure by a vote of 233-187. The House first agreed to a special rule, H.Res. 1065 , providing for the consideration of the Senate amendment, by a vote of 217-212. During consideration of H.Res. 1065 in the House Rules Committee the day before, a motion by Representative Pete Sessions to make in order an amendment proposed by Representative Randy Neugebauer was defeated by a vote of 4-7. The Neugebauer amendment would have established limits on discretionary spending and a requirement that expansions of direct spending be offset by reductions in other direct spending. Pursuant to H.Res. 1065 , the motion to agree to the Senate amendment was divided into two portions. The first portion, adopting the debt-limit increase ("the matter preceding Title I of the Senate amendment"), went into effect automatically upon agreement to the special rule. The second portion, adopting the remainder of the Senate amendment (Titles I and II), was agreed to by a vote of 233-187. On February 12, 2010, President Barack Obama signed H.J.Res. 45 into law, as P.L. 111-139 (124 Stat. 8-30). A one-line press statement was issued that day, followed the next day by a short discussion of the "restoration of pay-as-you-go" by President Obama in his weekly radio address. Following a brief overview of the act, the main features of the statutory PAYGO process are discussed in more detail below by major topic. Detailed explanations of the act were prepared by the House and Senate Budget Committees and by OMB. The Statutory Pay-As-You-Go Act of 2010 (Statutory PAYGO Act) establishes a process intended, as Section 2 of the act states, "to enforce a rule of budget neutrality on new revenue and direct spending legislation." The budgetary effects of revenue and direct spending provisions enacted into law, including both costs and savings, are recorded by the Office of Management and Budget (OMB) on two PAYGO scorecards covering rolling five-year and 10-year periods (i.e., in each new session, the periods covered by the scorecards roll forward one fiscal year). The budgetary effects of PAYGO measures are determined by statements inserted into the Congressional Record by the chairmen of the House and Senate Budget Committees and referenced in the measures. As a general matter, the statements are expected to reflect cost estimates prepared by the Congressional Budget Office (CBO). If this procedure is not followed for a PAYGO measure, then the budgetary effects of the measure are determined by OMB. Shortly after a congressional session ends, OMB finalizes the two PAYGO scorecards and determines whether a violation of the PAYGO requirement has occurred (i.e., if a debit has been recorded for the budget year on either scorecard). If so, the President issues a sequestration order that implements largely across-the-board cuts in nonexempt direct spending programs sufficient to remedy the violation by eliminating the debit. Many direct spending programs and activities are exempt from sequestration. If no PAYGO violation is found, no further action occurs and the process is repeated during the next session. The new statutory PAYGO process was created on a permanent basis; there are no expiration dates in the act. The process became effective upon enactment. As a budget enforcement tool, the new statutory PAYGO process is aimed at preventing, or at least discouraging, net deficit increases arising from the enactment of direct spending and revenue legislation. Any costs designated as emergencies are excluded from the scorecards, and significant costs associated with four specified categories of legislation may be excluded as well. In addition, significant savings stemming from the Community Living Assistance Services and Supports (CLASS) Act, establishing an insurance program for long-term care, are excluded from the scorecards. Finally, debt service costs are excluded as well. The statutory PAYGO process does not address deficit increases, stemming from changes in direct spending or revenue levels, that are projected to occur under existing law. Other budget enforcement procedures, such as the reconciliation process under the Congressional Budget Act (CBA) of 1974, may be used to reduce deficit levels projected under existing law. Further, the statutory PAYGO process does not apply to discretionary spending, which is provided in annual appropriations acts. The Statutory PAYGO Act consists of 13 sections, as shown in Table 1 , at the end of the report. The act blends together new, freestanding law with amendments or references to sections in the CBA of 1974 and the Balanced Budget and Emergency Deficit Control Act (BBEDCA) of 1985. In the case of the CBA of 1974, Section 3, which sets forth definitions used in the congressional budget process, is made applicable to the new statutory PAYGO process, and Section 308, which pertains to CBO cost estimates and other reports on budgetary legislation, is amended. The following sections of BBEDCA of 1985 are made applicable to the new statutory PAYGO process, in some cases with modification: Section 250 (Table of Contents; Statement of Budget Enforcement Through Sequestration; Definitions); Section 255 (Exempt Programs and Activities); Section 256 (General and Special Sequestration Rules); Section 257 (The Baseline); and Section 274 (Judicial Review). The core procedural elements of the Statutory PAYGO Act are set forth as new, freestanding law, particularly in Section 4 (PAYGO Estimates and PAYGO Scorecards), Section 5 (Annual Report and Sequestration Order), Section 6 (Calculating a Sequestration), and Section 7 (Adjustment for Current Policies). The Statutory PAYGO Act defines the term PAYGO legislation (and a PAYGO Act ) as "a bill or joint resolution that affects direct spending or revenues relative to the baseline" (Section 3(7)). Under this definition, several types of measures fall within the purview of the statutory PAYGO process: (1) revenue measures; (2) direct spending measures; (3) hybrid measures, which combine revenue and direct spending provisions; and (4) annual appropriations acts that include direct spending provisions (with effects after the budget year), revenue provisions, or both. In short, any measure that affects direct spending or revenues is PAYGO legislation for purposes of the Statutory PAYGO Act. Revenue measures principally are under the jurisdiction of the House Ways and Means Committee and the Senate Finance Committee. Revenue legislation may amend the Internal Revenue Code of 1986 (Title 26 of the United States Code); the revenue portions of laws governing programs such as Social Security and Medicare; laws dealing with tariffs and trade agreements with other countries; and other laws. In some instances, other House and Senate committees have jurisdiction over legislation affecting fines, certain user fees, or other transactions that are treated as revenues, but such legislation usually affects a very small portion of total revenues. Many legislative committees in the House and Senate exercise jurisdiction over direct spending legislation. Most direct spending involves entitlement programs that are funded automatically by means of permanent appropriations in substantive law; legislative action may occur to modify such programs, notwithstanding their permanent funding status. In other instances, direct spending is provided through legislative action that occurs on a regular cycle, such as for the periodic farm bill or highway bill, or on an irregular basis, such as for extensions of unemployment compensation during economic downturns. Hybrid measures may fall within the jurisdiction of a single committee in a chamber (generally the House Ways and Means or Senate Finance Committees), such as in the case of measures affecting Medicare revenues and spending, or fall within the jurisdiction of two or more committees, such as in the case of measures affecting the revenues and spending of transportation trust funds. Finally, annual appropriations acts, including regular, supplemental, and continuing appropriations measures, provide discretionary spending and are under the jurisdiction of the House and Senate Appropriations Committees. Discretionary spending is not subject to the statutory PAYGO process, but is controlled by other budget enforcement procedures. Some annual appropriations acts, however, may serve as a vehicle for revenue or direct spending provisions under the jurisdiction of other House and Senate Committees. Section 3(4)(C) of the act provides that provisions in annual appropriations acts that "make outyear modifications to substantive law" (except those in which the outlay effects net to zero over a six-year period, including the current year) are covered under the statutory PAYGO process. A provision in an annual appropriations act that affected direct spending only in the current year or the budget year would not be subject to the statutory PAYGO process. The budgetary effects of PAYGO legislation are defined in the act as "the amount by which PAYGO legislation changes outlays flowing from direct spending or revenues relative to the baseline" (Section 3(4)(A)). There are two types of budgetary effects— costs , which involve outlay increases or revenue decreases, and savings , which involve outlay decreases or revenue increases. Two elements in assessing the budgetary effects of PAYGO legislation, scoring rules and legislative procedures regarding CBO cost estimates, are addressed separately below. In scoring PAYGO legislation, several rules must be followed. First, the statutory PAYGO process addresses only those budgetary effects that are on budget; the budgetary effects of off-budget entities are not counted (Section 3(4)(B)). A program is given off-budget status only through a specific designation in law. At present, the off-budget entities are the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund under Social Security, and the Postal Service Fund. These programs also are accorded off-budget status in the congressional budget process and in the President's budget. Second, the direct spending and revenue impacts of provisions in legislation that are designated as emergency requirements under the act are not counted as budgetary effects (Section 4(g)(4)). Section 4 of the act sets forth procedures for the House and Senate to deal with the issue of designating provisions as emergency requirements. In the House, the chair must "put the question of consideration" prior to the chamber taking any action on a measure including an emergency PAYGO designation. If the House votes affirmatively on the question, then it may proceed to consider the measure. The House also uses the question of consideration as the means of enforcing its internal PAYGO rule. In the Senate, an emergency PAYGO designation may be stricken from a measure by a point of order. To waive the point of order, or to sustain the appeal of the ruling of the chair on a point of order, the affirmative vote of three-fifths of the Members, duly chosen and sworn (60 Senators, if no seats are vacant), must be obtained. In this case, the point of order can be applied in a manner so that if successful, the offending provision is stricken but the consideration of the measure (or the conference report thereon) is not defeated. Third, debt service costs explicitly are excluded from the definition of budget effects provided in the act (Section 3(4)(A)). Fourth, timing shifts are prohibited to curb possible evasions of enforcement. The prohibition applies to shifts at the end of the 10-year "window," involving the last year covered by the process (the ninth outyear) and the first year not covered by the process (the tenth outyear). Section 3(8) of the act defines a timing shift as: a delay of the date on which outlays flowing from direct spending would otherwise occur from the ninth outyear to the tenth outyear or an acceleration of the date on which revenues would otherwise occur from the tenth outyear to the ninth outyear. Thus, costs cannot be shifted out of the window, nor can savings be shifted into the window, as a way of evading enforcement. The prohibition is incorporated into Section 308 of the CBA of 1974, pertaining to CBO cost estimates, as amended by the act (Section 4(b)(1)). Finally, costs associated with legislation dealing with "current policy" in four specified areas—Medicare physicians' payments, the estate and gift tax, the alternative minimum tax (AMT), and certain income tax cuts for the middle-class enacted in 2001 and 2003—may be excluded within constraints set forth in the act. Section 4(c) of the act sets forth procedures for adjusting the estimates of budgetary effects of legislation in the four specified areas, and Section 7 of the act sets forth specific criteria that must be met so that the adjustments can be made. In general, the authority to make adjustments is provided so that Congress can enact legislation extending current policies in these areas for defined periods without having to offset the significant costs of doing so; the current policies either expired at the end of 2009 or will expire by the end of 2010. The authority to make adjustments remains in effect through December 31, 2011. The period for which the current policies can be extended with adjustments made for statutory PAYGO purposes varies, from two years for the estate and gift tax and the AMT, to five years for Medicare physicians' payments, to permanently for the middle-class tax cuts. In addition, the act includes provisions intended to ensure that the adjustments are not used to provide for more generous policies over a shorter time period, or that savings achieved by not making the full adjustments allowed are not used to offset initiatives in other policy areas. As explained by the Senate Budget Committee: The cost of continuing these policies over the specified period is larger than the cost of letting them expire, as would happen under current law. The adjustment allows Congress to address these policies without having the cost added to the PAYGO scorecard. The difference between these two estimated costs is the maximum adjustment that may be used to offset the cost of legislation addressing each specified policy for the purposes of PAYGO enforcement. If the estimate of the legislation has a greater budgetary effect than the maximum amount of the adjustment, then the adjustment can be used to offset a portion of its cost. The additional cost would be counted for statutory PAYGO purposes. If a less costly policy is enacted, any remaining amount in the adjustment cannot be used to offset the cost of policies in other areas (as specified in Section 4(c)(3) of the PAYGO statute). In addition, the adjustments in each policy area are further limited to prevent using the full amount of the available adjustment to offset the cost of a more generous policy for a shorter period. Under this limitation, the amount of the adjustment is estimated consistent with the time period covered by the eligible policy action. The budgetary effects of PAYGO legislation to be recorded on the PAYGO scorecards may be determined either by Congress or by OMB. Congress may determine the budgetary effects of a measure by following legislative procedures specified in Section 4 of the act. If Congress does not follow these procedures, then OMB determines the budgetary effects of the measure. The procedures by which Congress would determine the budgetary effects of legislation for statutory PAYGO purposes generally would operate in the following manner. First, the chairman of the House or Senate Budget Committee, as applicable, would request a "CBO PAYGO estimate" for a measure. Prior to the vote on passage of the measure in the House or Senate, the chairman of the respective Budget Committee would insert into the Congressional Record a statement titled "Budgetary Effects of PAYGO Legislation" providing the necessary information on the costs of the measure and any current policy adjustments made under Section 7 of the act. In cases involving a conference agreement or an amendment between the two chambers, the two chairmen would jointly insert a statement into the Congressional Record . In addition, the text of the measure would include a reference to the statement using language set forth in the act: "The budgetary effects of this Act, for the purpose of complying with the Statutory Pay-As-You-Go Act of 2010, shall be determined by reference to the latest statement titled 'Budgetary Effects of PAYGO Legislation' for this act, ..., provided that such statement has been submitted prior to the vote on passage...." The portions omitted from the quoted language would address: (1) whether the statement had been submitted by the chairman of the House Budget Committee or Senate Budget Committee (or jointly, in the case of a conference agreement or amendments between the Houses); and (2) the nature of the vote on passage. As the legislative process unfolds in both chambers, multiple statements may be generated. A new, valid statement supersedes a previous statement. For the budgetary effects in the statement to be recorded by OMB on the PAYGO scorecards, the measure enrolled and signed into law by the President must contain a proper reference in the text to a valid statement. Violations of the prescribed procedures (e.g., deviating from the required text of a legislative reference or failing to insert a statement into the Congressional Record before a vote on final passage) could invalidate the congressional determination of a measure's budget effects, and the effects would be determined in that case by OMB. Congressional determinations of the budgetary effects of PAYGO measures in enacted form may reflect a determination made by one chamber and unchanged by the other, made by one chamber but changed by the other, or made by both chambers in a compromise at the stage of resolving differences. The Statutory PAYGO Act reaffirms the authority of the House and Senate Budget Committees to make final determinations of the budgetary effects of legislation under Section 312 of the CBA of 1974 (Section 12). OMB is required to maintain two PAYGO scorecards, a 5-Year Scorecard and a 10-Year Scorecard, on which the budgetary effects of PAYGO legislation are recorded (Section 4(d)). For each PAYGO act, OMB must use the budgetary effects included by reference in the measure. In general, the budgetary effects are estimated by CBO in accordance with the baseline methodology set forth in Section 257 of BBEDCA of 1985. If a valid reference is not included in the PAYGO act, then OMB must determine the measure's budgetary effects, using the same economic and technical assumptions that underlie the President's most recent budget submission. OMB must display on the scorecards the budgetary effects of PAYGO legislation in each year over the 5-year and 10-year periods, beginning with the budget year. In recording the budgetary effects of a PAYGO act on the scorecards, OMB must adhere to the following rules: Look Back —the budgetary effects for the current year of a PAYGO measure enacted during a session are combined with the budgetary effects for the budget year, thereby closing a potential enforcement loophole (Section 4(e)); Averaging —for the 5-Year Scorecard, an average is derived for the cumulative budgetary effects of a PAYGO measure over the five fiscal years (with the budgetary effects for the current year added to the effects for the budget year), and entered for each of the five years on the scorecard; the same process is followed for the 10-Year Scorecard with regard to the cumulative budgetary effects of the measure over ten years, plus the current year (Section 4(f)); Emergency Legislation —the amounts of new budget authority, outlays, or revenue that result from a provision designated as an emergency in a PAYGO measure are not included in the estimates made by CBO or OMB of the measure's budgetary effects, and therefore are not recorded on the PAYGO scorecards (Section 4(g)); and CLASS Act Savings —the scorecards must exclude the net savings from legislation titled the "Community Living Assistance Services and Supports Act," which establishes a Federal insurance program for long-term care, if enacted or subsequently amended after enactment of the Statutory PAYGO Act (Section 4(d)(6)). (The CLASS Act was enacted into law on March 23, 2010, as Title VIII of P.L. 111-148 , the Patient Protection and Affordable Care Act.) OMB is required to update the scorecards continuously and to make them publicly available. OMB has made the scorecards available on its website at http://www.whitehouse.gov/ omb/ paygo_default/ . Table 2 , at the end of the report, shows a hypothetical example of how the data from a CBO cost estimate on a PAYGO act would be recorded by OMB on the 5-Year and 10-Year Scorecards for the FY2011 budget cycle. In this example, CBO has estimated a cost of $25 billion for the budget year (FY2011) and $10 billion for the first outyear (FY2012), but escalating savings amounting to $35 billion for the next three outyears. Over the five-year period covering FY2011-FY2015, the costs and savings exactly offset, yielding a deficit-neutral estimate. The estimate also shows a cost of $15 billion for the current year (FY2010), however, which must be included under the look-back feature. Consequently, the cumulative budgetary effect of the PAYGO measure, for purposes of the 5-Year Scorecard, is a cost of $15 billion. The $15 billion cost is averaged over the five-year period, yielding a $3 billion cost to be entered for each of the five years on the scorecard. In this example, the CBO cost estimate shows annual savings of $5 billion for each of the five remaining outyears (FY2016-FY2020) of the 10-year period. For purposes of the 10-Year Scorecard, the cumulative budgetary effect of the PAYGO measure over the 10-year period covering FY2011-FY2020, taking into account the budgetary effects for the current year as required by the look-back feature, is a savings of $10 billion. The $10 billion saving is averaged over the 10-year period, yielding a $1 billion saving to be entered for each of the ten years on the scorecard. The OMB must issue an annual PAYGO report not later than 14 days (excluding weekends and holidays) after Congress adjourns to end a session (Section 5(a)). In addition to information regarding any sequestration that may be required, as discussed below, the report must include the following matters: an up-to-date document containing the 5-Year and 10-Year PAYGO scorecards; a description of any current policy adjustments made under Section 4(c); information about emergency legislation (if any) designated under Section 4(g); and other data and explanations that enhance public understanding of the act and the actions taken thereunder. The annual PAYGO report must be printed in the Federal Register and made publicly available by OMB. If the annual PAYGO report indicates that no PAYGO violation has occurred, then no further action must be taken. However, if the report indicates that a PAYGO violation has occurred, by showing a debit (i.e., the "net total amount" by which costs exceed savings) for the budget year on either scorecard, then the President must issue a sequestration order to offset the debit (Section 5(b)). If there is a debit on both scorecards, then the sequestration order must fully offset the larger of the two debits. To offset a debit for the budget year, a sequestration order reduces the budgetary resources of direct spending programs for that year. The resulting outlay savings in the budget year and the subsequent fiscal year must together be sufficient to offset the debit. In the hypothetical example provided in Table 2 , if the single PAYGO measure used in the example were the only PAYGO measure to be enacted during the 2010 session and reflected in OMB's annual PAYGO report for FY2011, then a sequester would be required to offset the $3 billion debit for FY2011 recorded on the 5-Year Scorecard. The 10-Year Scorecard would be irrelevant in this instance because it would show a savings (of $1 billion) for FY2011. If a sequester is required, then OMB must prepare the sequestration order for the President and include it in the annual PAYGO report; both the order and the report must be transmitted to the House and Senate. In this instance, the annual PAYGO report must include, for each budget account to be sequestered: estimates of the baseline level of budgetary resources subject to sequestration; the amount of the budgetary resources to be sequestered; and the outlay reductions that will occur in the budget year and the subsequent fiscal year because of the sequester. A sequestration order issued by the President takes effect immediately. Figure 1 illustrates the requirements pertaining to the issuance of the annual PAYGO report by OMB and the issuance of a sequestration order by the President, if required. The Statutory PAYGO Act applies generally to provisions in legislation that affect the direct spending and revenues of on-budget entities. As mentioned previously, the direct spending and revenues of off-budget entities (consisting of the Social Security trust funds and the Postal Service Fund) are excluded from the statutory PAYGO process. Coverage under the process may be viewed from the perspective of (1) how programs are treated with respect to estimating their budgetary effects; and (2) whether they are covered or exempted from a sequestration order or subject to special rules that limit any reduction made under an order. As discussed previously, direct spending and revenue amounts in the following instances are excluded from the assessment of the budgetary effects of PAYGO legislation: (1) provisions designated as emergency requirements; (2) debt service costs; (3) timing shifts; and (4) net savings from the CLASS Act. In addition, costs associated with four specified categories of legislation (Medicare physicians' payments, the estate and gift tax, the alternative minimum tax, and certain "middle-class" tax cuts) may be excluded within limits set forth in the act. Section 255 of BBEDCA of 1985 lists mandatory programs and activities that are exempt from reduction under any sequestration order issued by the President. The section is amended by Section 11 of the Statutory PAYGO Act to update the existing list for changes in account structure and headings and other changes, to add new accounts and programs (such as the Children's Health Insurance Program and economic recovery programs), and to clarify the treatment of certain transportation programs subject to obligation limitations in annual appropriations acts. The programs and activities exempt from sequestration under Section 255, as amended, include Social Security and Tier I Railroad Retirement benefits; federal employee retirement and disability programs; veterans' programs; net interest; refundable income tax credits; Medicaid, CHIP, SNAP, SSI, TANF, and certain other low-income programs; and unemployment compensation, among others. Finally, sequestration rules set forth in Section 256 of BBEDCA of 1985 (as amended by Section 10 of the Statutory PAYGO Act) and in Section 6 of the act, limit the size of the reduction that can be made under a sequestration order in spending for Medicare. The reduction limit, which is 4%, effectively exempts most Medicare spending from a sequestration order. If it is determined by OMB that a PAYGO violation has occurred and that a sequester must occur to eliminate a debit for the budget year on the appropriate PAYGO scorecard, then OMB calculates the uniform reduction percentage by which the budgetary resources for accounts must be reduced to eliminate the debit. Budgetary resources, as defined in Section 250(c)(6) of BBEDCA of 1985, include new budget authority, unobligated balances, direct spending authority, and obligation limitations (the latter category, obligation limitations, does not apply to direct spending and therefore is not relevant for purposes of the PAYGO process). Sequestration calculations are made pursuant to rules set forth in Section 6 of the Statutory PAYGO Act and Section 256 of BBEDCA of 1985, as amended by the act. The first step is to determine the size of the sequestrable base, that is, the total amount of budgetary resources for direct spending programs subject to sequestration. In the next step, the total amount of budgetary resources that must be reduced to yield the required outlay savings in the budget year and the subsequent fiscal year is determined. A uniform reduction percentage applicable to all nonexempt accounts then is calculated by dividing the total amount of budgetary resources to be reduced by the total amount of budgetary resources in the sequestrable base. If the uniform reduction percentage is less than 4%, then the reduction is applied to all nonexempt accounts. If the percentage is greater than 4%, then a 4% reduction is made in Medicare spending (the maximum reduction allowed for that program), and the uniform reduction percentage for the remaining programs is recalculated and increased by the amount necessary to achieve the reductions required to eliminate the debit. Table 3 , at the end of the report, illustrates sequestration calculations under an hypothetical example. While total direct spending amounts to well over $2 trillion in budgetary resources, most is exempt from the statutory PAYGO process. Consequently, the sequestrable base in this hypothetical example is set at $640 billion. The total consists of $575 billion attributable to Medicare and the rest attributable to all other nonexempt programs. For purposes of this example, it is assumed that a $30 billion debit must be eliminated from one of the two PAYGO scorecards maintained by OMB, and that a reduction in the budget year of $30 billion in budgetary resources will be required. Under the rules used for calculating a sequester, the reduction to Medicare spending is limited to 4%, which in this case is $23 billion. An additional reduction of $7 billion in budgetary resources is required to be made in the other nonexempt programs. Dividing the reduction amount ($7 billion) into the sequestrable base for the other programs ($65 billion) results in a uniform reduction percentage of 10.77%. Under these procedures, a required $30 billion reduction in budgetary resources for the budget year was made by reducing Medicare spending by the maximum 4% ($23 billion) and the remaining nonexempt programs by 10.77% ($7 billion), resulting in the outlay savings ($30 billion) in the budget year and the subsequent fiscal year needed to eliminate the debit. Section 13 of the Statutory PAYGO Act establishes a point of order in the House and Senate against the consideration pursuant to any expedited procedures of legislation setting forth proposals of a Task Force for Responsible Fiscal Action or other commission, if those proposals contain recommendations regarding Social Security spending or revenues. In particular, the limitation applies to recommendations: ... with respect to the old-age, survivors, and disability insurance program established under title II of the Social Security Act, or the taxes received under subchapter A of chapter 9; the taxes imposed by subchapter E of chapter 1; and the taxes collected under section 86 of part II of subchapter B of chapter 1 of the Internal Revenue Code. In the Senate, an affirmative vote of three-fifths of the Members, duly chosen and sworn (60 votes, if no seats are vacant), is required to waive the point of order or to sustain an appeal of the ruling of the Chair on the point of order. The limitation is comparable to a restriction in Section 310(g) of the CBA of 1974 that bars the consideration in the House and Senate of reconciliation legislation which contains recommendations with respect to Social Security. Section 13 originated as a Senate floor amendment ( S.Amdt. 3300 , offered by Senator Max Baucus) that was agreed to on January 26, 2010, as discussed previously. The Senate also considered two amendments that day that proposed to establish a Bipartisan Task Force on Responsible Fiscal Action. The first one, S.Amdt. 3302 , offered by Senator Kent Conrad, in part set forth expedited procedures in the House and Senate for the consideration of a measure embodying the Task Force's recommendations; it was defeated by a vote of 53-46 (having failed to secure the minimum 60 votes required by a unanimous consent agreement). The second one, S.Amdt. 3306 , offered by Senator Baucus, also would have established a Task Force, but it did not set forth any expedited procedures for House and Senate consideration of its legislative recommendations; the amendment was withdrawn. Had the Conrad amendment (3302) been adopted, the Baucus amendment (3300) that became Section 13 of the act would have excluded recommendations regarding Social Security spending or revenues from any Task Force recommendations considered under expedited procedures in the House and Senate. In the wake of unsuccessful action in the Senate to create a task force, President Barack Obama created the National Commission on Fiscal Responsibility and Reform by executive order (E.O. 13531) on February 18, 2010. The executive order requires that the commission vote on approval of a final report on December 1, 2010, but it does not provide for expedited consideration by the House or Senate of the Commission's recommendations.
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On February 12, 2010, President Barack Obama signed H.J.Res. 45 into law, as P.L. 111-139. In addition to an increase in the statutory limit on the public debt to $14.294 trillion, the act contains two titles dealing with budgetary matters. Title I, referred to as the Statutory Pay-As-You-Go Act of 2010, establishes a new budget enforcement mechanism generally requiring that direct spending and revenue legislation enacted into law not increase the deficit. Title II, which contains only a single section, pertains to routine investigations by the Comptroller General aimed at eliminating duplicative and wasteful spending. This report provides a summary and legislative history of P.L. 111-139, focusing on the features of the Statutory Pay-As-You-Go Act of 2010. The Statutory Pay-As-You-Go Act of 2010 (Statutory PAYGO Act) establishes a process intended, as Section 2 of the act states, "to enforce a rule of budget neutrality on new revenue and direct spending legislation." The budgetary effects of revenue and direct spending provisions enacted into law, including both costs and savings, are recorded by the Office of Management and Budget (OMB) on two PAYGO scorecards covering rolling five-year and 10-year periods (i.e., in each new session, the periods covered by the scorecards roll forward one fiscal year). The budgetary effects of PAYGO measures are determined by statements inserted into the Congressional Record by the chairmen of the House and Senate Budget Committees and referenced in the measures. As a general matter, the statements are expected to reflect cost estimates prepared by the Congressional Budget Office (CBO). If this procedure is not followed for a PAYGO measure, then the budgetary effects of the measure are determined by OMB. Shortly after a congressional session ends, OMB finalizes the two PAYGO scorecards and determines whether a violation of the PAYGO requirement has occurred (i.e., if a debit has been recorded for the budget year on either scorecard). If so, the President issues a sequestration order that implements largely across-the-board cuts in nonexempt direct spending programs sufficient to remedy the violation by eliminating the debit. Many direct spending programs and activities are exempt from sequestration. If no PAYGO violation is found, no further action occurs and the process is repeated during the next session. The new statutory PAYGO process was created on a permanent basis; there are no expiration dates in the act. The process became effective upon enactment. As a budget enforcement tool, the new statutory PAYGO process is aimed at preventing, or at least discouraging, net deficit increases arising from the enactment of direct spending and revenue legislation. Any costs designated as emergencies are excluded from the scorecards, and significant costs associated with four specified categories of legislation may be excluded as well. In addition, significant savings stemming from the Community Living Assistance Services and Supports (CLASS) Act, establishing an insurance program for long-term care, are excluded from the scorecards. Finally, debt service costs are excluded as well. The statutory PAYGO process does not address deficit increases, stemming from changes in direct spending or revenue levels, that are projected to occur under existing law. Other budget enforcement procedures, such as the reconciliation process under the Congressional Budget Act (CBA) of 1974, may be used to reduce deficit levels projected under existing law. Further, the statutory PAYGO process does not apply to discretionary spending, which is provided in annual appropriations acts.
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On the first day of the 111 th Congress, the House agreed to H.Res. 5 , which made several changes to House rules affecting floor proceedings. Following a well-established practice, H.Res. 5 provided that the rules of the previous Congress be the rules of the new Congress, but with a set of amendments. Four changes to the standing rules of the House concern the transaction of business on the floor in the 111 th Congress. Calendar Wednesday is a rarely-utilized procedure that allows committee-reported legislation, not otherwise privileged for floor consideration, to be called up by the committee of jurisdiction on Wednesdays. Only the chair or another Member specifically authorized by a majority of the committee can call up legislation under the procedure. H.Res. 5 amended clause 6 of Rule XV to require that the Calendar Wednesday procedure only occur at the request of a committee. Prior to this rules change, the call of committees would automatically occur on Wednesdays unless the House specifically waived the procedure. For many years, the House routinely waived the Calendar Wednesday procedure by unanimous consent; absent unanimous consent, a two-thirds vote of the House was necessary to waive the procedure. H.Res. 5 also eliminated the provision in House Rule XIII, clause 6, that prevented the Rules Committee from reporting a special rule that would allow the House to waive Calendar Wednesday with less than two-thirds support. One effect of these changes is to eliminate the need for the Majority Leader or his designee to seek unanimous consent to waive the procedure each week. The contemporary Congress has not considered legislation under the Calendar Wednesday procedure. The House adopted the Calendar Wednesday rule in 1909 for the purpose of providing a means by which committees could call up legislation that was not otherwise privileged for consideration on the House floor. The new set of procedures initially proved ineffective as a means of guaranteeing each committee equal opportunity to call up measures for consideration. The House soon adjusted the rule, however, and thereafter until the 1940s the procedures were followed regularly as a means for a committee majority to bring up a measure without having to arrange consideration through party leadership or to secure unanimous consent. Over time, however, the House came to rely on other means to process business, and in the 1960s, the House began to use suspension of the rules with increasing frequency. The Calendar Wednesday procedure has been used very rarely since then because, generally speaking, committees are able to arrange instead for measures to be considered under suspension of the rules or under the terms of a special rule reported by the Rules Committee. The recent rules change preserves the Calendar Wednesday procedure if a committee wishes to utilize it in the future, although it differs from the earlier procedure in at least two important respects. First, it requires that only the committee(s) requesting the Calendar Wednesday procedure be called, rather than all the committees alphabetically as was previously required. Second, by eliminating the prohibition against the Rules Committee reporting a rule to waive Calendar Wednesday with less than two-thirds support, the rules change allows a simple majority of the House to vote to prevent the procedure, even if requested by a committee. H.Res. 5 added a paragraph to clause 1 of Rule XIX to grant the presiding officer the authority to postpone consideration of legislation. Under the new paragraph, if legislation is being considered under the terms of a typical special rule, the presiding officer can postpone further consideration to a time designated by the Speaker. In the 110 th Congress, special rules routinely included a provision giving the Speaker the authority to postpone consideration of legislation. One effect of adding this paragraph to the standing rules is that it will no longer be necessary to include in special rules a section permitting postponement. Although a motion to postpone consideration of legislation is in order under clause 4 of House Rule XVI, some standard provisions of special rules had the effect of preventing a Member from offering the motion to postpone. Nearly all special rules providing for the initial consideration of legislation expedite the procedural steps that occur just prior to final passage. More specifically, most special rules provide that, after the period allowed (if any) for offering amendments under the regular rules of the House, the "previous question" is considered as ordered on the bill and any amendments without any intervening motions except those specifically allowed in the rule. The "previous question" motion ends all debate and prevents further amendments and motions. When the previous question is ordered to final passage, as it is in current practice under the terms of nearly all special rules, then a motion to postpone consideration of the bill, or even a motion to adjourn or recess, is not in order. In other words, the House could not, even by majority vote, halt consideration of the legislation. In the past, the House agreed to special rules that granted the Speaker the authority to postpone consideration when it anticipated that such authority might be useful. For example, in the 107 th Congress (2001-2002), a special rule (H.Res. 574) providing for consideration of a measure authorizing the use of the United States Armed Forces against Iraq allowed 17 hours of general debate and the consideration of two amendments, followed by an additional hour of debate. The rule included a section authorizing the Speaker to postpone consideration of the legislation, and the Speaker did so twice, once at the end of the day on October 8, 2002, and again at the end of the day on October 9, 2002. In recent years, the frequency of including such provisions in special rules has increased. The provision was included in only one special rule each during the 106 th (1999-2000) and 107 th (2001-2002) Congresses. In the 108 th Congress (2003-2004), the provision was included in 5% (6/129) of the special rules adopted for the initial consideration of bills and resolutions. In the 109 th Congress, it was included 9% (12/137) of the time. The provision appeared more frequently in special rules in the 110 th Congress, when it was included in 98% (157/161) of the special rules that provided for the consideration of bills and resolutions. In the 110 th Congress, the inclusion of the provision allowed the Speaker to delay consideration of legislation after a motion to recommit was offered. As discussed at length below, House Rules allow a Member of the minority party to offer a motion to recommit just prior to final passage of a bill. The motion to recommit with instructions to report back "forthwith" is effectively a last chance opportunity for a Member of the minority party to offer an amendment to the measure. The motion to recommit need not be available to Members prior to being offered on the floor. In the 110 th Congress, the House actually postponed consideration of a bill on six occasions. In four of those cases, consideration was postponed after a motion to recommit was offered, but before it was voted on. In a fifth case, consideration was postponed before the motion to recommit was offered, but it was reported that the Speaker postponed consideration because of an anticipated motion to recommit. The inclusion in the standing rules of authority to postpone measures being considered under the terms of a special rule reflects, to some degree, previous patterns in Rules development. In the past, the House has adopted into its standing rules a provision that had become standard language in special rules. For example, by the 106 th Congress (1999-2000), it had become standard for special rules that allowed the offering of amendments to include a provision that gave the presiding officer the authority to postpone a request for a recorded vote on any amendment. In the 107 th Congress (2001-2002), House Rule XVIII was amended to incorporate, in clause 6(g), a general grant of this authority to the presiding officer. H.Res. 5 amended House Rule XIX, clause 2(b) to require that a motion to recommit a bill or joint resolution with instructions consist only of directions to report back an amendment "forthwith." The adoption of such a motion has the effect of bringing an amendment immediately before the House. Under House rules and precedents, minority party members are given preferential recognition to offer the motion. H.Res. 5 also amended the rule to allow 10 minutes of debate on any motion to recommit, even if the motion does not contain any instructions. If a motion to recommit a bill does not contain instructions, then adoption of the motion would return the bill to the committee in the form it was introduced. As discussed in detail below, the changes to the rule eliminated the opportunity for Members to offer motions to recommit with instructions that the committee do anything other than report back "forthwith." For example, it is no longer in order to offer a motion to recommit instructing the committee to report back a measure "promptly" with an amendment. The primary procedural effect of any motion to recommit with instructions other than to report back "forthwith" was the same as that of a motion to recommit without any instructions: the measure would be returned to committee with no requirement for further action. Under the new form of the rule, motions to recommit without instructions are still in order and are now debatable, providing an opportunity for proponents to discuss any actions they hope the committee will take with regard to the legislation. Prior to the rules change at the start of the 111 th Congress, a motion to recommit with instructions could have omitted the term "forthwith" (referred to as a motion to recommit with non-forthwith instructions). Non-forthwith instructions could include language instructing the specified committee(s) either to report the measure back with an amendment or to take some other action, such as conducting further research or holding hearings. Such instructions were considered advisory and did not compel a committee to take any action. In the 110 th Congress, some motions to recommit with instructions proposed that the committee report back "promptly" an amendment. Although they included the language of an amendment, these motions did not direct the committee to report back "forthwith," and, therefore, if adopted, would have only returned the bill to the specified committee with no requirement for further action. In short, motions to recommit with instructions to report back "promptly" did not bring an amendment immediately before the House. Motions to recommit with non-forthwith instructions were offered more frequently in the 110 th Congress (2007-2008) than in the past. From the 101 st (1989-1990) through the 109 th Congress (2005-2006), an average of about eight motions to recommit with non-forthwith instructions were offered each Congress, while in the 110 th (2007-2008), 47 such motions were offered. Motions to recommit with non-forthwith instructions sometimes had the effect of creating a difficult choice for Members who supported both the underlying measure and the amendment contained in the motion to recommit. If such proponents of the measure voted for the motion to recommit with non-forthwith instructions, they were voting to send the measure back to committee, delaying and perhaps effectively defeating the bill. However, if such Members voted against the motion to recommit with non-forthwith instructions in order to move the underlying bill to passage more quickly, they would be on public record as having voted against a policy that they (and perhaps their constituents) strongly supported. In addition, some argued that the use of non-forthwith instructions to present specific policy amendments was not necessary, because the presumably preferable option of bringing the amendment immediately before the House could be achieved by drafting forthwith instructions. There were, however, other procedural differences between non-forthwith instructions and forthwith instructions. First, some restrictions on the content of amendments applied only to forthwith instructions. Most prominently, forthwith instructions that propose amendments that would not be in order under the Congressional Budget Act are subject to points of order under that act. In contrast, most Budget Act points of order did not apply to non-forthwith instructions because those points of order apply to the consideration of amendments, and a non-forthwith instruction did not propose that the House immediately consider an amendment. In addition, a point of order could be made against a motion to recommit proposing that the committee report "forthwith" an amendment that would violate clause 10 of Rule XXI (the pay-as-you-go budget enforcement rule); no corresponding point of order applied to a motion with non-forthwith instructions. Under the previous rule, a motion to recommit with amendatory instructions that might have violated the pay-as-you-go rule therefore could have been offered with non-forthwith instructions to avoid an immediate point of order. Second, non-forthwith instructions did not need to propose an amendment, and prior to the rules change motions to recommit could be used to instruct specified committee(s) to take some type of action. For example, in the past, some motions to recommit instructed committees to conduct further research or to hold hearings. These advisory instructions were not procedurally binding on the committee; no point of order could subsequently be raised if the committee failed to follow them. Under the new rule, these types of instructions are no longer in order. Finally, if the goal of offering a motion to recommit was simply to return the measure to committee, perhaps for significant revisions or perhaps even to delay its consideration, non-forthwith instructions could have been included in the motion in order to secure time for debate. In previous Congresses, a straight motion to recommit was not debatable. As explained above, the primary procedural result of agreeing to a motion to recommit with non-forthwith instructions and agreeing to a straight motion to recommit was the same: the measure would be returned to committee. Prior to the 111 th Congress, however, consideration of the two forms of the motion to recommit was not the same. Straight motions to recommit were not debatable, while those with instructions (both forthwith and non-forthwith) were. H.Res. 5 amended House Rule XIX, clause 2(b), to allow 10 minutes of debate on any motion to recommit in order under this rule. As a result, debate is now in order on a straight motion to recommit as well as on a motion to recommit with instructions. All other procedures concerning the debate time on a motion to recommit remain the same: the time is equally divided between the proponent and an opponent of the motion, and each Member can yield to other Members to speak, but cannot yield portions of time (such as one minute) to other Members, and cannot reserve time. The opponent of the motion speaks after the time of the proponent has been exhausted. The effect of this rules change is that Members may now offer a straight motion to recommit, seeking to send the bill back to committee, and secure debate time to express their goal in offering the motion. In other words, the Member making the motion can use this time to express his or her desires for committee actions, such as further research into alternative proposals. If the Member seeks to return the bill to committee in the hopes that the measure will not be brought again before the House, at least not in its present form, then he or she could use the five minutes to express reasons for opposition. House rules related to the motion to recommit were last amended in 1995. Prior to 1995, a special rule reported from the Rules Committee could prevent the offering of a motion to recommit with instructions on a bill or joint resolution, as long as it allowed some form of a motion to recommit, normally a straight motion to recommit. At the beginning of the 104 th Congress (1995-1996), the House amended its rules to prohibit the Rules Committee from reporting a special rule that would prevent the offering of a motion to recommit with instructions on a bill or joint resolution. H.Res. 5 removed from House Rule XX, clause 2(a), a provision aimed at prohibiting the presiding officer from holding a vote open "for the sole purpose of reversing the outcome of such vote." The provision had been added at the start of the 110 th Congress, but due in part to issues concerning its enforceability, its deletion was recommended by the Select Committee to Investigate the Voting Irregularities of August 2, 2007. Since the use of the electronic voting system began in the House in 1973, House rules have included a minimum, but not a maximum, length of time for a record vote by electronic device. Pursuant to clause 2 of Rule XX, the minimum length of time for an electronic vote shall be 15 minutes, unless the presiding officer has postponed the vote and scheduled a series of electronic votes back-to-back. If several votes are postponed, then after the first vote is held open for the minimum 15 minutes required by House rules, the presiding officer can reduce the minimum time for subsequent votes to 5 minutes each. Under the precedents of the House, the Chair has the discretion to allow additional time beyond the minimum requirement for Members to record their votes. Historically, it has not been uncommon for votes to be held open for at least a few minutes past the minimum time to allow Members to reach the floor. The provision deleted by H.Res. 5 aimed to limit the discretion of presiding officers by precluding them from allowing additional time to vote by electronic device "for the sole purpose of reversing the outcome of such vote." The House agreed to the provision at the start of the 110 th Congress as a reaction, in part, to an earlier instance of a vote being held open for nearly three hours. In the 108 th Congress, some Members contended that a vote was held open while party leaders attempted to reverse the expected outcome of the vote by persuading Members to switch their votes. In the 110 th Congress, concerns arose regarding the enforceability of the new provision. It prohibited votes from being held open for a specified reason, and therefore seemed to require a determination of the motivations of the Chair. In addition, the provision did not provide a mechanism for immediate procedural redress, such as the closing of a vote. For example, a vote was reportedly held open in the 110 th Congress for approximately a half hour, and some Members claimed leadership held the vote open to provide more time to persuade Members to switch their votes. In response to parliamentary inquiries, the Chair explained that Members could only enforce the rule collaterally by raising a question of the privileges of the House at a later time. This means of procedural redress was the same as existed prior to the 110 th Congress rules change; indeed, questions of the privileges of the House were raised and considered in relation to the vote that was held open for nearly three hours in the 108 th Congress. It was not clear, however, how the rule of the 110 th Congress could have been enforced immediately, rather than collaterally. If a point of order was raised during a vote that was not yet closed, the presiding officer would rule as to whether he or she was holding the vote open "for the sole purpose of reversing the outcome of such vote." Presumably, the chair would rule that he or she was not violating the House rule. That ruling would be subject to appeal, but the electronic voting system cannot accommodate the taking of a second vote (the appeal) with the original vote still pending. Even setting that arguably technical difficulty aside, the rule was silent with regard to the next stage. If the Chair ruled, or the House decided on appeal, that a vote was being held open too long, it was not clear what the status of the long vote would be. The vote could, for example, be considered vitiated, but others might argue that the vote should simply be closed at that point, while others might argue that it should be considered closed at the point before the outcome was reversed by holding the vote open. Enforcing the rule through a question of the privileges of the House avoided these procedural difficulties, and furthermore provided an opportunity for Members to present relevant information concerning the length of the vote and the purpose for holding it open. At the start of each Congress, the Speaker customarily makes announcements to the chamber concerning House operations and the legislative process. The announced policies are not rules of the House, but they indicate how the Speaker intends to carry out various responsibilities granted to the Speaker by law and House rules. Most of the policies announced by the Speaker at the start of the 111 th Congress were originally announced by previous Speakers, and have been reiterated each Congress since. On January 6, 2009, however, the Speaker did make two modifications to announced policies from previous Congresses related to floor proceedings. The first concerned the closing of votes taken by electronic device and the second addressed the use of the House floor. The Speaker announced that the 1995 policy concerning the conduct of votes by electronic device would continue, with a modification that gave the Speaker's endorsement to the existing practices for closing a vote taken by electronic device. The announcement did not change the long-standing practices for ending a vote. Prior to this modification, however, no policy was published concerning the manner of closing a vote taken by electronic device. In the 110 th Congress, the presiding officer closed an electronic vote without following the appropriate protocol, which led to the creation of the Select Committee to examine voting procedures and the recommendation to modify the Speaker's policy. As described above, the House rules set a minimum, but not a maximum, on the length of time an electronic vote will be held open. In practice, the presiding officer exercises some discretion on when to close a vote. The announced policy of the Speaker states that electronic votes will be closed as soon as possible after the minimum time limit has expired. Generally, however, the presiding officer works to ensure that any Member intending to vote has an opportunity to do so, and indeed the policy of the Speaker includes the assurance that "No occupant of the Chair would prevent a Member who is in the well before the announcement of the result from casting his or her vote." The 2009 modification of the Speaker's announced policy establishes that the best practice is "for presiding officers is to await the Clerk's certification that a vote tally is complete and accurate." The Select Committee to Investigate the Voting Irregularities of August 2, 2007 did not recommend that a detailed description of the practice for closing a vote be included in the announcement, or raised to the level of a standing rule, in part because the clerks need flexibility to change processes of this nature that might be affected by changes to the electronic voting system or the House chamber. For many years, the presiding officer and the clerks have followed established practices for closing a vote taken by electronic device. After the minimum time has elapsed, the presiding officer indicates that the available time is about to expire by asking if any other Members wish to vote or to change their votes. After allowing Members to respond, the Reading Clerk then reads the names of the Members who changed their votes in the well from a list prepared by a Tally Clerk. Shortly after that announcement, the electronic voting stations are closed. The clerks wait several moments after closing the electronic voting stations to allow any Members to cast votes in the well, to ensure that all well cards are accounted for, and to be certain all information has processed through the system. The final vote count is recorded on what is referred to as a "tally slip." The clerk gives the tally slip to the Parliamentarian, who hands it to the presiding officer, who uses it to announce the outcome of the vote. A recorded vote is considered to be over when the presiding officer makes an unequivocal statement of the result. Pursuant to authority granted to the Speaker over "general control of the Hall of the House" in House Rule I, clause 3, the Speaker also announced that the chamber of the House should not be used for "mock proceedings on the floor" or "political rallies." Clause 4 of House Rule IV has long prohibited the use of the hall of the House for anything other than legislative sessions, caucuses of Members of the House, and official ceremonies. When the House is not in session, however, it is common for Members and staff to escort visitors onto the House floor. As referenced in the Speaker's announced policy, during the August recess of 2008, Members of the House held simulated legislative proceedings in the hall of the House. Members delivered speeches on the House floor and distributed recordings of the proceedings with the stated intent of calling attention to energy policy issues they felt were not adequately addressed during the legislative session. The Speaker's announced policy aimed to clarify that such use of the chamber was not appropriate and should not occur again.
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On the first day of the 111th Congress, the House agreed to H.Res. 5, which made several changes to House rules affecting floor proceedings. First, the House amended clause 6 of Rule XV to require that Calendar Wednesday only occur at the request of a committee. Calendar Wednesday is a rarely-utilized procedure that allows reported legislation, not otherwise privileged for floor consideration, to be called up by the committee of jurisdiction on Wednesdays. Prior to this rules change, unanimous consent was routinely granted to waive the Calendar Wednesday procedure. The House also added a paragraph to clause 1 of Rule XIX to grant the presiding officer the authority to postpone consideration of legislation. Under the new paragraph, if legislation is being considered under the typical terms of a special rule, the presiding officer can postpone further consideration to a time designated by the Speaker. During the 110th Congress, special rules usually included a provision granting the presiding officer this authority, and the addition of this paragraph to the standing rules makes such provisions unnecessary. The authority allows the presiding officer to postpone consideration even after the motion to recommit has been offered. In addition, the House amended House Rule XIX, clause 2(b), to allow 10 minutes of debate on any motion to recommit in order under this rule. Prior to this rules change, a straight motion to recommit, which proposes to send the measure back to committee without instructions, was not debatable. The rule was further amended to require that any instructions in a motion to recommit be to report back an amendment "forthwith." It was previously in order to offer motions to recommit with instructions that did not propose that the committee report back "forthwith." For example, Members could propose instructions that the committee hold hearings, or report back a measure "promptly" with an amendment. The primary procedural effect of a motion to recommit with any instructions other than to report back "forthwith" was the same as a straight motion to recommit: the measure would be returned to committee with no requirement for further action. Finally, the House removed from House Rule XX, clause 2(a), a provision that aimed to prohibit the presiding officer from holding a vote open "for the sole purpose of reversing the outcome of such vote." The provision had been added at the start of the 110th Congress, but due in part to issues concerning its enforceability, its deletion was recommended by the Select Committee to Investigate the Voting Irregularities of August 2, 2007. At the start of the 111th Congress, the Speaker made customary announcements concerning House operations and the legislative process, with two modifications related to floor proceedings. First, the Speaker announced her endorsement of the existing process for closing a vote by electronic device. This announcement does not change long-standing practices for closing votes, but it states that the best practice is for presiding officers to rely on certification from the clerks that a vote tally is complete and accurate. Second, pursuant to authority granted to the Speaker over "general control of the Hall of the House" in House Rule I, clause 3, the Speaker announced that the chamber of the House should not be used for "mock proceedings on the floor" or "political rallies."
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Generally speaking, whistleblowers are those who expose misconduct (e.g., fraud, abuse, or illegal activity) within an organization. In the context of the Intelligence Community (IC), whistleblowers are generally employees or contractors of federal intelligence agencies who bring to light information on agency wrongdoings. Whistleblowers disclose this information through government channels (e.g., the congressional intelligence committees or agency inspectors general) or to the media. Such disclosures can aid oversight of, and thereby curb misconduct within, intelligence agencies. When an IC whistleblower discloses information on alleged agency wrongdoing, he could face retaliation from his employer by, for example, being fired, demoted, or having his security clearance revoked. The threat of retaliation may deter potential whistleblowers from disclosing information on agency wrongdoing. There is seemingly tension between the desire to eliminate this deterrence, and thus encourage whistleblowers to bring agency misconduct to light, and the need to protect government secrets which, if disclosed publicly, could be harmful to the country's national security interests. Apparently seeking to strike balance within this tension, Congress and President Obama have taken action to limit retaliation against IC whistleblowers for certain types of protected disclosures, which do not include disclosures to media sources. That is, IC whistleblowers who disclose information to media sources generally are unprotected against potential retaliation or criminal sanction. There are three sources of protections against retaliation for IC whistleblowers: the Intelligence Community Whistleblower Protection Act of 1998 (ICWPA), Presidential Policy Directive 19 (PPD-19), and Title VI of the Intelligence Authorization Act for Fiscal Year 2014 (Title VI). Before passing the ICWPA, which is the oldest of the three protections, Congress observed that intelligence whistleblowers apparently lacked protection against retaliation stemming from their disclosures of agency wrongdoings. Whistleblower protections for federal employees are largely governed by the Whistleblower Protection Act (WPA), which Congress initially passed in 1989, and its amendments. The WPA expressly excluded intelligence agency employees from its applicability, and thus initially left intelligence whistleblowers unprotected against retaliation. The ICWPA seemingly represented Congress's attempt at filling this gap by extending protections to intelligence whistleblowers. Though the ICWPA extended some protections to intelligence whistleblowers, it afforded such whistleblowers less protection than the WPA affords non-intelligence whistleblowers. However, protections for intelligence whistleblowers have strengthened over time. PPD-19, which President Obama issued in 2012, expanded upon the ICWPA's protections for some IC whistleblowers, and Title VI generally codified, and in some instances built upon, the protections of PPD-19. This report describes these three sources of IC whistleblower protection. The ICWPA is the oldest of the three intelligence whistleblower protections. In passing the ICWPA, Congress observed that the threat of adverse personnel action to IC employees deterred them from whistleblowing. This deterrence from whistleblowing, Congress found, may have been constricting the flow of information to congressional intelligence committees that the committees needed to properly perform their oversight responsibilities. The ICWPA therefore permits IC employees and contractors to bring a complaint or disclose specified information to Congress, and outlines the procedures for doing so. However, the ICWPA does not expressly prohibit retaliation against IC whistleblowers for permissibly bringing a complaint or information to Congress and contains no explicit mechanism for obtaining a remedy for this retaliation. Rather, the ICWPA merely allows an IC whistleblower who has faced such retaliation to then use the act's disclosure procedures to inform the intelligence committees that the retaliation has occurred. The ICWPA applies to employees of the Central Intelligence Agency, Defense Intelligence Agency, National Imagery and Mapping Agency, National Reconnaissance Office, National Security Agency, Federal Bureau of Investigation, and any other agency that the President determines has the principal function of conducting foreign intelligence or counterintelligence activities. The ICWPA also applies to the employees of a contractor of any of the aforementioned agencies. An employee seeking to bring a complaint or disclose information to Congress under the ICWPA is subject to two limitations: (1) the complaint or information must be related to an "urgent concern" as defined in the act; and (2) the employee must first bring the complaint or disclose the information to the agency head through the proper agency channels. Under the ICWPA, IC employees and contractors can disclose to Congress only complaints and information that are "with respect to an urgent concern." Under the act, an "urgent concern" can be one of three things. First, it can be a "serious or flagrant" abuse, problem, violation of executive order or law, or deficiency in funding, agency administration, or agency operations involving classified information. Second, an urgent concern can be a false statement to, or willful withholding from, Congress on an issue of material fact relating to intelligence activity funding, administration, or operation. Third, an urgent concern can include adverse personnel action stemming from disclosure under the ICWPA. A complaint or information that is not regarding one of these three "urgent concerns" is not covered by the ICWPA. IC employees and contractors must first bring complaints or information regarding "urgent concerns" to the agency head through proper agency channels, as described in the ICWPA, before bringing them to Congress. This generally requires first bringing a complaint or information to the agency's Inspector General or the Inspector General of the IC (IGIC), who then has 14 calendar days to evaluate the credibility of the complaint or information. Upon finding the complaint or information credible, the Inspector General must send notice of its finding, along with the complaint or information, to the agency head within the 14-calendar-day period for evaluation. The agency head then has 7 calendar days from receipt of the Inspector General's notice to forward the notice, along with any of the agency head's comments, to the congressional intelligence committees. The ICWPA allows employees to contact intelligence committees directly if the Inspector General either does not find the complaint or information credible, or sends the agency head an inaccurate complaint or inaccurate information. However, this ability to contact the intelligence committees directly is subject to two limitations. First, before making such contact, an employee or contractor must give the agency head a statement of the complaint or information through the Inspector General, along with notice of intent to contact the intelligence committees directly. Second, the employee or contractor must follow the agency head's direction, given through the Inspector General, on compliance with appropriate security practices when contacting the intelligence committees. The ICWPA seemingly represents an attempt by Congress to fill a gap in federal whistleblower protections by extending such protections to IC whistleblowers where they were expressly excluded from the WPA and its amendments, which generally provide whistleblower protections to federal employees. However, the ICWPA appears to afford IC whistleblowers fewer protections than the WPA affords non-intelligence whistleblowers. The WPA provides an employee with an individual right of action for prohibited retaliation, through which he can bring a claim against this agency in the Merit Systems Protection Board (MSPB). The MSPB can then provide several remedies, including, but not limited to, returning the individual to the position he would have been in if retaliation had not occurred, awarding back pay, and awarding any reasonable and foreseeable consequential damages. If an employee's claim is unsuccessful before the MSPB, the employee can appeal the MSPB's decision to the U.S. Court of Appeals for the Federal Circuit. Conversely, the ICWPA provides no explicit mechanism for remedying for retaliation stemming from disclosure of an urgent concern to Congress; it merely prescribes the process through which such disclosures can be made and allows employees and contractors to then use those disclosure procedures to inform Congress of any resulting improper retaliation. Further, the ICWPA expressly states that Inspector General and agency head action taken pursuant to the ICWPA is not subject to judicial review, unlike retaliation claims under the WPA. In comparing the ICWPA's protections against the WPA's, some commentators have questioned the ICWPA's effectiveness at protecting intelligence whistleblowers from improper retaliation. President Obama issued PPD-19 on October 10, 2012, to ensure that IC employees can effectively report instances of waste, fraud, and abuse. PPD-19 protects employees who engage in "protected disclosures" from certain types of adverse action by their employers. Thus, unlike the ICWPA, PPD-19's protections do not appear to extend to IC contractors. Under PPD-19, five types of disclosures fall under the umbrella of "protected disclosures." First, protected disclosures include employee disclosures to the agency Inspector General, Director of National Intelligence, IGIC, or supervisors within the employee's direct chain-of-command. The employee must reasonably believe that disclosures to such persons evidence (1) a perceived violation of law, rule, or regulation; (2) gross mismanagement; (3) gross waste of funds; (4) abuse of authority; or (5) a specific and substantial threat to public health or safety. Second, PPD-19 protects disclosures to congressional committees made pursuant to the ICWPA, discussed above. Third, "protected disclosures" comprise any disclosure of a violation of PPD-19. Fourth, protected disclosures include those made pursuant to an investigation or proceeding involving a violation of PPD-19. Finally, the definition of "protected disclosures" generally includes disclosures to Inspectors General. Under PPD-19, intelligence agency employees who make protected disclosures cannot consequently be subject to adverse personnel actions or have their access to classified information negatively affected by an officer or employee of the agency. PPD-19 required intelligence agencies to certify, within 270 days of its issuance, that they had internal procedures for reviewing allegations of wrongful personnel actions or impacts on access to classified information. These procedures must provide for the protection of classified information and intelligence sources and methods. PPD-19 requires that agency procedures permit agency Inspectors General to review employee allegations of adverse personnel action or improper restriction of access to classified information and recommend agency heads take corrective action if a violation of PPD-19 has occurred. Such corrective action can include (but is not limited to) reinstatement, back pay, and attorney's fees. Once an agency head receives an Inspector General's recommendation, PPD-19 requires he "carefully consider" the recommendation and findings and decide whether or not corrective action is appropriate. After employees exhaust the internal agency review process, PPD-19 allows them to request external review to the IGIC acting on behalf of the Director of National Intelligence. Once such a request is made, the IGIC can, within his or her discretion, convene an external review panel. Such a panel consists of the ICIG plus two Inspectors General that the ICIG chooses from the Departments of State, the Treasury, Defense, Justice, Energy, Homeland Security, or the CIA, exclusive of the Inspector General of the agency that internally reviewed the retaliation claim. The panel then has 180 days to determine whether improper retaliation occurred. If the panel concludes that such retaliation did happen, it can recommend that the agency head take corrective action, and the agency head must "carefully consider" this recommendation. The agency head then has 90 days to inform the panel and the Director of National Intelligence of what, if any, action it takes. The Director of National Intelligence must notify the President if the agency head does not tell the Director what action he takes within the allotted 90-day window. PPD-19 further requires the IGIC to report annually all panel determinations and recommendations, along with agency head responses, to the Director of National Intelligence and, "as appropriate, to the relevant congressional committees." PPD-19 offers intelligence whistleblowers falling within its scope more protection against retaliation than the ICWPA. By allowing IC employees and contractors to disclose retaliation via adverse personnel action to congressional intelligence committees, the ICWPA purports to protect against only adverse personnel action; unlike PPD-19, it makes no mention of adverse security clearance determinations. Further, PPD-19, unlike the ICWPA, expressly prohibits retaliation against IC whistleblowers who make protected disclosures, whereas the ICWPA merely outlines the process through which such disclosures can be made. Although PPD-19 offers intelligence whistleblowers more protection against retaliation than the ICWPA, it is unclear how effective PPD-19 will be in curbing such retaliation. Under PPD-19, the initial review of an improper retaliation allegation occurs within the agency wherein the whistleblower allegedly faced retaliation. This could raise questions regarding the initial review's impartiality, and thus effectiveness at achieving accurate results. Further, though PPD-19 appears to attempt to counteract impartiality in reviewing retaliation claims by creating an external review panel to whom such claims can eventually go, this external review panel cannot mandate that agency heads take corrective action after finding that impermissible retaliation occurred. Rather, this external review panel can only recommend that agency heads take corrective action. The agency head is then free to disregard the board's recommendation. Finally, as with all presidential policy directives or executive orders, President Obama (or any future Presidents) can revoke or modify it at any time. On July 7, 2014, Congress enacted the Intelligence Authorization Act for FY2014, which included protections for IC whistleblowers at Title VI of the act. Title VI seemingly codifies some of PPD-19's protections and, under specified circumstances, expands upon them. Like PPD-19, Title VI's protections extend only to employees of "covered intelligence community element[s]," and therefore do not appear to apply to IC contractors. Title VI's protections are bifurcated: it protects whistleblowers from retaliation in the form of both adverse personnel actions and adverse security clearance or information access determinations resulting from their making protected disclosures. Whether or not a disclosure is protected under Title VI depends on what is being disclosed to whom, and protected disclosures and enforcement mechanisms under the act differ in the context of retaliation via adverse personnel actions and adverse security clearance or information access determinations. Under Title VI, disclosures for which an employee is protected against retaliation in the form of adverse personnel action include those made to (1) the Director of National Intelligence (or his or her designee); (2) the IGIC (or his or her designee); (3) the head of the employing agency (or his or her designee); (4) the employing agency's Inspector General; (5) congressional intelligence committees; or (6) a member of a congressional intelligence committee. For Title VI to protect an employee against adverse personnel action, the disclosure must be of information that the employee reasonably believes evidences a violation of federal laws or regulations, mismanagement, waste of funds, abuse of authority, or a substantial and specific danger to public health or safety. Title VI does not contain any mechanism to enforce its protection against retaliation by adverse personnel action; it merely prohibits agency employees from taking adverse personnel action against other employees who make protected disclosures. Enforcement is expressly left to the President. It is unclear whether the President will develop new enforcement procedures, or will utilize enforcement procedures that already exist (i.e., PPD-19's enforcement procedures). Under Title VI, an IC employee cannot take adverse security clearance action against another employee, or restrict the other employee's access to classified information, because the employee made a protected disclosure. The disclosures for which an employee cannot face adverse security clearance actions or access determinations differ from the disclosures for which an employee cannot face adverse personnel actions. In the context of adverse security clearance actions or access determinations, Title VI's umbrella of protected disclosures includes a number of lawful communications. First, it includes communications to the Director of National Intelligence, agency head, or agency Inspector General (or their respective designees) that the employee reasonably believes evidences a violation of federal laws or regulations, gross mismanagement, waste of funds, abuse of authority, or a substantial and specific danger to public health or safety. Second, it includes disclosures made in accordance with the procedures outlined in the ICWPA, discussed above. Finally, Title VI protects disclosures made while exercising a legal right of appeal or complaint (including testimony in connection with someone else exercising such a right) or cooperating with an Inspector General. However, disclosures within this third category fall within Title VI only if they do not result in the sharing of information that is classified under an executive order for national security reasons. Title VI's protections against adverse security or information access determinations also differ from its protections against adverse personnel actions because it provides mechanisms for enforcing the former; whereas enforcement of the latter is left to the President's discretion as mentioned above. Title VI directed the President to select, within 180 days of the statute's enactment (July 7, 2014), an agency or department responsible for ensuring that intelligence agencies have adequate procedural protections that they must follow before taking action that adversely affects an employee's security clearance or information access. Within this time frame, the President must also select an agency or department responsible for developing procedures that agencies must follow for employee appeals of adverse security clearance or information access decisions to the ICIG or agency Inspector General. Title VI permits an employee 90 days from the adverse security clearance or information determination to use these appeal procedures. The appeal procedures that must be established under Title VI must allow the ICIG or agency Inspector General to engage in a fact-finding investigation and report the investigation results to the agency head within 180 days of the employee's appeal. During the investigation, the employee must be allowed, "to the fullest extent possible," to present relevant evidence. The ICIG or agency Inspector General cannot find that a prohibited security clearance or information access determination occurred if the agency demonstrates that the employee's disclosure was not a contributing factor in the determination. The agency can demonstrate such by establishing, by a preponderance of the evidence, that it would have taken the same action absent the employee's protected disclosures. Under the preponderance of the evidence standard, it appears as though the agency must show that it is more likely than unlikely that the agency would have taken the same action against the employee absent the employee's disclosures. In evaluating the agency's contributing factor evidence, Title VI requires the ICIG or agency Inspector General to afford the "utmost deference" to the agency's judgments regarding threats to national security. If the ICIG or agency Inspector General determines that a prohibited security clearance or information access determination occurred and reports its determination to the agency head, the agency head "shall" take corrective action. If, however, the ICIG or agency Inspector General finds that no improper adverse security clearance or information access determination occurred, Title VI requires that the employee be given 60 days to externally appeal such a finding. Title VI does not contain substantive requirements for this external appeal. Rather, through the statute, Congress mandated that the Director of National Intelligence, in consultation with the Attorney General and the Secretary of Defense, develop and implement procedures for adjudicating external appeals. As of this writing, the Director of National Intelligence does not appear to have developed these appeal procedures. Though Title VI does not contain substantive requirements for appeal procedures, it does require the Director of National Intelligence to inform the congressional intelligence committees when he issues an appeal order under the procedures that he develops. Title VI seemingly expands PPD-19's protections against retaliation in the form of adverse security clearance or information access determinations by introducing additional enforcement mechanisms. For example, Title VI requires adequate protections prior to adverse security clearance or information access determinations, where PPD-19 does not. However, Title VI does not appear to strengthen PPD-19's protections against retaliation in the form of adverse personnel action, as it leaves enforcement of such protections to the President.
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Intelligence whistleblowers are generally Intelligence Community (IC) employees or contractors who bring to light allegations of agency wrongdoings by, for example, disclosing information on such wrongdoings to congressional intelligence committees. Such disclosures can aid oversight of, or help curb misconduct within, intelligence agencies. However, intelligence whistleblowers could face retaliation from their employers for their disclosures, and the fear of such retaliation may deter whistleblowing. Congress and President Obama have taken measures to protect certain intelligence whistleblowers from retaliation, and thereby seemingly encourage these whistleblowers to disclose information on agency wrongdoing. These measures are the Intelligence Community Whistleblower Protection Act of 1998 (ICWPA), Presidential Policy Directive 19 (PPD-19), and Title VI of the Intelligence Authorization Act of 2014 (Title VI). Each of these measures details what disclosures fall within the scope of its protections, which generally include certain disclosures through government channels (e.g., disclosures to agency inspectors general or congressional intelligence committees). None of these measures protect against retaliation or potential criminal liability arising from disclosures to media sources. The ICWPA applies to both IC employees and contractors, whereas PPD-19 and Title VI appear to apply only to IC employees. The ICWPA is the oldest of the three intelligence whistleblower protections and, of the three, provides the least amount of protection to those falling within its scope. The ICWPA does not explicitly prohibit retaliation against IC whistleblowers. Rather, it outlines procedures through which whistleblowers can disclose to the congressional intelligence committees information on "urgent concerns," such as violations of law or false statements to Congress. The ICWPA further contains no explicit mechanism for obtaining a remedy for retaliation stemming from disclosure of an urgent concern to Congress. It merely allows an IC whistleblower who has faced an adverse personnel action because he disclosed an urgent concern to the congressional intelligence committees to then use the ICWPA's disclosure procedures to inform the committees of the retaliation. PPD-19, unlike the ICWPA, expressly prohibits an IC employee from taking an adverse personnel action or security clearance determination against another employee because of a protected disclosure. It additionally requires intelligence agencies to develop procedures for internally investigating, through agency Inspectors General, allegations of impermissible retaliation. After finding that impermissible retaliation has occurred, Inspectors General can recommend that agency heads take corrective action. When an employee has exhausted the internal review procedures that must be established under PPD-19, he can appeal to the Director of National Intelligence, who then has the discretion to convene a review panel. If it finds that improper retaliation occurred, the review panel can recommend that the agency head take remedial action. Title VI seemingly codifies, and expands upon, some of the protections of PPD-19. Its protections, and modes of enforcement, differ depending on the type of retaliation alleged. More specifically, Title VI's protected disclosures and enforcement methods in the context of allegations of adverse personnel action are distinct from its protected disclosures and enforcement methods for allegations of adverse security clearance or information access determinations.
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Under its civil works program, the U.S. Army Corps of Engineers (Corps) plans, builds, operates, and maintains a wide range of water resource facilities. The Corps also undertakes flood-fighting activities and other natural disaster response activities. These emergency activities have been authorized by Congress and generally have been funded by supplemental appropriations, which have been significant relative to Corps discretionary appropriations since 2005. From 1987 to 2016, Congress has appropriated approximately $33.2 billion in Corps supplemental appropriations. Of this total, Congress provided $31.4 billion from 2005 to 2016, which was significant relative to the agency's regular (i.e., nonsupplemental) annual discretionary appropriations over that period (approximately $63.8 billion for FY2005 through FY2016). If supplemental bills provide funds to the Corps, they most frequently fund two accounts: Flood Control and Coastal Emergencies (FCCE; i.e., flood fighting, repairs to damaged nonfederal flood-control projects) and Operations and Maintenance (O&M; i.e., repairs to existing Corps projects). In some instances, principally since 2005, Congress also has provided supplemental funding for other Corps accounts, such as the Mississippi River and Tributaries (MR&T) account and the Construction account. Of the supplemental funds that Congress provided to the Corps for Hurricanes Katrina and Sandy, 31% and 66%, respectively, were for construction activities. Congress also provided the agency with $4.6 billion as part of the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 ). In the wake of major flooding and other natural disasters, Congress often considers whether to provide supplemental appropriations to the Corps and other agencies. Proponents of providing supplemental funding for the Corps argue that these investments are significant for recovery efforts and improve flood resilience of the affected areas. Congress may provide these funds with special considerations (e.g., designated as emergency funding and not requiring budgetary offsets; waiving nonfederal cost-share requirements). Others argue that the annual appropriations process is the more appropriate forum for deciding on significant federal flood-damage reduction investments, contending that postdisaster investments should be subject to the same project-development and cost-sharing requirements as other similar Corps projects and should compete in the agency's annual budget-development process. Other stakeholders would prefer more attention and funding that supports other programs and measures to reduce the nation's flood risks. (For an overview of federal flood-related assistance programs, see CRS Report R45017, Flood-Risk Reduction and Resilience: Federal Assistance and Programs , by [author name scrubbed] et al.) This report analyzes Corps supplemental funding. The report focuses on supplemental funding provided directly to the Corps from 1987 to 2016, as well as recently proposed supplemental funding in H.R. 4667 —Further Additional Supplemental Appropriations for Disaster Relief Requirements, 2017 (as passed by the House). The report does not include extensive analysis of annual Corps discretionary appropriations or supplemental appropriations for other agencies. Apart from Corps disaster response, the Federal Emergency Management Agency (FEMA) has extensive authority to assist and coordinate disaster response actions under the National Response Framework, and FEMA receives significant regular and supplemental appropriations for this work. Although the Corps performs work under some mission assignments for FEMA (i.e., funded by FEMA, under direction of the President and FEMA), that work is not addressed in this report. The majority of natural disaster-related supplemental appropriations generally are placed into one of the following four Corps budget accounts based on the type of activity funded. The FCCE account is the primary account through which the Corps funds disaster-related activities. The primary activities funded under FCCE are flood fighting (e.g., sandbagging), emergency preparedness and response, and repair of damaged nonfederal flood and hurricane protection projects. Congress authorized the Corps in the Flood Control Act of 1941 (33 U.S.C. §701n) to assist in flood fighting and flood response. The Corps can assist in flood fighting at the discretion of its Chief of Engineers to protect life and property, principally when state resources are overwhelmed. Congress also authorized the Corps to operate the Rehabilitation and Inspection Program (RIP, also known as the P.L. 84-99 program) to fund the repair of participating nonfederal flood-control works (e.g., levees, dams, dunes) damaged by natural events. Repairs under this program are funded by the agency's FCCE account. Congress also has directed the Corps to use supplemental funds to repair and rebuild federally owned flood-control and other projects (e.g., navigation projects) through the agency's O&M and Construction accounts. In the event of an emergency, Congress has given the Secretary of the Army (generally delegated to the Assistant Secretary of the Army [Civil Works]) discretion to transfer from existing appropriations the monies necessary for the emergency work referenced above, until funds become available in the applicable account through supplemental appropriations or other avenues. In recent floods, the Corps has exercised this authority to transfer regular annual appropriations from ongoing projects (i.e., projects funded by annual appropriations) to pay for emergency actions. The Corps has then internally reimbursed itself for this funding once supplemental appropriations have become available. The O&M account funds activities related to existing Corps projects, including upkeep of physical infrastructure and other activities (i.e., dredging of ports and waterways). Common disaster activities funded under this account include repair of damaged federally operated flood and hurricane protection projects (e.g., dams, levees, floodwalls) and dredging of authorized federal navigation channels. The MR&T account consists of flood-control and navigation projects for the lower Mississippi River Valley. Supplemental expenditures under this account consist primarily of repair to damaged MR&T levees, floodways, and other project features. The Construction account funds new project construction and major upgrades to existing projects (e.g., significant dam repairs). Supplemental construction funding has been used at times to improve existing Corps coastal and riverine flood-risk reduction projects and for new Corps construction projects to reduce flood risks. Congress previously has provided the Corps with approximately $33.2 billion (nominal dollars) in supplemental funding in 26 laws enacted between 1987 and 2016. It is considering legislation, principally H.R. 4667 , that would provide the Corps an additional $12.09 billion in supplemental appropriations for the agency's activities associated with response, repair, and recovery from natural disasters including Hurricanes Harvey, Irma, and Maria in 2017. This section discusses enacted Corps supplemental appropriations, as well as Corps supplemental funding proposed in H.R. 4667 in the 115 th Congress. It also discusses common issues that policymakers consider in deliberating on these supplemental appropriations bills. Table 1 shows account-level funding in enacted Corps supplemental appropriations bills and in H.R. 4667 . Of the $33.2 billion in enacted supplemental appropriations legislation, most of this amount ($31.4 billion) was provided in 12 appropriations laws enacted between 2005 and 2016. Adjusting prior-year appropriations for inflation, Congress provided the Corps with approximately $38 billion (in 2016 dollars) in supplemental appropriations between 1987 and 2016. Of this total, 92% was provided between 2006 and 2016. Enacted Corps supplemental appropriations and H.R. 4667 also are shown by year in Figure 1 . The discussion below differentiates between five primary types of supplemental funding that the Corps received or the 115 th Congress is considering: funding for the 2005 hurricanes; funding for Hurricane Sandy response and recovery; funding for "all other" floods, hurricanes, and other natural disasters; funding for other nondisaster purposes, such as economic recovery and facility security; and funding proposed in H.R. 4667 (as passed by the House) for natural disasters including Hurricanes Harvey, Irma, and Maria. Separately, the Appendix lists the disaster events that were explicitly referenced in enacted Corps supplemental appropriations from 2003 to 2016 and in H.R. 4667 . As noted above, the 2005 hurricanes (primarily Hurricane Katrina) account for much of Corps supplemental appropriations since 2003. The $16 billion received for these storms is more than three times the size of the agency's annual civil works budget. These appropriations were provided in six separate supplemental appropriations bills passed between 2005 and 2009, and most of these funds were designated for rebuilding and in some cases significantly strengthening Corps facilities, principally in Southeast Louisiana. Approximately 94% of the supplemental funds appropriated for Corps hurricane response and recovery went to activities in Louisiana, including $14.5 billion for protective measures in Southeast Louisiana. These funds were used for significant repair and strengthening of 350 miles of levees and floodwalls in New Orleans and new surge-protection barriers, including the Inner Harbor Navigation Canal Surge Barrier, which is one of the largest surge barriers in the world. Although the federal government funded 100% of the costs of FCCE and O&M infrastructure in Southeast Louisiana, most of the supplemental funds for construction projects were subject to federal-nonfederal cost-sharing requirements (generally a 65/35 federal/nonfederal split). That is, the state of Louisiana is contributing $1.7 billion, consisting of $0.2 billion for real estate acquisition and $1.5 billion for the state's cash-share contribution, for its share of the $5.0 billion in improvements funded through supplemental appropriations to the Corps Construction account. Under a specially negotiated arrangement, Louisiana's cash contribution initially was provided through federal appropriations and is being repaid over 30 years. Hurricane Katrina significantly damaged the Mississippi coast. In contrast to the congressional response to fund hurricane-protection construction through supplemental appropriations for Southeast Louisiana, Congress directed the Corps to develop a plan for how to protect coastal Mississippi. As part of a supplemental appropriations bill for the Corps ( P.L. 109-148 ), Congress directed the Corps to design comprehensive improvements and modifications to Mississippi coastal counties to provide hurricane protection, prevent erosion, preserve fish and wildlife habitat, and achieve other purposes. This effort is known as the Mississippi Coastal Improvements Program (MsCIP). In a 2009 supplemental bill ( P.L. 111-32 ), Congress authorized and funded $439 million in Corps FCCE activities under this program. The agency's final MsCIP plan was submitted to Congress for authorization in January 2010. Congress in the Water Resources Reform and Development Act of 2014 ( P.L. 113-121 ) authorized an additional $1.07 billion in MsCIP activities based on the final plan. These projects were planned in compliance with the standard 65% federal and 35% nonfederal cost share for this type of Corps construction project. Because Congress designated most of these funds for Hurricane Katrina recovery, the funds are generally not available to other projects or emergencies. The second-largest enacted supplemental appropriation for the Corps was through the Disaster Relief Appropriations Act of 2013 ( P.L. 113-2 ), for response and recovery related to Hurricane Sandy's 2012 landfall. The act provided $5.35 billion in supplemental appropriations to address damages caused by Hurricane Sandy and to reduce future flood risks in the areas impacted by the storm. Generally, funding under the O&M and FCCE accounts ($821 million and $1.008 billion, respectively) was to "address the consequences" of Hurricane Sandy. The majority of funding appropriated to the Construction account ($2.9 billion of $3.4 billion in this account) was set aside to "reduce future flood risks in ways that will support the long-term sustainability of the coastal ecosystem and communities and reduce the economic costs and risks associated with large-scale flood and storm events ... within the boundaries of the North Atlantic Division of the Corps that were affected by Hurricane Sandy." Among other things, P.L. 113-2 allowed for the repair of damaged projects to prestorm conditions and for the restoration of some projects to their authorized "design profiles" (i.e., their original construction designs). Additionally, Congress made available funding in the Construction account for new construction projects (i.e., projects that were undergoing study or authorized for construction prior to the storm) but made release of this funding dependent on the Corps publishing certain interim reports also required under the legislation. Finally, the legislation waived cost-sharing requirements for ongoing construction projects (although it provided no such waiver for the aforementioned new construction projects). Outside of the aforementioned three sections (funding for response and repair related to the 2005 hurricane season, the 2013 landfall of Hurricane Sandy, and other nondisaster supplemental appropriations), between 1987 and 2016 Congress provided the Corps with approximately $7.1 billion to respond to various other natural disasters (e.g., riverine and coastal flooding). The vast majority of this funding was provided between 2005 and 2016. A considerable portion of the funding for these other flood events was for Corps actions under the O&M account and the FCCE account (38% and 40%, respectively); the MR&T account received roughly 17% of these appropriations, as shown in Figure 2 . Other than funding for Hurricane Sandy, the other most recent supplemental appropriation for the Corps ( P.L. 114-254 ), passed in December 2016, is included in this category. That appropriation focused on repair to Corps facilities in response to flooding in Louisiana and in Florida (although neither state was explicitly referenced in the enacted legislation); the majority of these funds were for the MR&T and O&M accounts (specific account totals are available in Observations on Corps Supplemental Funding). The Corps also has received supplemental funds for maintenance and facility upgrades. Specifically, the Corps received funding for facility security upgrades in 2002 and 2003 following the terrorist attacks of 2001. It also received funding for facility upgrades (including more than $2 billion in the O&M account) and new project construction ($2 billion in the Construction account) under ARRA. A combined breakdown of this non-natural-disaster-related supplemental funding is provided in Figure 2 . Other than the combined total appropriations to support response, repair, and recovery from the 2005 hurricanes, H.R. 4667 , if enacted, would provide the largest supplemental appropriation for the Corps. Further, it would be the largest appropriation for the Corps in a single bill in the history of the agency. This funding, if provided, would go toward response and repair activities for natural disasters and for study and construction work on reducing flood risks in the areas impacted by Hurricanes Harvey, Irma, and Maria. The bill would provide the Corps $12.09 billion in supplemental appropriations. Like most supplemental appropriation bills with direct appropriations for the Corps, the bill would fund the agency's emergency response activities and repair of damage to flood-control works and other Corps civil works projects (e.g., navigation); these response and repair activities would be funded as follows: $537 million for natural disasters through the FCCE account, $608 million for natural disaster-related repairs through the O&M account, $370 million for natural disasters through the MR&T account, and $55 million for natural disaster-related repairs to Corps construction projects through the Construction account. H.R. 4667 would allow for the Construction account funds to be used not only for the repair of damaged projects to prestorm conditions but also for the restoration of some projects to their authorized "design profiles" (i.e., their original construction designs). The majority of the Corps funding in H.R. 4667 —$10.425 billion (86% of the $12.09 billion)—would be for construction of Corps flood-control and storm-damage reduction projects in the areas affected by Hurricanes Harvey, Irma, and Maria. For comparison, Congress directed 31% and 65% of the Corps supplemental funding for Hurricanes Katrina and Sandy to Corps construction of flood-risk reduction projects. While the Corps repair funding is for natural disasters broadly, the $10.425 billion and the $75 million for Corps studies in the Investigations account are limited to the areas affected by Hurricanes Harvey, Irma, and Maria. The studies and the ongoing Corps construction projects that would receive funds from the Construction account through the bill would proceed at full federal expense (i.e., no nonfederal cost-share requirement). The standard process for Corps projects is that after the completion of a multistep project development process (which includes, among other measures. a completed feasibility study and environmental documentation and a report by the agency's Chief of Engineers known as a Chief's Report), Congress authorizes the project's construction in a Water Resources Development act. H.R. 4667 would provide the Secretary of the Army authority to use funds from the bill to initiate construction on projects that have completed the agency's multistep project development process without obtaining project-specific congressional construction authorization, subject to approval by the House and Senate Appropriations Committees. Similar authority was provided to the Secretary for the use of the Corps funds from the Hurricane Sandy supplemental appropriation. The granting of this authority provides for a project to be initiated without project-specific congressional authorization. Given current federal fiscal constraints and the multiple natural disasters that have occurred in recent years, the enactment of and reliance on emergency supplemental funding is receiving more attention. For Corps natural disaster supplemental funding, some of the topics receiving attention include the following: transparency of natural disaster funding; use of supplemental bills for postdisaster infrastructure improvements; and nonfederal cost sharing of natural disaster repair and recovery. Each of these topics is discussed below. After the initial appropriation, public reporting on Corps expenditure of supplemental funding has generally been limited. There are very few overarching requirements for public reporting on Corps supplemental expenditures, including the amount and extent of transfers from annual discretionary appropriations to initially cover emergency response and repairs and the project-level descriptions and funding data on expenditures of supplemental appropriations. In some of the early post-Katrina supplemental bills and in the Sandy supplemental appropriations bill, Congress set reporting requirements for Corps appropriations, including regular reports to the Committee on Appropriations. For annual discretionary appropriations, project-level data are available through congressional reports and in recent years through agency work plans that follow shortly after enacted appropriations. Additionally, as noted above, Congress conditioned release of some of the Corps construction funding in the Sandy supplemental bill on the Corps completing and releasing information on projects that qualified for these funds. However, outside these reports and ARRA spending (which was tracked through a public website), detailed data on Corps expenditures of supplemental appropriations have not been required or widely available in the same manner as the annual budget. Congress is faced with deciding whether to use Corps supplemental funding for improving flood protection in impacted areas to reduce future flood risk. Congress funded Corps infrastructure investments to improve hurricane storm protection infrastructure for Southeast Louisiana in post-Katrina supplemental bills. Also 65% of the $5.3 billion in supplemental funding provided to the Corps for Hurricane Sandy recovery was designated for new or ongoing construction to reduce flood risks. However, Congress did not use supplemental Corps construction funds for such improvement for the 2008 Hurricane Ike-impacted Texas coast, the Midwest areas impacted by the 2011 and 1993 floods, or the 1992 Hurricane Andrew-impacted areas. Proponents of supplemental construction funds for flood-impacted areas argue that these investments are significant to the recovery effort and that flooding events often bring to light flood risks warranting attention. Others argue that the annual appropriations process is the appropriate forum for identifying national priorities for federal flood-infrastructure investments. The Corps has a backlog of authorized flood and storm damage-reduction projects across the country; these authorized projects compete for the less than $1 billion typically provided for flood-damage reduction activities in the annual discretionary budget process. Over the decade from FY2008 to FY2017, discretionary appropriations for Corps flood-related construction activities averaged $907 million annually; total funding for the decade was $9.1 billion. Figure 3 provides data on flood-related construction spending using annual appropriations. A portion of the spending shown is for major rehabilitation activities of existing Corps facilities, such as dam repair. Therefore, the discretionary appropriations spent on new construction over the FY2008-FY2017 decade would be lower than $9.1 billion. Although many Corps civil works activities are cost shared with nonfederal sponsors, much of the supplemental appropriations for flood fighting and repair of damaged infrastructure and projects have not been subject to significant cost sharing. In addition to these activities, Congress occasionally has provided funding for upgrades and construction of new infrastructure in supplemental appropriations. Congress provided supplemental appropriations for construction activities to improve infrastructure in areas affected by Hurricane Katrina, particularly in Louisiana. These construction activities generally have been cost shared either at the standard nonfederal cost shares shown in Table 2 or consistent with the cost-sharing arrangement for the original Corps project. For supplemental appropriations related to Hurricane Sandy, cost-sharing requirements were waived for ongoing construction projects but not for new construction. The appropriate cost share for Corps construction activities has been the subject of debate, with proposals ranging from standard cost shares to requirements for the federal government to handle most or all of a project's costs. Some also have proposed relaxing cost-sharing requirements for specific project types (e.g., cost-sharing waivers for ongoing construction projects, as noted above) and changing what costs should be counted toward the nonfederal share. Various justifications for altering the standard arrangement have been advanced, including the potentially limited ability of many communities impacted by disasters to pay the standard nonfederal share. Assuming some sort of nonfederal cost share is required, another issue is who is responsible for the nonfederal share and the time period over which that share will be repaid. In the case of Louisiana, Congress required that Louisiana create a single state or quasistate entity to act as its nonfederal construction partner for post-Katrina Corps repairs and improvements and allowed the entity 30 years to repay its share of the construction costs (which was covered by the federal government with funds provided in P.L. 109-148 ). The status of other existing cost-sharing requirements, such as those that apply to navigation projects, as they relate to supplemental funding also is common issue. Although certain categories of funding for federal navigation projects normally require cost sharing from the Harbor Maintenance Trust Fund (HMTF) and the Inland Waterway Trust Fund (IWTF), similar cost-sharing arrangements generally have not been required for supplemental funding for natural disasters. That is, neither of these two trust funds has been responsible for navigation-related natural disaster response and recovery costs funded in supplemental appropriations over the last decade. However, a few supplemental appropriations bills in the late 1990s required cost sharing from the HMTF. H.R. 4667 would require that HMTF funds (rather than the funds derived from the General Fund of the U.S. Treasury) be used for the federal costs associated with HMTF-eligible activities; the bill does not mention any similar requirement for the use of IWTF funds. For its part, the Corps Rehabilitation and Inspection Program (RIP) essentially functions as an insurance program for many nonfederal flood-control and coastal-protection projects and is active in addressing postdisaster repairs and rehabilitation. Approximately 14,000 miles of levees participate in RIP: 2,250 miles of locally constructed and operated levees; 9,650 miles of Corps-constructed, locally operated levees; and 2,100 miles of federally operated levees. For locally constructed projects, 80% of the cost to repair the damage is paid using federal funds and 20% is paid by the levee owner. For federally constructed projects, the repair cost is entirely a federal responsibility (except for the cost of obtaining the sand or other material used in the repair). For damage to be repaired, the Corps must determine that repair has a favorable benefit-cost ratio. There is no annual cost or premium for participating in the RIP program beyond maintaining the project to RIP standards. The 115 th Congress is considering possible responses to various natural disasters in 2017. In recent years through supplemental appropriations, Congress not only has funded the emergency response and repair activities of the Corps but also has provided the Corps with funding to study and construct projects that reduce flood risks in areas recently affected by some hurricanes and floods. That is, supplemental appropriations in response to Hurricane Katrina and Hurricane Sandy supported new investments in flood-risk reduction infrastructure projects in affected areas to a much greater extent than Congress has provided for other flood events. H.R. 4667 proposes $12.09 billion for the agency's activities associated with response, repair, and recovery from natural disasters including Hurricanes Harvey, Irma, and Maria; of the $12.09 billion total, $10.425 billion would be for new construction of Corps flood-risk reduction projects in areas affected by Hurricanes Harvey, Irma, and Maria. During its deliberations on Corps supplemental appropriations, Congress often considers various issues and special considerations associated with the provision of these funds. These include the role of Congress in the authorization of construction of Corps projects that receive supplemental funds, whether to maintain requirements for nonfederal cost sharing, and what requirements to include regarding reporting to Congress and public transparency associated with supplemental funds. Supplemental Corps funding debates also raise broader questions for policymakers, such as the effectiveness and efficiency of processes such as those for postdisaster supplemental appropriations and Corps annual budget development, especially in regard to identifying and supporting priority investments in reducing the nation's flood risk.
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Congress directs the U.S. Army Corps of Engineers (Corps) to plan and build water resource facilities through the agency's civil works program. The Corps also has a prominent role in responding to natural disasters, especially floods, in U.S. states and territories. In recent years through supplemental appropriations, Congress also has funded the agency to study and construct projects that reduce flood risks in areas recently affected by some hurricanes and floods. The 115th Congress is considering possible responses to various natural disasters in 2017. H.R. 4667—Further Additional Supplemental Appropriations for Disaster Relief Requirements, 2017 (as passed by the House)—proposes $12.09 billion for the agency's activities associated with response, repair, and recovery from natural disasters including Hurricanes Harvey, Irma, and Maria. Policy Considerations. A common issue for Congress after a flood-related disaster is whether to provide supplemental funds directly to the Corps and, if so, how much and for which Corps activities. During its deliberations on recent supplemental appropriations bills, Congress also has considered whether to maintain requirements for nonfederal cost sharing, what requirements to include regarding reporting to Congress and public transparency associated with supplemental funds, and what type of flood damage-reduction efforts to support (e.g., repair of existing infrastructure, construction of new infrastructure). Supplemental Corps funding debates also may raise broader questions for policymakers. These include, for example, the effectiveness and efficiency of processes such as those for postdisaster supplemental appropriations and Corps annual budget development, especially in regard to identifying and supporting priority investments in reducing the nation's flood risk. Supporters of supplemental appropriations for the construction of Corps flood-risk reduction projects in natural disaster-affected areas view these projects as part of the broader recovery effort and as means to improve flood resilience of the affected areas. Other stakeholders would prefer more attention and funding that supports other programs and measures to reduce the nation's flood risks. Supplemental Funds. From 2005 to 2016, Congress appropriated $31.4 billion in supplemental funding to the Corps; these funds amounted to almost half of the agency's annual discretionary appropriations over that same period. Of the $31.4 billion, $27.2 billion (87%) was for responding to flooding and other natural disasters. The majority of this funding related to Hurricane Katrina and other 2005 storms (approximately $16 billion) and to Hurricane Sandy in 2012 ($5.3 billion). Supplemental bills most frequently fund two Corps accounts: Flood Control and Coastal Emergencies (FCCE; i.e., flood fighting, repairs to damaged nonfederal flood-control projects) and Operations and Maintenance (O&M; i.e., repairs to existing Corps projects). In some instances, principally since 2005, Congress also has provided supplemental funding for other Corps accounts, such as the Construction account. Of the supplemental funds that Congress provided to the Corps for Hurricanes Katrina and Sandy, 31% and 66%, respectively, were for construction activities. Of the $12.1 billion that H.R. 4667 would provide, $10.48 billion would be for activities in the agency's Construction account—$55 million for repairs to Corps construction projects damaged by natural disasters, and $10.425 billion for expedited construction of flood control and storm damage reduction projects in areas affected by Hurricanes Harvey, Irma, and Maria. That is, 86% of the funding for the Corps in H.R. 4667 would be for construction. For comparison, that amount would exceed the agency's $9.1 billion total discretionary spending appropriations for flood-related construction for the decade FY2008 to FY2017. Conditions Applicable to Supplemental Funds. In supplemental appropriations bills, Congress has at times maintained, and at other times waived, local cost-sharing requirements for Corps flood-risk reduction construction projects. The standard nonfederal cost shares range from 35% to 50%, depending on the activity. H.R. 4667 would waive the nonfederal cost share for studies and ongoing construction funded through the bill. The bill also would provide the Secretary of the Army with the authority to use funds from the bill, subject to approval by the House and Senate Appropriations Committees, to initiate construction on projects that have completed the agency's multistep project development process without project-specific congressional construction authorization.
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In Altria Group, Inc. v. Good , the Supreme Court agreed to resolve a split that developed in the circuit courts with regard to whether the Federal Cigarette Labeling and Advertising Act (FCLAA) expressly or impliedly preempted state law claims regarding light or low-tar nicotine descriptors in cigarette advertisements. On December 15, 2008, the Court in Good , by a vote of 5-4, affirmed the First Circuit Court of Appeals' holding that the FCLAA neither expressly nor impliedly preempted the respondents' state common law fraud claim. The Supreme Court has discussed the preemptive effect of the FCLAA in two previous cases, Cipollone v. Liggett Group, Inc. and Lo ri l lard Tobacco Co. v. Reilly . A plurality in Cipollone created a test to determine which common law claims were preempted by the FCLAA; the application of this test was further elucidated in Reilly and became an issue once more in Good . This report first provides an overview of the doctrine of preemption, the history of the FCLAA, and the major Supreme Court decisions that have interpreted the preemption provision (§5) of the act. It then discusses the relevant lower court decisions and the split that arose between the circuit courts. This report examines the Supreme Court's decision in Altria Group, Inc. v. Good and the effect this decision could have on future tobacco litigation and preemption jurisprudence, in addition to the effect of H.R. 1256 , the Family Smoking Prevention and Tobacco Control Act. This section examines the development of the preemption provisions in the FCLAA, the preemption doctrine, as well the two Supreme Court cases, Cipollone and Reilly , that have discussed the preemptive effect of the FCLAA. Congress enacted the FCLAA in 1965 (1965 Act) to establish "a comprehensive Federal Program to deal with cigarette labeling and advertising with respect to any relationship between smoking and health, [so that]: (1) the public may be adequately informed cigarette smoking may be hazardous to health by inclusion of a warning to that effect on each package of cigarettes; and (2) commerce and the national economy may be: (A) protected to the maximum extent consistent with this declared policy and, (B) not impeded by diverse, non-uniform, and confusing cigarette labeling and advertising regulations with respect to any relationship between smoking and health." To meet these purposes, the 1965 Act mandated a warning on cigarette packages but temporarily (through June 1969) barred the Federal Trade Commission (FTC) from requiring such a warning in cigarette advertising. The act's preemption provisions in §5 provided: (a) Additional Statements: No statement relating to smoking and health, other than the statement required by section 4 of this Act, shall be required on any cigarette package. (b) State Regulations: No statement relating to smoking and health shall be required in the advertising of any cigarettes the packages of which are labeled in conformity with the provisions of this Act. In May 1969, as the congressionally imposed moratorium on including a warning in cigarette advertising was about to expire, the FTC proposed such a warning. Shortly thereafter, Congress enacted the Public Health Cigarette Smoking Act of 1969, which amended the FCLAA by strengthening the health warning on packages, further prohibiting the FTC (through June 1971) from requiring a warning in advertising, and modifying the preemption language in §5(b) to read: (b) State Regulations: No requirement or prohibition based on smoking and health shall be imposed under State law with respect to the advertising or promotion of any cigarettes the packages of which are labeled in conformity with the provisions of this Act. It was the scope and effect of these preemption provisions that were at issue in Cipollone , Reilly , and Good . In all three cases, the Court explored the questions that are raised when state statutes or common law causes of action impose requirements that conflict with federal laws. The preemption doctrine is derived from the Supremacy Clause of the United States Constitution, which establishes that the laws of the United States "shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary, notwithstanding." When considering issues that arise under the Supremacy Clause, the Court "starts with the assumption that the historic police powers of the States [are] not to be superseded by the ... Federal Act unless that [is] the clear and manifest purpose of Congress." In other words, the Court begins a preemption analysis with a presumption against preemption. Traditionally, the Court has recognized both express and implied forms of preemption, which are "compelled whether Congress' command is explicitly stated in the statute's language, or implicitly contained in its structure and purpose." Both types of preemption may apply to state legislation, regulations, and common law. Accordingly, the Supreme Court has held that "whether a certain state action is preempted by federal law is one of congressional intent. The purpose of Congress is the ultimate touchstone. To discern Congress' intent we examine the explicit statutory language and the structure and purpose of the statute." In the express preemption context, a federal statute will be deemed to supplant existing state law to the extent that it contains an explicit provision to that effect, the scope of which is determined by interpreting the language of the provision and analyzing the legislative history as necessary. Absent explicit preemptive language, federal law may preempt state law implicitly. The Court has identified three different categories of implied preemption: (1) where the scheme of the federal law is "so pervasive so as to make reasonable the inference that Congress left no room for the States to supplant it," also known as "field preemption"; (2) where compliance with both federal and state law regulations is a physical impossibility, also known as "conflict preemption"; and (3) where state law "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress," also known as "frustration of purpose." Predicting how the courts will apply these standards is highly speculative. The Supreme Court itself has noted that "none of these expressions provide an infallible constitutional test or an exclusive constitutional yardstick. In the final analysis, there can be no one crystal clear distinctly marked formula." Thus, cases involving federal preemption often hinge on the particular factual circumstances of a given case. In 1992, the Supreme Court issued its decision in Cipollone v. Liggett Group, Inc. , where a plurality declared that the FCLAA preempts certain types of tort actions that are brought against cigarette manufacturers under state common law. Among other things, the plaintiff claimed that the defendant cigarette manufacturers had: (1) failed to provide adequate warnings on health consequences; (2) breached express warranties that their cigarettes did not present any significant health consequences; (3) fraudulently attempted to neutralize the federally mandated warning labels through advertising; (4) fraudulently concealed medical and scientific data; and (5) conspired to deprive the public of such medical and scientific data. The defendants argued that the FCLAA preempted these state law claims ( i.e. , federal law prevented these types of state law claims from being brought in court). Because the FCLAA contained express preemptive language in §5 (see above), the Court had to analyze whether these provisions prevented a state from awarding damages on claims for torts, such as failure to warn and fraudulent misrepresentation. To determine the domain expressly preempted, the Court compared the 1965 and the 1969 Acts, as it felt that the language of the two substantially differed. The Court first analyzed the preemption provision of the 1965 Act, determining that neither preemption provision of §5 preempted state damages actions, but "merely prohibited state and federal rulemaking bodies from mandating particular cautionary statements on cigarette labels (§5(a)) or in cigarette advertising (§5(b))." In supporting this interpretation, the Court emphasized that "there is no general, inherent conflict between federal preemption of state warning requirements and the continued vitality of state common law damages actions." With respect to the 1965 Act, the Court determined that "§5 is best read as having superseded only positive enactments by legislatures or administrative agencies that mandate particular warning labels." The Court then analyzed the 1969 Act, stating that the plain language of the preemption provision in §5(b) was much broader than the one in the 1965 Act. The Court treated the two preemption provisions separately. Having concluded that §5(a), which was not amended by the 1969 Act, superseded only positive enactments, it found that §5(a) continued to not preempt state courts from awarding damages that, in effect, could require additional warnings labels on cigarette packages. However, in parts of the opinion to which only a plurality joined, the Court construed §5(b), which prohibits states from imposing any requirement or prohibition with respect to cigarette advertising or promotion, as broader and as intended to preempt some common law claims. The plurality stated that preemption under §5(b) could not be limited to positive enactments of law, and it extended the subsection's preemptive reach to include common law claims, emphasizing that the Court had long recognized "the phrase 'State law' to include common law as well as statutes and regulations." In accordance with this broader reading of "State law" in the 1969 Act to include common law claims, the plurality noted that "[state] regulation can be as effectively exerted through an award of damages as through some form of preventive relief. The obligation to pay compensation can be ... a potent method of governing conduct and controlling policy." The plurality developed the "predicate duty" test to determine when a particular common law claim is preempted. The Cipollone plurality concluded that the following claims were preempted by the FCLAA: Failure-to-warn claims insofar as they claim that advertisements "should have included additional, or more clearly stated, warnings." However, failure-to-warn claims are not preempted to the extent they rely solely on the defendants' "testing or research practices or other actions unrelated to advertising or promotion." Fraudulent misrepresentation claims to the extent that they are predicated on a "state law prohibition against statements in advertising and promotional materials that tend to minimize the health hazards associated with smoking." This is also known as a "warning neutralization" claim. The plurality concluded that the following claims were not preempted by the FCLAA: Claims of fraudulent misrepresentation by false representation of material fact that arise in the context of advertisements and promotions because they are based on a more general obligation—the duty not to deceive. Claims of fraudulent misrepresentation through concealment of material fact insofar as they rely on a state law duty to disclose such facts through channels of communication other than advertising or promotion, such as a duty to disclose to an administrative agency. Breach of express warranty claims because express warranties are not imposed by the state but arise from the manufacturer's voluntary statements. Claims of conspiracy to misrepresent or conceal material facts as these claims rest on a predicate duty to not conspire to commit fraud. Two dissents were authored in Cipollone . Justices Blackmun, Kennedy, and Souter, dissenting, concluded that common law claims could be brought against tobacco companies. On the other hand, Justices Scalia and Thomas concluded that all of the common law claims were preempted. Although Justice Scalia agreed with the plurality that the term "State law" in §5(b) of the 1969 Act "reaches beyond [positive] enactments" to also encompass state common law, he advocated for a test of "practical compulsion" or "proximate application" to determine whether state law claims were preempted by the FCLAA. The Supreme Court also addressed the FCLAA's preemptive effect in Lor i l lard Tobacco Co. v. Reilly . There, the Court invalidated cigarette regulations that were promulgated by the Massachusetts Attorney General pursuant to his authority under state law to "prevent unfair or deceptive practices in trade." The Attorney General's regulations were comprehensive in nature and prohibited outdoor advertising for cigarettes, such as billboards, within 1,000 feet of a playground or school. The Attorney General maintained that while a state law that required tobacco retailers to remove the word "tobacco" would be preempted, a complete ban on all cigarette advertising would not be preempted because Congress did not intend to invade local control over zoning. The Court countered this argument in its opinion, stating that "the FCLAA's comprehensive warnings, advertising restrictions, and pre-emption provision would make little sense if a State or locality could simply target and ban all cigarette advertising." Accordingly, the Court concluded that the FCLAA preempted the regulations because it determined that "[t]he context in which Congress crafted the ... pre-emption provision [led the Court] to conclude that Congress prohibited state cigarette advertising regulations motivated by concerns about smoking and health." It, therefore, found that, although the regulations were targeted at youth exposure to cigarette advertising, they were "based on smoking and health" within the meaning of the FCLAA because "concern about youth exposure to cigarette advertising is intertwined with the concern about ... smoking and health." The fact that the regulations governed location rather than content of advertising did not remove them from the preemption language, which covers "all requirements and prohibitions imposed under state law." While Reilly arguably broadened the preemptive reach of §5(b), the Court clarified that states still retain the authority to regulate other aspects of tobacco use and sales or to enact restrictions on the location and size of advertisements that apply to cigarettes on equal terms with other products. The FCLAA, for example, does not preempt state laws or regulations that prohibit sales to minors or restrict smoking in public places. The Supreme Court examined the preemptive scope of the FCLAA once again in Altria Group, Inc. v. Good . Prior to the Supreme Court granting certiorari , a split developed in the circuit courts regarding whether the FCLAA preempted a claim for deceptive practices under a state statute. Under the FCLAA, the Federal Trade Commission (FTC) has the power to regulate and proscribe unfair or deceptive acts or practices in the advertising of cigarettes. In 1966, the FTC proposed a standardized method for measuring tar and nicotine levels. This became known as the FTC or Cambridge Method, in which a machine smokes each cigarette the same way to the same length and the particular matter is collected on a pad and measured for tar and nicotine content. The FTC was aware of certain limitations on the FTC test, including that it could not accurately measure how much tar and nicotine a human smoker would receive from any particular cigarette; furthermore, some smokers of light cigarettes often engage in compensatory behavior, changing the way they smoked to ensure no actual reduction of tar and nicotine. In 2006, long-time smokers of Marlboro Lights Cigarettes filed a class action suit in District Court for the District of Maine against Altria Group (hereinafter referred to by its subsidiary Philip Morris (PMUSA)) claiming that the cigarette company "deliberately deceived them about the true and harmful nature of light cigarettes, thereby violating the Maine Unfair Trade Practices Act (MUTPA)." The plaintiffs did not seek damages for personal health-related injuries, but rather they sought other relief, including the return of sums paid to purchase the light cigarettes, and the attorney's fees authorized under the MUTPA. PMUSA moved for summary judgment on the ground that federal law (the FCLAA) preempts the plaintiffs' state causes of action. The District Court for the District of Maine ruled in favor of the defendant's motion for summary judgment. The MUTPA makes it unlawful to use "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce." Specifically, the plaintiffs claimed that "defendants engaged in a course of unfair and/or deceptive business practices in connection with the design, manufacture, distribution, promotion, marketing, and sale of Marlboro Lights cigarettes," and, more generally, that PMUSA "engaged in acts of fraudulent concealment" in contravention to the MUTPA. The district court highlighted a few occasions when cigarette companies voluntarily agreed to disclose the nicotine content in their cigarettes as measured by the FTC Method in lieu of regulations that would have been imposed by the FTC. With respect to light and low-tar descriptors, the court found that although the FTC has not imposed any actual regulation covering use of the terms, the FTC has indicated that such descriptors are not forbidden and are not unfair or deceptive. The district court stated that "the question is whether the Plaintiffs' claims would impose a requirement or prohibition under Maine law 'with respect to the advertising or promotion of any cigarettes.'" Here, the court declared that to respond to plaintiffs' concerns, "Philip Morris would have to tell the public that the FTC Method though accurate in the laboratory, was inaccurate in real life." The court reasoned that if PMUSA were to convey this information through a form of advertising, this "would run head first into ... the 'comprehensive federal scheme governing the advertising and promotion of cigarettes.'" Ultimately, the district court ruled that the plaintiffs' claims, like the Massachusetts regulations in Reilly , were "intertwined with the concern about cigarette smoking and health," and as such are expressly preempted by the FCLAA. In reaching this conclusion, the district court did not address PMUSA's other argument that the claims were impliedly preempted. The Court of Appeals for the First Circuit reversed and held that the plaintiffs' claim were not: (1) expressly preempted by the FCLAA, (2) implicitly preempted, either by the FCLAA or by the FTC's oversight of tar and nicotine claims in cigarette advertising, or (3) barred by the act's exemption for "transactions or actions otherwise permitted." The court of appeals, like the district court, discussed the FTC's history as related to tobacco advertising and the predicate duty test. The court proceeded to apply its reading of the " Cipollone taxonomy" to the plaintiffs' claims. Disagreeing with the district court, the court of appeals said that "the FCLAA preempts only those claims based on a ' requirement or prohibition ' based on smoking and health under State law ... [i]t does not preempt claims because they are "based on smoking and health." Therefore, the court of appeals found that the plaintiffs' allegations against PMUSA amounted to a claim for fraudulent misrepresentation, a type of claim not preempted by the FCLAA. Although PMUSA argued that the plaintiffs' claims amounted to a preempted failure-to-warn claim because any alleged false misrepresentation could have been eliminated if PMUSA provided additional warnings on compensatory behavior in its advertising, the court squarely rejected this. Instead, the court stated that "[a]ccepting Philip Morris's argument ... would extend the preemptive reach of the FCLAA to virtually all fraudulent misrepresentation claims, doing violence to Cipollone 's explicit holding that those claims survive preemption." The court also pointed out that because Cipollone requires those alleging a failure-to-warn claim to show that "advertising or promotions should have included additional, or more clearly stated warnings," plaintiffs, here, could not be asserting such a claim because their chosen theory of recovery requires no such showing. After refuting PMUSA's express preemption arguments, and in holding that the district court ruled in error, the court pointed out: [T]hat is the central teaching of Cipollone : the same alleged conduct by a cigarette manufacturer can give rise to a number of claims, some of them preempted and some of them not. (citations omitted) Though ... plaintiffs cannot dodge §1334(b) [§5(b)] by slapping a non-preempted label on a preempted theory, they otherwise remain free to choose from among these potential claims in framing their complaints. On appeal, the court examined PMUSA's implied preemption argument, which rested on the "frustration of purpose" theory. PMUSA maintained that the "plaintiffs' claims conflict with the FTC's 40-year history of regulation and control over the development, testing and marketing of low-tar cigarettes, as well as the reporting of tar and nicotine measurements pursuant to the FTC Method and the use of descriptors substantiated by those measurements." Of its many implied preemption arguments, PMUSA argued that "State-law actions like this one would create a different standard of deceptiveness that would plainly conflict" with the Congress' goals of uniform standards for cigarette advertising. In rejecting this argument, the court said that Congress made no indication that cigarette manufacturers were to be insulated from longstanding rules governing fraud. From here, the court stated that it was not at liberty to address any implied preemption theories premised on the FCLAA as it was bound by the Cipollone majority's holding that §5(b) governs the preemptive scope of the act. The court, however, addressed PMUSA's implied preemption arguments based on the authority the FTC Act grants the FTC to oversee cigarette advertising. Although the court acknowledged that the FTC has jurisdiction to define and enforce "unfair or deceptive acts or practices in or affecting commerce," it rejected the idea that "the degree of federal regulation over a particular industry, no matter how 'comprehensive' or 'detailed,' [could] itself displace state law." If so, this would be "tantamount to saying that whenever a federal agency decides to step into a field, its regulation will be exclusive." The court held that it had to determine whether the FTC's oversight of tar and nicotine claims manifests a federal policy intended to displace conflicting state law. Overall, the court found that the FTC arguably has authority to displace state law through its formal rulemaking authority, but that thus far cigarette manufacturers have voluntarily agreed to disclose tar and nicotine levels, or that the FTC has only entered into consent orders, or filed cease and desist orders, on a case-by-case basis. The court went on to hold that, even if it believed that FTC action "short of formal rulemaking—including consent orders—[could] implicitly preempt state law in some cases," it did not think that this was one of those instances, because "the plaintiffs' state-law claims do not pose a threat to any federal regulatory objectives in the FTC's approach to tar and nicotine claims in cigarette advertising." The court said it could not "discern a coherent federal policy on low-tar claims, let alone one driven by the sort of 'important means-related federal objectives' necessary to preempt conflicting state law." Thus, the court determined that the plaintiffs' claims were not impliedly preempted. Lastly, the court of appeals rejected PMUSA's argument "that its challenged advertising practices constitute '[t]ransactions or actions otherwise permitted under laws as administered by any regulatory board or officer acting under the statutory authority of the United States,' and, as such, are excepted from the [MUTPA]." The court disagreed and found that the consent orders the FTC used with particular tobacco companies were not "an across-the-board approval." Further, the court pointed out that, had the FTC intended to "authorize" these kinds of advertisements, it needed only to exercise its rulemaking authority. At about the same time, the Court of Appeals for the Fifth Circuit issued its opinion in Brown v. Brown & Williamson Tobacco Corp , which also considered the preemptive scope of the FCLAA. The plaintiffs in Brown asserted their claims under the Louisiana Unfair Trade Practices and Consumer Protection Act (LUTPA). They alleged that they were deceived by the tobacco company's marketing into believing that smokers of light cigarettes consume lower tar and nicotine, and that light cigarettes are safer than regular cigarettes. The court of appeals held that the district court erred in applying the predicate duty test when it ruled that the FCLAA did not expressly preempt any of the plaintiffs' state law claims for redhibition, breach of express and implied warranties, and fraudulent misrepresentation and concealment. Like the First Circuit, the Fifth Circuit also examined the FTC Method and the FTC's involvement in regulating cigarette advertising. In this discussion, the court found that following an investigation in 1992, the FTC had reaffirmed its position that "descriptors were not deceptive if substantiated by FTC method results," and that despite knowledge of the weakness in the FTC Method, it "remains the federal mandated standard for cigarette testing." Although the court acknowledged that claims based on fraud and intentional misstatement are not preempted under Cipollone , it declared that the use of "FTC-approved descriptors cannot constitute fraud." In the court's view, "[m]anufacturers are essentially forbidden from making any representations as to the tar and nicotine levels in their marketing about tar that are not based on the FTC method." Therefore, the terms "light" and "lowered tar and nicotine" cannot be inherently deceptive or untrue. The court stated that "to impose state liability on the basis of the Manufacturers' use of the FTC mandated terms is necessarily to impose a state requirement or prohibition on cigarette advertising," because it also found that in order to respond to the plaintiffs' claims, the manufacturers would have to tell the public that the FTC Method was inaccurate. The court therefore held that these fraudulent misrepresentation claims based on the use of FTC-approved descriptors were expressly preempted under §5(b) and the predicate duty test. The court went on to address whether the plaintiffs' claims based on fraudulent concealment of material fact: a) could not be preempted because it relies on a state law duty to disclose facts through channels of communication other than advertising and marketing, or b) could be preempted because it was based on failure to disclose through advertising and marketing. The court found that because concealment claims, by their nature, rely "on an unfulfilled duty to disclose additional information, it [seems] unavoidabl[e] to impose a state law requirement as to marketing and advertising related to smoking and health." The court rejected the holding of a Ninth Circuit case, Rivera v. Philip Morris , upon which plaintiffs relied. In Rivera, the court held that the plaintiffs' failure-to-warn and fraudulent concealment claims were not preempted by the FCLAA because it determined that Nevada's common law duty that requires manufacturers to advise consumers of their products' dangers "does not specify that those disclosures be made through marketing and advertising." The court in Brown disagreed, stating that it "could not accept that the Congress meant to create a system in which cigarette manufacturers have the duty both to conform their advertising and marketing to strict federal standards and simultaneously undercut these representations through other 'means,' as yet undefined." Thus, it held that the FCLAA preempts any state law claim that would require additional communication between companies and consumers; the court, however, affirmed its support that a concealment claim based on the duty to disclose to a state agency or other trade organization may not be preempted. The U.S. Supreme Court affirmed the First Circuit Court of Appeals' opinion that the FCLAA does not expressly or impliedly preempt the respondents' state-law claims. As it had done in Cipollone and Reilly , the Court emphasized that a preemption analysis begins "with the assumption that the historic police power of the State [are] not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress." Therefore, "when the text of a pre-emption clause is susceptible of more than one plausible reading, courts ordinarily 'accept the reading that disfavors pre-emption.'" The Court also discussed the purposes of the FCLAA, noting that "neither [purpose] would be served by limiting the States' authority to prohibit deceptive statements in cigarette advertising." It stated that, although the FCLAA's purposes do not demand the preemption of state fraud rules, the Court would have to decide whether the text of §5(b) requires that result. The Court stated that the predicate duty test must be used to determine whether the common law claim is preempted. The test essentially looks at whether the basis of the statute or common law claim is one of general applicability. If so, then the claim is not preempted. Here, the Court held that the respondents' claims alleged a violation of the duty not to deceive, which happens to be codified in the MUTPA, and has nothing to do with smoking and health. The Court dismissed PMUSA's contention that the respondents' claim is like the "preempted warning neutralization claims because it is based on statements that 'might create a false impression' rather than statements that are 'inherently false.'" The Court stated that there is nothing to suggest "that whether a claim is pre-empted turns in any way on the distinction between misleading and inherently false statements." According to the Court, the extent of the falsehood alleged may be a factor in the respondents' ability to prove its fraud claim, but the merits of the suit are not at issue. PMUSA argued that the Cipollone plurality framework is inconsistent with subsequent Supreme Court cases. Turning to Reilly , the Court distinguished the respondents' claims from the Massachusetts regulations that had been preempted. Although the Attorney General derived his power to create the regulations from a deceptive practices statute like the MUTPA, the prohibitions that Reilly found to be preempted were the regulations themselves, not the deceptive practices statute. Thus, the Court concluded that the FCLAA "pre-empts only requirements and prohibitions —i.e., rules—that are based on smoking and health. The MUPTA says nothing about either 'smoking' or 'health.' It is a general rule that creates a duty not to deceive and is therefore unlike the regulations at issue in Reilly ." Furthermore, the Court dismissed PMUSA's argument that the plurality opinion in Cipollone is inconsistent with the Court's decisions in American Airlines, Inc. v. Wolens , and, more recently, Riegel v. Medtronic . The Court declared that "both cases are inapposite—the first because it involved a pre-emption provision much broader than the Labeling Act's, and the second because it involved precisely the type of state rule that Congress had intended to pre-empt." In Wolens , the preemption provision prohibited states from enacting or enforcing any law "relating to rates, routes, or services of any air carrier." The Court in Wolens concluded that the phrase "'relating to' indicates Congress' intent to pre-empt a large area of state law to further its purpose of deregulating the airline industry." Thus, the Court concluded that Cipollone is not inconsistent because the phrase "based on" describes a more direct, but-for causal relationship than "relating to," which is broader and synonymous with "having a connection with." The Court in Riege l held that the Medical Device Amendments of 1976 (MDA) preempts certain suits under state tort law. According to the Court, the plaintiffs' products liability claims fell within the core of the MDA preemption provision, which provides that no state "'may establish or continue in effect with respect to a device ... any requirement' relating to safety or effectiveness that is different from, or in addition to, federal requirements." The Court found that the Riegel plaintiffs' common law products liability claims "unquestionably sought to enforce 'requirement[s] relating to safety or effectiveness' under the MDA," whereas in Cipollone the plaintiffs' fraud claim was outside the FCLAA's preemptive reach because it did not seek to impose a prohibition based on smoking and health. Accordingly, the Court in Good was able to hold that the respondents' claims here, like those in Cipollone , are not preempted because "the phrase 'based on smoking and health' fairly but narrowly does not encompass the more general duty not to make fraudulent statements." The Court then addressed PMUSA's implied preemption argument that, if respondents were allowed to proceed on their claims, "it would present an obstacle to a longstanding policy of the FTC." According to PMUSA: The FTC has for decades promoted the development and consumption of low tar cigarettes and has encouraged consumers to rely on the representations of tar and nicotine content based on Cambridge Filter (FTC) Method testing in choosing among cigarette brands. Contrary to PMUSA's characterization, the Court found that "the Government itself disavows any policy authorizing the use of 'light' and 'low tar' descriptors." PMUSA based its argument on its assertion that "the FTC has required tobacco companies to disclose tar and nicotine yields in cigarette advertising using a government-mandated testing methodology and has authorized them to use descriptors as shorthand references to those numerical test results." The Court, however, found that "the FTC has in fact never required that cigarette manufacturers disclose tar and nicotine yields, nor has it condoned representations of those yields" through the use of such descriptors. Furthermore, the Court stated that although the FTC failed to require petitioners to correct their descriptors, this omission was not the same as a policy of approval. In sum, the Court held that respondents' claims were not impliedly preempted as "neither the handful of industry guidances and consent orders on which petitioners rely nor the FTC's inaction with regard to 'light' descriptors even arguably justifies the pre-emption of state deceptive practices rules like the MUPTA." The majority, however, noted that despite these claims surviving preemption, respondents still must prove that PMUSA's use of the descriptors did in fact violate the state deceptive practices statute. Justice Thomas wrote the dissenting opinion, which Chief Justice Roberts and Justices Scalia and Alito joined. He began by critiquing the Court's fidelity to Cipollone as unwise, and declared that the Court should "instead provide the lower courts with a clear test that advances Congress' stated goals." He advocated that, instead of relying in Cipollone , the Court adopt the proximate application test and abandon the plurality's predicate duty test because it is "unworkable; it has been overtaken by more recent decisions of this Court; and it cannot be reconciled with a commonsense reading of the text of § 5(b)." The dissent cited various lower courts that have expressed frustration with the Cipollone framework and stated that "[w]e owe far more to lower courts, which depend on this Court's guidance, and to litigants, who must conform their actions to the Court's interpretation of federal law." On this point, Justice Thomas concluded "the Cipollone plurality's test for pre-emption under § 5(b) should be abandoned for this reason alone." To further support this argument, the dissent then wrote that since Cipollone , the Court has changed its doctrinal approach to express preemption, specifically its reliance on the presumption against preemption. Justice Thomas highlighted several post- Cipollone cases that did not consider or address this presumption in order to reach its decision. Although the majority relied on Bates v. Dow Agrosciences , which mentioned presumption, the dissent countered that, although the Court has treated the presumption unevenly, the Court's use of it has waned since Cipollone . Turning to the Court's recent decision in Riegel , Justice Thomas considered it notable that the majority led by Justice Scalia, decided against invoking it so as "to bend the text of the statute to meet the perceived purpose of Congress." He interpreted this as a necessary "rejection of any role for the presumption in construing the statute." The dissent further emphasized Riegel's role in undermining Cipollone in that the Riegel Court "conclusively decided that a common-law cause of action imposes a state-law 'requirement' that may be pre-empted by federal law." Justice Thomas added that Reilly also undermined the Cipollone plurality's reading of §5(b) because it did not use the Cipollone plurality's analysis when it analyzed the regulations enacted by the Attorney General. The dissent noted that the Court in Reilly concluded that the regulations were preempted "because they were 'motivated by' and 'intertwined with' the concerns about smoking and health," thereby expanding the preemptive reach of §5(b). Therefore, Reilly "is better understood as establishing that even a general duty can impose requirements or prohibitions based on smoking and health. Reilly weakened the force of the ... 'predicate-duty' approach to the pre-emptive effect of § 5(b) and cast[s] doubt on its continuing utility." Justice Thomas concluded the opinion by applying the proximate application test. Here, he determined that the respondents' claim would be preempted because "liability in this case ... is premised on the effect of smoking on health," and that "a judgment in respondents' favor will ... result in a 'requirement' that petitioners represent the effects of smoking ... in their advertising and promotion of light cigarettes." According to the dissent, this is the kind of lawsuit that the FCLAA preempts. However, the dissent had pointed out that under the text of §5(b), Congress preempted only those claims that would impose requirements or prohibitions based on smoking and health. Thus, in the dissent's view, if a cigarette manufacturer were to falsely advertise its products as "American-made," or "the official cigarette of the Major League Baseball," such state-law claims arising from this kind of wrongful behavior would not be preempted. After the Court's decision in Good , it remains to be seen whether even more suits will be initiated against cigarette manufacturers under state fraud statutes with regard to light and low-tar descriptors. According to the Court's decision, Congress had no intent to preempt these types of claims. Although it appears that plaintiffs who assert claims under states' unfair trade and deceptive practices statutes seek to recover sums spent on the purchase of light cigarettes, rather than health-related injuries, only future litigation will reveal if, as the dissent predicted, jury verdicts that are favorable to plaintiffs ultimately result in a requirement that manufacturers represent the effects of smoking in their advertising and promotion. If so, such requirements could be considered inconsistent with the purposes of the FCLAA. Additionally, should the FTC issue formal rules that authorize light and low-tar descriptors, it is possible that this action by the agency could ultimately preempt state-law claims for deceptive practices or fraud as the First Circuit suggested. If H.R. 1256 , the Family Smoking Prevention and Tobacco Control Act, discussed infra , becomes law, the FTC may lack the authority to use its rulemaking to regulate light and low-tar descriptors in cigarette advertising. Furthermore, even though the Court clarified the FCLAA's preemptive effect with regard to state common law fraud claims for light and low-tar descriptors, and adopted the methodology of the Cipollone plurality as governing law, lower courts may continue to have difficulty using the predicate duty test in determining whether other state common law claims are preempted. The Court rejected PMUSA's argument that the respondents' claims amounted to a failure-to-warn claim stating that such an analysis was not applicable to the claim. However, the Court acknowledged that "respondents' allegations ... could also support a warning neutralization claim. But respondents did not bring such a claim." Thus, it would appear, as the First Circuit pointed out, that "Plaintiffs suing tobacco companies must assert a broad range of causes of action in order to avoid the pitfalls of preemption." This could have the effect, as PMUSA had argued, of "elevating form over substance and allow parties to evade the preemptive scope of a statute simply by relabeling their ... claims." There is also the possibility that the Court's decision will affect preemption jurisprudence. In reaching its decision, the Court relied on the doctrine of "presumption against preemption," stating that "when the test of a pre-emption clause is susceptible of more than one plausible reading, courts ordinarily 'accept the reading that disfavors pre-emption.'" However, as the dissent emphasized, the Court's reliance on this doctrine has waned in recent preemption cases, citing decisions such as Rowe v. New Hampshire Motor Transp. Ass'n. , Engine Mfs. Ass'n v. South Coast Air Quality Management Dist. , Buckman Co. v. Plaintiffs' Legal Comm. , United States v. Locke , and Geier v. American Honda Motor Corp . Although it appears that the Court is choosing to apply this presumption on a case-by-case basis, such as in Good and Wyeth v. Levine , this could have the effect of raising issues within other regulated industries as to "whether there is a presumption against preemption, and, if so, when it applies and how strong it is, and how much deference courts should give to the federal agency's decision." On April 2, 2009, the House passed H.R. 1256 , the Family Smoking Prevention and Tobacco Control Act. The bill would give the Food and Drug Administration (FDA) the authority to regulate the production and marketing of tobacco products. Although it would not amend §5(b) of the FCLAA, it includes other provisions that may affect the kinds of lawsuits that are allowed to be initiated in the aftermath of the Good decision. Among its many provisions, the Family Smoking Prevention and Tobacco Control Act would: require manufacturers to obtain FDA approval in order to market "modified risk" tobacco products, i.e., products that the manufacturer claims, explicitly or implicitly, will reduce the risk of tobacco-related disease or reduce exposure to potentially harmful substances (including products using descriptors such as "light," "mild," and "low"); require that the advertising and labeling of modified risk tobacco products enable the public to comprehend the product's risk in the context of all tobacco-related health risks; preempt any state or locality from establishing or continuing any requirement which is different from, or in addition to, the act's modified risk tobacco product provisions; and amend FCLAA Section 5 by creating a new exception that allows states and localities to regulate the time, place, and manner, but not the content of cigarette advertising and promotion. First, H.R. 1256 appears to address Reilly 's finding that the FCLAA preempted Massachusetts regulations that prohibited outdoor advertising for cigarettes in certain locations because they were based on smoking and health. By creating an exception to §5(b) that would allow states to enact statutes and/or promulgate regulations, based on smoking and health, that regulate the time, place, and manner, but not content of any tobacco advertising, subject to any First Amendment challenge, H.R. 1256 seems to preserve the narrow preemptive effect of §5(b) and framework of the Cipollone plurality while giving states the authority to regulate in other aspects of tobacco advertising. Second, the new general preemption provision and framework for approving modified tobacco risk products of H.R. 1256 might affect future cases where plaintiffs wish to assert a common law claim that low-tar or light descriptors fraudulently conveyed the message that such cigarettes deliver less tar and nicotine than do regular brands. Although Good established that such claims were not preempted under §5(b), future claims regarding light cigarettes may be preempted under this new general preemption provision because cigarettes that use such descriptors in their label, labeling, or advertising would be considered "modified tobacco risk products." H.R. 1256 's general preemption provision would prevent states from establishing or continuing any "requirement which is different from, or in addition to" the requirements in the statute relating to, among other things, modified risk tobacco products. As the Court in Riegel v. Medtronic, Inc. determined, "[a]bsent other indication, [statutory] reference to a State's 'requirements' includes its common law duties." Accordingly, "requirements" in this general preemption provision could include common law claims. Therefore, persons who eventually purchase and smoke products that have been approved as modified risk tobacco products may be preempted from asserting common law claims involving light or low-tar descriptors.
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The Supreme Court issued its decision in Altria Group., Inc. v. Good on December 15, 2008. The Court, by a vote of 5-4, held that the Federal Cigarette Labeling and Advertising Act (FCLAA) neither expressly nor impliedly preempted state law claims of fraud. In this decision the Court examined the preemptive effect of section 5(b) of the act (15 U.S.C. §1334(b)) with regard to the claim that light or low-tar nicotine descriptors in cigarette advertising violated the Maine Unfair Trade Practices Act. The decision resolved a split between the circuits—the First Circuit Court of Appeals had ruled that the FCLAA did not preempt the plaintiffs' claim and the Fifth Circuit Court of Appeals, hearing a similar case, ruled that the FCLAA preempted such state-law claims. This report provides an overview of section 5 of the FCLAA and how it was amended in 1969; additionally, it examines the previous Supreme Court cases, Cipollone v. Liggett Group, Inc. and Lorillard Tobacco Co. v. Reilly, that interpreted the preemptive scope of section 5. Both parties in Good relied on these cases to argue that the FCLAA either preempts or does not preempt state law claims of fraud. This report also discusses the lower court decisions that were issued prior to examining the Court's decision in Good. Finally, there is a discussion of potential issues that may arise out of the Court's decision, such as its impact on future litigation and preemption jurisprudence, in addition to the effect that H.R. 1256, the Family Smoking Prevention and Tobacco Control Act, may have upon the Court's ruling.
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